UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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 HOLDINGS 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.) | |
| ||
141 West Jackson Blvd, Suite 4236 Chicago, Illinois | 60604 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (312) 536-3102
N/A
(Former name, former address and former three months, if changed since last report)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 x 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 | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | x |
(Do not check if a smaller reporting company) | Emerging growth company | o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 21, 2018 there were 13,495,394 shares issued and 13,336,705 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
3 | |||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 29 | ||||
36 | |||||
36 | |||||
37 | |||||
Unregistered Sales of Equity Securities and Use of Proceeds. | 37 | ||||
37 | |||||
37 | |||||
37 | |||||
38 | |||||
39 |
2 |
Table of Contents |
PART I - FINANCIAL INFORMATION
COSMOS HOLDINGS, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
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| March 31, 2018 |
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| December 31, 2017 |
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| (Unaudited) |
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ASSETS | ||||||||
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 1,328,047 |
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| $ | 782,853 |
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Accounts receivable |
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| 2,234,980 |
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| 1,255,596 |
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Accounts receivable - related party |
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| 538,303 |
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| 171,392 |
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Inventory |
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| 2,072,003 |
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| 3,093,521 |
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Prepaid expenses and other current assets |
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| 2,036,627 |
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| 1,482,192 |
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Prepaid expenses and other current assets - related party |
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| 3,839,654 |
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| 2,724,972 |
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TOTAL CURRENT ASSETS |
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| 12,049,614 |
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| 9,510,526 |
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Other assets |
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| 1,188,869 |
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| 1,008,579 |
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Property and equipment, net |
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| 126,984 |
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| 114,567 |
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Intangible assets, net |
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| 40,019 |
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| 41,994 |
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TOTAL ASSETS |
| $ | 13,405,486 |
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| $ | 10,675,666 |
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LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
| $ | 1,895,930 |
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| $ | 1,778,333 |
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Accounts payable and accrued expenses - related party |
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| 782,554 |
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| 387,847 |
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Convertible notes payable, net of unamortized discount of $2,775,157 and $2,989,110, respectively |
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| 300,484 |
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| 121,604 |
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Notes payable, net of unamortized discount of $49,578 and $126,763, respectively |
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| 12,416,920 |
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| 9,951,745 |
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Notes payable - related party |
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| 86,856 |
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| 97,979 |
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Loans payable - related party |
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| 899,414 |
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| 7,213 |
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Taxes payable |
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| 1,443,067 |
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| 1,358,789 |
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TOTAL CURRENT LIABILITIES |
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| 17,825,225 |
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| 13,703,510 |
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TOTAL LIABILITIES |
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| 17,825,225 |
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| 13,703,510 |
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Commitments and Contingencies (see Note 9) |
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| - |
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| - |
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STOCKHOLDERS' DEFICIT: |
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Preferred stock, $0.001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively |
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| - |
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| - |
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Common stock, $0.001 par value; 300,000,000 shares authorized; 12,825,393 and 12,825,393 shares issued and 12,666,704 and 12,666,704 outstanding as of March 31, 2018 and December 31, 2017, respectively |
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| 12,825 |
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| 12,825 |
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Additional paid-in capital |
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| 7,451,390 |
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| 5,652,429 |
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Accumulated other comprehensive loss |
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| (1,520,283 | ) |
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| (1,385,229 | ) |
Accumulated deficit |
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| (10,267,789 | ) |
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| (7,211,987 | ) |
Treasury Stock |
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| (95,882 | ) |
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| (95,882 | ) |
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TOTAL STOCKHOLDERS' DEFICIT |
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| (4,419,739 | ) |
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| (3,027,844 | ) |
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| $ | 13,405,486 |
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| $ | 10,675,666 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3 |
Table of Contents |
COSMOS HOLDINGS, INC. | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
(Unaudited) | ||||||||
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| Three Months Ended March 31, |
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| 2018 |
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| 2017 |
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REVENUE |
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Revenue |
| $ | 11,965,429 |
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| $ | 4,115,916 |
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COST OF REVENUE |
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| 11,355,433 |
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| 3,752,224 |
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GROSS PROFIT |
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| 609,996 |
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| 363,692 |
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OPERATING EXPENSES |
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General and administrative expenses |
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| 751,748 |
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| 393,494 |
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Depreciation and amortization expense |
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| 7,796 |
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| 5,142 |
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Impairment of goodwill |
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| - |
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| 1,949,884 |
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TOTAL OPERATING EXPENSES |
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| 759,544 |
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| 2,348,520 |
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LOSS FROM OPERATIONS |
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| (149,548 | ) |
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| (1,984,828 | ) |
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OTHER INCOME (EXPENSE) |
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Interest expense - related party |
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| (66 | ) |
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| (66 | ) |
Interest expense |
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| (286,578 | ) |
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| (110,128 | ) |
Non-cash interest expense |
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| (1,284,012 | ) |
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| - |
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Other expense |
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| (2,778 | ) |
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| (11,650 | ) |
Forgiveness of debt |
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| 49,623 |
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| - |
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Loss on extinguishment of debt |
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| (1,464,698 | ) |
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| - |
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Foreign currency transaction gain |
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| 82,283 |
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| 72,970 |
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TOTAL OTHER EXPENSE |
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| (2,906,226 | ) |
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| (48,874 | ) |
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LOSS BEFORE INCOME TAXES |
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| (3,055,774 | ) |
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| (2,033,702 | ) |
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INCOME TAX EXPENSE |
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| (28 | ) |
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| (32 | ) |
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NET LOSS |
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| (3,055,802 | ) |
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| (2,033,734 | ) |
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OTHER COMPREHENSIVE LOSS |
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Foreign currency translation loss |
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| (135,054 | ) |
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| (15,019 | ) |
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TOTAL OTHER COMPREHENSIVE LOSS |
| $ | (3,190,856 | ) |
| $ | (2,048,753 | ) |
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BASIC AND DILUTED NET LOSS PER SHARE |
| $ | (0.24 | ) |
| $ | (0.16 | ) |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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Basic and Diluted |
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| 12,825,393 |
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| 12,679,609 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 |
Table of Contents |
COSMOS HOLDINGS, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
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| Three Months Ended March 31, |
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| 2018 |
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| 2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | (3,055,802 | ) |
| $ | (2,033,734 | ) |
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: |
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Depreciation and amortization expense |
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| 7,796 |
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| 5,142 |
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Amortization of debt discounts |
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| 1,284,012 |
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| 15,466 |
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Loss on extinguishment of debt |
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| 1,464,698 |
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| - |
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Gain on forgiveness of debt |
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| (49,623 | ) |
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| - |
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Stock-based compensation |
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| 59,671 |
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| 87,246 |
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Loss on goodwill impairment |
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| - |
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| 1,949,884 |
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Changes in Assets and Liabilities: |
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Accounts receivable |
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| (979,384 | ) |
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| (377,446 | ) |
Accounts receivable - related party |
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| (366,911 | ) |
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| - |
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Inventory |
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| 1,021,518 |
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| 99,894 |
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Prepaid expenses |
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| (554,435 | ) |
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| (991,069 | ) |
Prepaid expenses - related party |
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| (1,114,682 | ) |
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| (45,076 | ) |
Other assets |
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| (180,290 | ) |
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| (67,832 | ) |
Accounts payable and accrued expenses |
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| 117,597 |
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| 663,381 |
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Accounts payable and accrued expenses - related party |
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| 394,707 |
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| (12,910 | ) |
Taxes payable |
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| 84,283 |
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| 48,508 |
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NET CASH USED IN OPERATING ACTIVITIES |
| $ | (1,866,845 | ) |
| $ | (658,546 | ) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of fixed assets |
| $ | (12,307 | ) |
| $ | (3,972 | ) |
Cash received from acquisition |
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| - |
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| 40,858 |
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
| $ | (12,307 | ) |
| $ | 36,886 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payment of convertible note payable |
| $ | (775,285 | ) |
| $ | - |
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Payment of related party note payable |
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| (13,552 | ) |
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| (26,745 | ) |
Payment of note payable |
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| - |
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| (339,127 | ) |
Proceeds from note payable |
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| 2,273,040 |
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| 312,496 |
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Payment of related party loan |
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| (142,248 | ) |
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| (29,954 | ) |
Proceeds from related party loan |
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| 1,034,270 |
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| 424,305 |
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Payment of loans payable |
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| - |
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|
| (6,419 | ) |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
| $ | 2,376,225 |
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| $ | 334,556 |
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Effect of exchange rate changes on cash |
| $ | 48,121 |
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| $ | (32,180 | ) |
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NET INCREASE IN CASH |
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| 545,194 |
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| (319,284 | ) |
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CASH AT BEGINNING OF PERIOD |
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| 782,853 |
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| 716,590 |
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CASH AT END OF PERIOD |
| $ | 1,328,047 |
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| $ | 397,306 |
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Supplemental Disclosure of Cash Flow Information |
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Cash paid during the period: |
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Interest |
| $ | 246,194 |
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| $ | 61,075 |
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Income Tax |
| $ | - |
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| $ | - |
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Supplemental Disclosure of Non-Cash Investing and Financing Activities |
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Acquisition of Decahedron |
| $ | - |
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| $ | 1,479,000 |
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Reversal of proceeds due from noteholder due to repayment of note |
| $ | - |
|
| $ | 10,698 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
NOTE 1 – BASIS OF PRESENTATION
The terms “COSM,” “we,” “the Company,” and “us” as used in this report refer to Cosmos Holdings Inc. The accompanying unaudited consolidated balance sheet as of March 31, 2018 and unaudited consolidated statements of operations for the three months ended March 31, 2018 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 months ended March 31, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2017 and 2016, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2017 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. Certain prior year amounts have been reclassified to conform to current year presentation.
NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
Cosmos Holdings, Inc. ("us", "we", or the "Company") was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009. On November 14, 2013, we changed our name to Cosmos Holdings Inc.
On September 27, 2013, the Company, closed a reverse take-over transaction by which it acquired a private company whose principal activities are the trading of products, providing representation, and provision of consulting services to various sectors. Pursuant to a Share Exchange Agreement between the Registrant and Amplerissimo Ltd, a company incorporated in Cyprus (“Amplerissimo”), the Company acquired 100% of Amplerissimo’s issued and outstanding common stock. As a result of the reverse take-over transaction, Amplerissimo became a wholly-owned subsidiary of the Company.
On August 1, 2014, the Company, through its Cypriot subsidiary Amplerissimo, formed SkyPharm S.A. a Greek corporation (“SkyPharm”) a subsidiary that focuses on the trading, sourcing and distribution of pharmaceutical products.
In February 2017, the Company completed the acquisition of Decahedron Ltd, a UK corporation (“Decahedron”) consummating the transactions contemplated by the Stock Purchase Agreement, dated November 17, 2016 as amended (the “Decahedron SPA”). Pursuant to the terms of the Decahedron SPA, the shareholders of Decahedron received an aggregate of 170,000 shares of common stock of the Company (the “Stock Consideration”), which were delivered following the closing in exchange for all of the Ordinary Shares of Decahedron for the Stock Consideration. Decahedron is a fully licensed wholesaler of pharmaceutical products and its primary activity is the distribution, import and export of pharmaceuticals. In accordance with the terms of the SPA, Mr. Lazarou remained as a director and officer of Decahedron.
On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of Common Stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements.
6 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
The Company is one of the world’s most rapidly growing pharmaceutical trading, sourcing and distribution companies. We are currently focusing on expanding the existing operations of our subsidiaries and continuing to make progress towards becoming a Global Specialty Pharmaceutical Company. The Company’s focus is on Branded Pharmaceuticals, Over-the-Counter (OTC) medicines, and Generic Pharmaceuticals. The Company also intends to enter the nutraceutical market and to continue to target areas where we can build and maintain a strong position. The Company uses a differentiated operating model based on a lean, nimble, and decentralized structure, with emphasis on actively pursuing low risk license acquisitions, as well as investing in Research & Development, particularly on pharmaceutical and nutraceutical products with inherently lower risk profiles and clearly defined regulatory pathways. Our operating model and the execution of our Corporate Strategy are enabling the Company to adapt to market realities and customer needs, achieve sustainable growth, and create shareholder value.
We regularly evaluate and, where appropriate, execute on opportunities to expand through the acquisition of branded pharmaceutical products and pharmaceutical companies in areas that will serve patients that we believe will offer above average growth characteristics and attractive margins. In particular, we look to continue to enhance our pharmaceutical and over the counter product lines by acquiring or licensing rights to additional products and regularly evaluate selective acquisition and licensing opportunities.
We believe that the demand for reasonably-priced medicines, delivered in the highest quality, and constantly matching the requirements of reliable and comprehensive medical care, is set to increase in the years to come, with the population’s increasing life expectancy. With our product portfolio of non-patented and patented medicines, we contribute to the optimization of efficient medicinal care, and thereby to lowering costs both for health insurance funds and companies and for patients.
Our principal office is located at 141 W. Jackson Blvd, Suite 4236, Chicago, Illinois 60604 Telephone: 312-536-3102. The Company's website can be found at the following URL: www.cosmosholdingsinc.com.
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 generated a net loss of $3,055,802 for the three months ended March 31, 2018 and has a working capital deficit of $5,775,611 and an accumulated deficit of $10,267,789 as of March 31, 2018. These conditions raise substantial doubt of the Company’s ability to continue as a going concern. The Company has not yet established an adequate ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by sale of equity. 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 in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with principles generally accepted in the United States of America.
Principles of Consolidation
Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, Amplerissimo Ltd, SkyPharm S.A. and Decahedron Ltd. All significant intercompany balances and transactions have been eliminated.
7 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Reclassifications to Prior Period Financial Statements and Adjustments
Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation. These reclassifications have no impact on previously reported net income.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2018 and December 31, 2017, there were no cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars and in the Republic of Cyprus, in Greece and in Bulgaria all of them denominated in Euros. The Company also maintains bank accounts in the United Kingdom of Great Britain, dominated in Euros and Great Britain Pound (British Pounds Sterling).
Account Receivable
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.
Tax Receivables
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiary in Greece, SkyPharm S.A., does not charge VAT for sales to wholesale drug distributors registered in other European Union member states.
Inventory
Inventory is stated at the lower of cost or market value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e. packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
We write-down inventories to net realizable value based on forecasted demand and market conditions, which may differ from actual results.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided 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 | |||
Furniture and fixtures | 5-7 years | ||
Office and computer equipment | 3-5 years |
Depreciation expense was $5,667 and $3,168 for the three months ended March 31, 2018 and 2017, respectively.
Intangible Assets
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 5 years for an import/export license. 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. At March 31, 2018, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $2,129 and $1,974 for the three months ended March 31, 2018 and 2017, respectively.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Goodwill and Intangibles
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
Prior to the acquisition of Decahedron, the Company had no recorded goodwill value. As a result of the acquisition of Decahedron, the Company tested and expensed 100% of the goodwill allocated to the acquisition costs, an amount equal to $1,949,884 for the period ending March 31, 2017.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Fair Value Measurement
The Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
The Company did not have any Level 2 or Level 3 assets or liabilities as of March 31, 2018.
Cash is considered to be highly liquid and easily tradable as of March 31, 2018 and therefore classified as Level 1 within our fair value hierarchy.
In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Revenue Recognition
The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed below.
Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.
Stock-based Compensation
The Company records stock based compensation in accordance with ASC section 718, “Stock Compensation” and Staff Accounting Bulletin (SAB) No. 107 (SAB 107) issued by the SEC in March 2005 regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees”.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Foreign Currency Translations and Transactions
Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated.
Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net earnings.
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in the Republic of Cyprus, Greece and the United Kingdom of England. The corporate income tax rate in Cyprus is 12.5%, 29% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 20% in United Kingdom of England. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At March 31, 2018 the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
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. As of March 31, 2018 the Company has no uncertain tax positions recorded in any jurisdiction where it is subject to income tax.
Basic and Diluted Net Income (Loss) per Common Share
Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the periods presented. The per share amounts include the dilutive effect of common stock equivalents in periods with net income. Basic and diluted net loss per share for each of the periods ended March 31, 2018 and 2017 is the same due to the anti-dilutive nature of potential common stock equivalents.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the measurement of goodwill by eliminating Step 2 from the current goodwill impairment test in the event that there is evidence of an impairment based on qualitative or quantitative assessments. ASU 2017-04 does not change how the goodwill impairment is identified, and the Company will continue to perform a qualitative assessment annually to determine whether the two step impairment test is required. Until the adoption, current accounting standards require the impairment loss to be recognized under Step 2 of the impairment test. This requires the Company to calculate the implied fair value of goodwill by assigning fair value to the reporting unit’s assets and liabilities as if the reporting unit has been acquired in a business combination, then subsequently subtracting the implied goodwill from the carrying amount of the goodwill. The new standard would require the Company to determine the fair value of the reporting unit and subtract the carrying value from the fair value of the reporting unit to determine if there is an impairment. ASU 2017-04 is effective for the Company for fiscal years after December 15, 2019, and early adoption is permitted. ASU 2017-04 is required to be adopted prospectively, and the adoption is effective for annual goodwill impairment tests performed in the year of adoption. The Company does not believe that the adoption of ASU No. 2017-04 will have a material effect on the Company’s consolidated financial position or the Company’s consolidated results of operations
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as an acquisition of assets or a business. ASU No. 2017-01 is effective for the Company’s fiscal year commencing on January 1, 2018. The effect of this guidance is to be applied prospectively and early adoption is permitted. The Company does not believe that the adoption of ASU No. 2017-01 will have a material effect on the Company’s consolidated financial position or the Company’s consolidated results of operations.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. The changes become effective for the Company’s fiscal year beginning July 1, 2019. Modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. The Company expects this ASU will increase its current assets and current liabilities, but have no net material impact on its consolidated financial statements.
In July 2015, the Financial Accounting Standards Board issued Simplifying the Measurement of Inventory, Topic 0330 (ASU No 2015-11). ASU 2015-11 changes the measurement principle for inventory from the lower of cost or market to lower of cost or net realizable value. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016. The Company adopted this standard in the first quarter of fiscal 2017, applying it prospectively. The adoption of ASU 2015-11 did not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09-Revenue from Contracts with Customers (Topic 606). The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB delayed the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In addition, in March and April 2016, the FASB issued new guidance intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. Both amendments permit the use of either a retrospective or cumulative effect transition method and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early application permitted. As of January 1, 2018, the Company has adopted the ASC 606 – Revenue from Contracts with Customers and recognizes revenue at the point in time at which the customer obtains control of the entity and the Company has satisfied its performance obligations. The adoption of ASC 606 did not materially impact the timing or amount of revenues that would otherwise be recognized.
NOTE 3 – ACQUISITION OF DECAHEDRON, LTD.
On February 10, 2017, the Company completed the acquisition pursuant to the Decahedron SPA acquiring 100% of the outstanding shares of Decahedron, a United Kingdom company. Decahedron is a pharmaceuticals wholesaler which specializes in imports and exports of branded and generic pharmaceutical products within the EEA and around the world. At closing, the Company acquired 100% of Decahedron’s outstanding shares in exchange for 170,000 shares of Cosmos common stock valued at $1,479,000 (the “Acquisition”).
The Company recognized cash of $40,858 acquired on acquisition. The Company recognized the remaining Decahedron assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Decahedron has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the license held by Decahedron for the wholesale of pharmaceuticals in the United Kingdom and Europe, the remainder was allocated to goodwill, none of which is tax deductible.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
During the year ended December 31, 2017, we recorded an adjustment of $28,002 primarily related to other assets and an adjustment of the accounts payable associated with the Decahedron acquisition. We finalized our allocation of the purchase price during the year ended December 31, 2017. The final allocation of the purchase price as of December 31, 2017, is as follows:
| Preliminary Allocation as of | |||||||||||
| February 10, |
| Allocation |
| Final | |||||||
| 2017 |
| Adjustments |
| Allocation |
| ||||||
Current assets |
| $ | 6,537 |
| $ | - |
| $ | 6,537 |
| ||
Intangible assets |
| 50,000 |
| - |
| 50,000 |
| |||||
Other assets |
| 305,400 |
| (216,562 | ) |
| 88,838 |
| ||||
Total assets acquired |
| 361,937 |
| (216,562 | ) |
| 145,375 |
| ||||
Liabilities assumed: |
| |||||||||||
Debt |
| 804,819 |
| (188,560 | ) |
| 616,259 |
| ||||
Total liabilities assumed |
| 804,819 |
| (188,560 | ) |
| 616,259 |
| ||||
Net assets acquired |
| (442,882 | ) |
| (28,002 | ) |
| (470,884 | ) | |||
Consideration: |
| |||||||||||
Value of Common Stock Issued at Acquisition |
| 1,479,000 |
| - |
| 1,479,000 |
| |||||
Goodwill |
| $ | 1,921,882 |
| $ | 28,002 |
| $ | 1,949,884 |
The components of the acquired intangible assets were as follows (in thousands):
| Amount |
| Useful Life (Years) |
| ||||
Licenses (a) |
| $ | 50,000 |
| 5 | |||
| $ | 50,000 |
| - |
_____________
(a) U.K Pharmaceutical Wholesale Distribution License
Unaudited Supplemental Pro Forma Data
The unaudited pro forma statements of operations data for the three months ended March 31, 2018 and 2017, below, give effect to the Decahedron Acquisition, described above, as if it had occurred at January 1, 2017. These amounts have been calculated after applying our accounting policies and adjusting the results of Decahedron intangible amortization that would have been charged assuming the fair value adjustments had been applied and incurred since January 1, 2017. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations.
Revenue of $426,798 and net loss of $33,977 since the acquisition date are included in the consolidated statement of operations and comprehensive income (loss) for three months ended March 31, 2017.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Unaudited pro forma results of operations for the three months ended March 31, 2018 and 2017 as though the Company acquired Decahedron on the first day of each fiscal year are set forth below.
|
| Three Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Revenues |
| $ | 11,965,429 |
|
| $ | 4,309,363 |
|
Cost of revenues |
|
| 11,355,433 |
|
|
| 3,951,657 |
|
Gross profit |
|
| 609,996 |
|
|
| 357,706 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
| 759,544 |
|
|
| 2,376,517 |
|
Operating loss |
|
| (149,548 | ) |
|
| (2,018,811 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
| (2,906,226 | ) |
|
| (86,516 | ) |
|
|
|
|
|
|
|
|
|
Income tax (expense) |
|
| (28 | ) |
|
| (32 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (3,055,802 | ) |
| $ | (2,105,359 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
| (135,054 | ) |
|
| (15,019 | ) |
Comprehensive net loss |
| $ | (3,190,856 | ) |
| $ | (2,120,378 | ) |
The purchase price exceeded the estimated fair value of the net assets acquired by $1,949,884 which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from Decahedron and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. At the conclusion of the acquisition, goodwill was reviewed for impairment and it was determined that indicators of impairment existed.
As of March 31, 2017, after our assessment of the totality of the events that could impair goodwill, it was the Company’s conclusion “it is more likely than not” that the Goodwill was impaired. As a result of the Company’s assessment, 100% of the goodwill of $1,949,884 was recorded as an impairment of goodwill.
NOTE 4 – INCOME TAXES
At March 31, 2018, the Company’s effective tax rate differs from the US federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in all jurisdictions in which the Company operates. At December 31, 2017, the Company’s effective tax rate differed from the US federal statutory tax rate primarily due to earnings taxed at the lower income tax rate in Cyprus.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At March 31, 2018, the Company has a maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
As of March 31, 2018, the Company has no uncertain tax positions recorded in any jurisdiction where it is subject to income tax. The Company has recorded $22,060 of interest and penalties as interest expense for the three months ended March 31, 2018 in accordance with this policy.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
NOTE 5 – CAPITAL STRUCTURE
Reverse Stock Split
On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of Common Stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements.
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, which have liquidation preference over the common stock and are non-voting. As of March 31, 2018, and December 31, 2017, no preferred shares have been issued.
Common Stock
The Company is authorized to issue 300 million shares of common stock and had issued 10,000,000 in connection with the merger and had 2,558,553 shares issued prior to the merger with Amplerissimo.
On September 27, 2013, the Company completed the acquisition of Amplerissimo through the issuance of 10,000,000 shares of Common Stock to Dimitrios Goulielmos, the sole shareholder of Amplerissimo, the Company had 12,558,553 shares of Common Stock issued and outstanding.
On February 10, 2017, the Company and Decahedron consummated the acquisition of Decahedron SPA. Pursuant to the terms of the Decahedron SPA, the shareholders of Decahedron received an aggregate of 170,000 shares of common stock of the Company, which were delivered at closing in exchange for all of the Ordinary Shares of Decahedron for the Stock Consideration.
Purchase of Treasury Shares
On December 19, 2017, the Company entered into a stock purchase agreement with an officer and director of the Company, whereby for consideration of €80,000 ($94,495) the Company will repurchase 20,000 shares of its common stock. As per the agreement, the sale and transfer of the shares will occur on December 19, 2017, the date of signing, however the Company is entitled to pay the full consideration in tranches until July 2018. As of December 31, 2017, the Company paid consideration of €28,000 ($33,073) and had an amount due to related party of €52,000 ($61,422). The shares were returned to the Company in February 2018. During the three months ended March 31, 2018, the Company paid additional consideration of €32,000 ($39,424) and had an amount due to related party of €20,000 ($24,640) as of March 31, 2018.
Shares Issued for Services
On March 1, 2017, the Company entered into a four-month consulting agreement with a third party investment advisory firm for consideration of 500 restricted shares of common stock to be issued during the period of the agreement for any introductions and related contributions the Company receives as a result of those introductions. As of March 31, 2018, no consideration has been earned and no shares have been issued related to this agreement.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
On May 25, 2017, the Company entered into a 20-month consulting agreement with a third party advisory firm for consideration of 20,000 shares of the Company’s common stock. The stock was issued on May 25, 2017 and fair valued at $7.70 per share or $154,000, which will be amortized over the length of the agreement. During the year ending December 31, 2017, the Company recorded $56,138 in consulting expense related to this agreement. During the three months ended March 31, 2018 an additional $22,759 in consulting expense was recorded.
Potentially Dilutive Securities
On January 1, 2018, the Company granted 25,000 options to an employee of the Company as compensation for being appointed the International Finance Manager of the Company. The options have an exercise period of four years with an exercise price of $1.00 per share. In the event that he ceases to work for the Company for any reason, he will be entitled to a pro rata portion of the annual options. The options vest monthly with 6,250 options fully vested as of March 31, 2018 (See Note 11).
As of March 31, 2018, and December 31, 2017, the Company had 12,825,393 and 12,825,393 shares of Common Stock issued and 12,666,704 and 12,666,704 shares of Common Stock, respectively, outstanding.
No options, warrants or other potentially dilutive securities other than those disclosed above have been issued as of March 31, 2018.
NOTE 6 – RELATED PARTY TRANSACTIONS
On the date of our inception, we issued 20 million shares of our common stock to our three officers and directors which were recorded at no value (offsetting increases and decreases in Common Stock and Additional Paid in Capital).
DOC Pharma S.A.
As of March 31, 2018, and 2017, the Company has a prepaid balance of €1,373,975 ($1,692,737) and an accounts payable balance of €122,928 ($151,447), resulting in a net prepaid balance, related to purchases of inventory, of €1,251,047 ($1,541,290) at March 31, 2018 to DOC Pharma S.A. During the three months ended March 31, 2018, the Company has purchased a total of €1,257,618 ($1,545,486) of products from DOC Pharma. During the three months ended March 31, 2017, the Company has purchased a total of €582,613 ($621,124) of products from DOC Pharma.
On November 1, 2015, the Company entered into a €12,000 ($12,662) Loan Agreement with DOC Pharma S.A., pursuant to which DOC Pharma S.A., paid existing bills of the Company in the amount of €12,000 ($12,662), excluding the Vendor Bills. The loan bears an interest rate of 2% per annum and was due and payable in full on October 31, 2016. As of March 31, 2018, the Company has an outstanding principal balance under this note of €12,000 ($14,784) and accrued interest expense of $638.
Medihelm S.A
As of March 31, 2018, the Company has an outstanding payable balance due to Medihelm S.A. of £539,607 ($756,907). Medihelm’s managing director is the mother of Nikolaos Lazarou, the director of Decahedron. Additionally, the Company has a receivable balance of €436,934 ($538,303) and a prepaid balance, related to purchases of inventory, of €1,865,555 ($2,298,364) as of March 31, 2018. During the three months ended March 31, 2018, SkyPharm purchased €2,972,449 ($3,652,842) and Decahedron purchased £313,719 ($436,696) of products from Medihelm. SkyPharm generated revenue from Medihelm of €386,111 ($474,492). During the three months ended March 31, 2017, SkyPharm purchased €932,677 ($994,327) and Decahedron purchased £45,349 ($56,228) of products from Medihelm. SkyPharm generated revenue from Medihelm of €304,234 ($324,344).
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Grigorios Siokas
On October 1, 2016, the Company borrowed €5,000 ($5,276) from Mr. Siokas, CEO, related to its subsidiary’s purchase of additional capital of SkyPharm. The loan is non-interest bearing and has a maturity date of October 1, 2017. During the year ending December 31, 2017, the Company borrowed an additional €1,000 ($1,202). The outstanding balance as of March 31, 2018 was €6,000 ($7,392).
During the three months ended March 31, 2018, the Company borrowed €644,700 ($794,270) as loans payable from Mr. Siokas and repaid €14,000 ($17,248) of those loans. These loans are non-interest bearing and have no maturity dates. As of March 31, 2018, the Company has an outstanding principal balance under these loans of €630,700 and ($777,022).
On January 31, 2018 and February 14, 2018, the Company borrowed an additional $115,000 from Mr, Siokas. These loans are non-interest bearing and have no maturity dates. As of March 31, 2018, the Company has an outstanding principal balance under these loans of $115,000.
Dimitrios Goulielmos
On November 21, 2014, SkyPharm entered into a Loan Agreement with Dimitrios Goulielmos, former Chief Executive Officer and a current director of the Company, pursuant to which the Company borrowed €330,000 ($401,115) from Mr. Goulielmos. The Loan bears an interest rate of 2% per annum and was due and payable in full on May 11, 2015. On November 4, 2015, €130,000 ($142,860) in principal and the related accrued interest of €733 ($806) was forgiven and the remaining balance of €200,000 will no longer accrue interest as part of the stock purchase agreement with Grigorios Siokas on November 4, 2015 referenced above. As of December 31, 2016, €60,000 ($63,312) of the loan was paid back. During the year ended December 31, 2017 an additional €70,500 ($84,755) was paid back. During the three months ended March 31, 2018 the Company repaid an additional €11,000 ($13,552) and a principal balance of €58,500 ($72,072) and €0.00 of accrued interest remains.
Konstantinos Vassilopoulos
During the three months ended March 31, 2018, the Company borrowed and repaid an aggregate total of $125,000 to Mr. Konstantinos Vassilopoulos. As of March 31, 2018, a principal balance of $0 remains.
In connection with the Decahedron SPA, on February 9, 2017, Decahedron, Medihelm S.A. and Nikolaos Lazarou entered into a liability transfer agreement whereby the loan previously provided Decahedron to the Mr. Lazarou prior to the acquisition would be cancelled in exchange for Mr. Lazarou’s personal assumption of approximately £172,310 ($220,988) owed to MediHelm S.A., a creditor of Decahedron.
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 7 – CONVERTIBLE DEBT
November 15, 2017 Securities Purchase Agreement
On November 15, 2017, the Company entered into a Securities Purchase Agreement with institutional investors (the “Buyers”), pursuant to which the Company issued on November 16, 2017 for a purchase price of $3,000,000, $3,350,000 in aggregate principal amount of Senior Convertible Notes (the “Existing Notes”) to the Buyers, convertible into approximately 670,000 shares of the Company’s common stock, par value $.001 per share (the “Common Stock”) at $5.00 per Share and five-year warrants to purchase an aggregate of 536,000 shares of Common Stock (the “Warrants”) to purchase an aggregate of 536,000 shares of Common Stock exercisable at $7.50 per share. The Notes contained an original issue discount of $350,000. Of the $3,000,000 purchase price, $240,000 went directly to financing costs (see below) and $74,000 went directly to legal fees such that the Company received net proceeds of $2,686,000.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
On February 20, 2018, the Company entered into two separate Amendment and Exchange Agreements (“Exchange Agreements”) with the two institutional investors for new senior convertible notes (“New Notes”) in exchange for existing notes. Each New Note is identical in all material respects to the Existing Note, except that (i) the New Note shall not be convertible into shares of the Company’s common stock (the “Common Stock”) until April 20, 2018; (ii) all future cash installment payments under such New Note will be made at a redemption price equal to 112% of the applicable installment amount; (iii) the Company’s existing obligation to initially deliver pre-delivery shares of its common stock to the holder of such New Note is deferred until April 20, 2018; and (iv) at any time on or before June 20, 2018, the Company has the right, at its option, to redeem all, or any part, of the amounts then outstanding under such New Note in cash at a redemption price equal to 125% of such amounts then outstanding under such New Note. The Company will repay the principal amount of the Notes in equal monthly installments beginning on January 1, 2018 and repeating on the first business day of each calendar month thereafter until the fourteenth (14th) month anniversary date of issue No interest shall accrue under the Notes unless and until an Event of Default (as defined) has occurred and is not cured. As of March 31, 2018, no such event of default has occurred, and no shares have been issued. Eighty-five (85%) percent of any cash proceeds received by the holders of the Notes from the sale of pre-delivery shares issued as collateral shall be applied against the particular installment amount then due. The Notes are senior in right of payment to all existing and future indebtedness except Permitted Indebtedness which includes $12 million of senior secured indebtedness of the Company and its subsidiaries under the above described Synthesis loan agreements, plus a defined amount of purchase money indebtedness in connection with bona fide acquisitions. The Company evaluated the debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result the Existing Notes were written off and the New Notes were recorded at fair value as of February 20, 2018. The Company wrote off the remaining principal balance of $2,871,429 of the Existing Notes along with the remaining $2,596,838 of debt discounts related to the Existing Notes of which $1,140,711 was a reduction to additional paid in capital representing the intrinsic value of the existing beneficial conversion feature. The Company recorded the New Notes in the amount of $3,216,000 and a total debt discount of $3,216,000 in relation to the intrinsic value of the new beneficial conversion feature of $2,880,000 and an original issue discount of $336,000. This resulted in a net loss on extinguishment of debt in the amount of $1,464,698 and additional net equity related to the beneficial conversion feature of $1,739,289.
The Notes are not convertible until April 18, 2018 pursuant to the February 20, 2018 amendment. Beginning April 20, 2018, the Holder may convert the Notes into shares of Common Stock at the rate of $5.00 per share. In the event of an issuance of Common Stock for a consideration less than the Conversion Price (other than Excluded Securities, as defined) the Conversion Price shall be reduced to the price of the dilutive issuance, (the “Conversion Price”). Upon an Event of Default (as defined), the Buyers may convert at an alternative conversion price equal to the lower of the then applicable Conversion Price or seventy-five (75%) percent of the Volume-Weighted Average Price (as defined, the “SWAP”). The Company valued the beneficial conversion feature of the Existing Notes at intrinsic value and recorded $1,140,711 to debt discount, of which $405,743 was amortized through February 19, 2018. On February 20, 2018, the remaining debt discount was written off and the Company recorded a new debt discount as discussed above.
The Notes are senior in right of payment to all existing and future indebtedness of the Company except Permitted Indebtedness (as defined in the Note), including $12 million of senior secured indebtedness of the Company and its subsidiaries under an existing senior loan agreement, plus defined amounts of purchase money indebtedness in connection with bona fide acquisitions.
The Notes include customary Events of Default and provide that the Buyers may require the Company to redeem (regardless of whether the Event of Default has been cured) all or a portion of the Notes at a redemption premium of one hundred twenty-five (125%) percent, multiplied by the greater of the conversion rate and the then current market price. The Buyers may also require redemption of the Notes upon a Change of Control (as defined) at a premium of one hundred twenty-five (125%) percent.
The Warrants have a five-year term and are exercisable into 536,000 shares of Common Stock beginning May 16, 2018 or six months after the issue date. The Warrants are exercisable at $7.50 per share subject to full ratchet anti-dilution protection (see above). As of March 31, 2018, there were no anti-dilution trigger events. The Warrants will be exercisable on a cashless basis if a registration statement is not effective covering the resale of the underlying Warrant Shares. The Company calculated the warrants at relative fair value of $1,545,288, which was recognized as a discount to the Existing Notes of which $347,418 was amortized as interest expense through February 19, 2018. On February 20, 2018, the remaining balance was reversed due to the Exchange Agreement as discussed above.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Conversion of the Notes and exercise of the Warrants are each subject to a blocker provision which prevents any holder from converting or exercising, as applicable, the Notes or the Warrants, into shares of Common Stock if its beneficial ownership of the Common Stock would exceed 4.99% (subject to adjustment not to exceed 9.99%) of the Company’s issued and outstanding Common Stock (each, a “Blocker”).
The Company filed, within thirty (30) days of the Closing, a registration statement covering one hundred fifty (150%) percent of the maximum number of shares, underlying the Notes and Warrants pursuant to a registration rights agreement with the Buyers (the “Registration Rights Agreement”).
As a condition to the closing of the Financing, each Buyer, severally, will be required to execute a leak-out agreement (each, a “Leak-Out Agreement”) restricting such Buyer’s sale of shares of Common Stock underlying the Notes and Warrants on any Trading Day to not more than such Buyer’s pro rata allocation of the greater of (x) sales with net proceeds of an aggregate of $20,000 or (y) twenty-five (25%) percent of the daily average trading volume of the Company’s Common Stock. If after the closing of the Financing there is no Event of Default under the Notes, the SWAP of the Company’s Common Stock for three (3) trading days is less than $1.50 per share, the Company may further restrict the Buyers from selling at less than $1.50 per share; provided that the portion of the Notes subject to redemption on each Installment Date shall thereafter double.
On November 15, 2017 in connection with the $3,350,000 Securities Purchase Agreement, Roth Capital Partners, LLC (“Roth”), as the Company’s exclusive placement agent, received a cash commission for the transaction equal to eight (8%) percent of the total gross proceeds of the offering, or $240,000 and the issuance of five-year warrants to purchase eight (8%) percent of the shares of common stock issued or issuable in this offering (excluding shares of common stock issuable upon exercise of any warrants issued to investors), or 53,600 shares; and, will receive eight (8%) percent of any cash proceeds received from the exercise of any warrants sold in the offering with an expiration equal to or less than twenty-four (24) months. The warrants are exercisable six months after the issue date or May 16, 2018 and were valued at a fair value of $386,003 which was fully expensed during the year ending December 31, 2017. The $240,000 cash commission was recorded as debt discount and will be amortized over the term of the Notes.
During the three months ended March 31, 2018, there were no principal conversions and the Company repaid principal in the amount of $775,285, such that the remaining outstanding principal balance of the Notes as of March 31, 2018 is $2,680,000.
The Company recorded a total of $3,350,000 of debt discounts related to the above Existing Notes in the year ended December 31, 2017. A total of $360,890 was amortized during the year ended December 31, 2017 and an additional $392,272 related to the debt discount of the Existing Notes was amortized through February 19, 2018. As a result of the Exchange Agreement discussed above, the debt discounts of the Existing Notes were written off and a total of $3,216,000 of debt discounts were recorded during the three months ended March 31, 2018. The debt discounts are being amortized over the term of the debt. Amortization of the debt discounts of the New Notes for the three months ended March 31, 2018 was $836,484.
NOTE 8 – DEBT
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($43,624) as a note payable from Mr. Drakopoulos. The note bears an interest rate of 6% per annum and was due and payable in full on November 15, 2016. During the year ended December 31, 2017, the Company repaid €17,000 ($20,437) of principal and €2,060 ($2,477) of accrued interest. As of March 31, 2018, the Company has an outstanding principal balance of €23,000 ($27,651) and accrued interest of €2,049 ($2,463).
On January 18, 2018, the Company entered into a Loan Agreement with a third party, pursuant to which the Company borrowed €75,000 ($92,400). The note bears an interest rate of 6.5% per annum and has a maturity date of January 17, 2019. The note is secured by a personal guaranty of Grigorios Siokas. As of March 31, 2018, the Company has an outstanding principal balance of €75,000 ($92,400) and accrued interest of €975 ($1,201) related to this note.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
On March 16, 2018, the Company entered into a Loan Agreement with a third party, pursuant to which the Company borrowed €1,500,000 ($1,848,000) as a note payable. The note bears an interest rate of 4.7% per annum and has a maturity date of March 18, 2019. As of March 31, 2018, the Company has an outstanding principal balance of €1,500,000 ($1,848,000) and accrued interest of €2,511 ($3,094) related to this note.
Loan Facility Agreement
On August 4, 2016, the Company’s wholly owned subsidiary SkyPharm entered into a Loan Facility Agreement, guaranteed by Grigorios Siokas, with Synthesis Peer-To Peer-Income Fund (the “Loan Facility” the “Lender”). The Loan Facility initially provided SkyPharm with a credit facility of up to $1,292,769 (€1,225,141). Any advance under the Loan Facility accrues interest at a rate of 10% per annum and requires quarterly interest payments commencing on September 30, 2016. The amounts owed under the Loan Facility shall be repayable upon the earlier of (i) three months following the demand of the Lender; or (ii) August 31, 2018. No prepayment is permitted pursuant to the terms of the Loan Facility. The Synthesis Facility Agreement as amended is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 10,000,000 shares of common stock of the Company owned by Mr. Siokas.
On September 13, 2016, Sky Pharm entered into a First Deed of Amendment with the Loan Facility increasing the maximum loan amount to $1,533,020 as a result of the Lender having advanced $240,251 (€227,629) to SkyPharm.
On March 23, 2017, SkyPharm entered into an Amended and Restated Loan Facility Agreement (the “A&R Loan Facility”), with the Loan Facility which increased the loan amount to an aggregate total of $2,664,960 (€2,216,736) as a result of the lender having advanced $174,000 (€164,898) in September 2016, $100,000 (€94,769) in October 2016, $250,000 (€236,922) in November 2016, $452,471 (€428,800) in December 2016, $155,516 (€129,360) in January 2017, $382,327 (€318,023) in July 2017 and $70,000 (€58,227) in December 2017. The A&R Loan Facility amends and restates certain provisions of the Loan Facility Agreement, dated as of August 4, 2016, by and among the same parties. Advances under the A&R Loan Facility continue to accrue interest at a rate of 10% per annum from the applicable date of each drawdown and require quarterly interest payments. The A&R Facility now permits prepayments at any time. The amounts owed under the A&R Loan Facility shall be repayable upon the earlier of (i) seventy five days following the demand of the Lender; or (ii) August 31, 2018. The A&R Loan Facility is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas (the “Pledged Shares”). The A&R Loan Facility was also amended to provide additional affirmative and negative covenants of Sky Pharm and the Guarantor during the term of loans remain outstanding, including, but not limited to, the consent of the Lender in connection with (i) the Company or any of its subsidiaries incurring any additional indebtedness; or (ii) in the event of any increase in the Company’s issued and outstanding shares of Common Stock, the Pledged Shares shall be increased to an amount equal to a minimum of ten percent (10%) of the issued and outstanding shares of the Company.
On April 18, 2018, the Company entered into an amendment that was effective as of January 1, 2018 (see Note 11), pursuant to which the maturity dates for all advances was extended to December 31, 2021. Additionally, the interest rate was amended such that the interest rate for all advances is 4% plus the 3-Month Libor rate. The Loan Facility also forgave €32,468 ($40,000) in fees related to the July 6, 2017 advance. As a result the Company reduced the unamortized portion of debt discount that related to those fees and recorded a gain on debt settlement of €19,763 ($24,287).
As of March 31, 2018, the outstanding balance under this note was $3,078,442 (€2,498,735) and accrued interest expense of $266,661 (€216,446) has been recorded.
The Company recorded a total of €155,060 ($191,034) in debt discounts related to this note in prior years. The debt discounts are being amortized over the term of the debt. As a result of the April 18, 2018 amendment, the Company reduced the unamortized debt discount of €20,237 ($24,932). The Company amortized a total of €92,661 ($114,158) and in prior years. Amortization of the debt discounts for the three months ended March 31, 2018 was €15,616 ($19,190).
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Bridge Loans
On March 16, 2017 and March 20, 2017, SkyPharm entered into loan agreements with the Synthesis Peer-To Peer-Income Fund (the “Bridge Loans”). The Bridge Loans provided to SkyPharm loans of €41,590 ($50,000) and €100,000 ($120,220), respectively, during the year ended December 31, 2017. The Bridge Loans accrue interest at a rate of 10% per annum and were repayable on April 16, 2017 and April 20, 2017, respectively, together with all other amounts then accrued and unpaid. On April 16, 2017, the maturity dates were amended for no additional consideration or change in terms and conditions. The maturity dates of both loans were amended, and they matured on May 16, 2017 and May 20, 2017, respectively. Pursuant to the April 18, 2018 agreement and effective January 1, 2018, the Company reached an agreement with Synthesis Peer-To-Peer Income Fund such that the March 20, 2017 loan would have a fixed USD payoff amount of $106,542. As a result of this agreement the Company recorded a gain on settlement of debt of €16,667 ($20,482) related to the reduction of the USD payoff amount and an additional gain on settlement of debt of €3,950 ($4,854) related to interest that had accrued on the original amount of the loan. The Company has accrued interest expense of an aggregate total of €9,292 ($11,448) for both loans and the outstanding balances of these loans was €40,584 ($50,000) and €86,479 ($106,542), respectively, as of March 31, 2018.
On May 5, 2017, SkyPharm entered into a loan agreement with Synthesis Peer-To-Peer Income Fund for €28,901 ($34,745). The loan accrues interest at a rate of 10% per annum and matured on September 30, 2017. The Company has accrued interest expense of €2,274 ($2,802) and the outstanding balance on this loan was €28,202 ($34,745) as of March 31, 2018.
On April 18, 2018, the Company entered into an amendment (see Note 11) pursuant to which the maturity dates for all of the above Bridge Loan advances were extended to December 31, 2021 for no additional consideration. Additionally, the interest rate was amended such that, effective January 1, 2018, the interest rate for all advances is 4% plus the 3-Month Libor rate.
Trade Facility Agreements
On April 10, 2017, Decahedron entered into a Trade Finance Facility Agreement (the “Decahedron Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”). The Decahedron Facility provides the following material terms:
| · | The Lender will provide Decahedron a facility of up to €2,750,000 ($3,388,000) secured against Decahedron’s receivables from the sale of branded and generic pharmaceutical sales. | |
| · | The total facility will be calculated as 95% of the agreed upon value of Decahedron’s receivables. | |
| · | The term of the Decahedron Facility will be for 12 months. | |
| · | The obligations of Decahedron are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement. | |
| · | The Lender has the right to make payments directly to Decahedron’s suppliers. | |
| · | The following fees should be paid in connection with the Decahedron Facility: | |
| o | 2% of the maximum principal amount as an origination fee. | |
| o | A one percent (1%) monthly fee. |
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
The current draw on the Decahedron Facility is $0.
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”). The SkyPharm Facility provides the following material terms:
| · | The Lender will provide SkyPharm a facility of up to €2,000,000 ($2,464,000) secured against SkyPharm’s receivables from the sale of branded and generic pharmaceutical sales. In the event that accounts receivable becomes uncollectible, the Company will be obligated to pay back the notes in full. | |
| · | The total facility will be calculated as 95% of the agreed upon value of Decahedron’s receivables. | |
| · | The term of the SkyPharm Facility will be for 12 months. | |
| · | The obligations of SkyPharm are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement. | |
| · | The Lender has the right to make payments directly to SkyPharm’s suppliers. | |
| · | The following fees should be paid in connection with the SkyPharm Facility: | |
| o | 2% of the maximum principal amount as an origination fee. | |
| o | A one percent (1%) monthly fee. |
The current draw on the SkyPharm Facility is €5,866,910 ($7,228,033) and the Company has accrued €283,673 ($349,485) in monthly fees related to this agreement. The Company obtained consents from Synthesis Peer-to-Peer Income Fund in connection with obtaining the Lender. On November 16, 2017, SkyPharm signed an amended agreement with Synthesis Structured Commodity Trade Finance Limited that increased the maximum aggregate facility limit from €2,000,000 ($2,464,000) to €6,000,000 ($7,392,000). All other terms of the original agreement remain the same. During the three months ended March 31, 2018, the Company borrowed an additional €270,000 ($332,640) in funds. Om May 16, 2018, the Company entered into a Supplemental Deed of Amendment pursuant to which increased the maximum aggregate amount of the facility to €15,000,000 ($18,480,000) (See Note 12).
The Company has recorded a total debt discount of €104,338 ($128,545) in origination fees associated with these loans, which will be amortized over the term of the agreements. Amortization of debt discount for year ended December 31, 2017 was €61,295 ($69,269). Amortization of the debt discount for the three months ended March 31, 2018 was €29,348 ($36,066).
None of the above loans were made by any related parties.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of March 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.
Operating Leases
The Company conducts its operations from an office located in Chicago, Illinois for which beginning in January 2015, the monthly rent expense is $709, which has been paid through December 31, 2017. The lease expired as of May 31, 2017, however, the Company has negotiated and entered into a two-year amendment to that lease that commenced as of June 1, 2017 through May 31, 2019. The monthly rate from June 1, 2017 through May 31, 2018 is $709 per month and increases to $730 per month from June 1, 2018 through May 31, 2019. Rent expense for the three months ended March 31, 2018 and 2017, was $2,126 and $2,126, respectively.
The offices of Amplerissimo are located a t 9, Vasili, Michaelidi Street, 3026, Limassol, Cyprus. The Company had a one-year lease which commenced on July 29, 2013 and was last renewed through July 2018, at the rate of €110 ($124) per month. Rent expense for the three months ended March 31, 2018 and 2017 was €330 ($406) and €330 ($352), respectively.
The offices of SkyPharm are located at 5, Agiou Georgiou Street 57001, Pylaia, Thessaloniki, Greece. The Company has a six-year lease that commenced on September 1, 2014 at the rate of €4,325 ($4,802) per month. In December 2015, the lease was revised to include an additional rental of the first floor at a rate of €800 ($886) per month. The lease was further revised in March 2016 to include another additional rental of the first floor at a rate of €800 ($886) per month beginning in May 2016. On May 30, 2016, the lease was revised again to include an additional rental of space at a rate of €1,825 ($2,021) per month beginning in June 2016. On March 23, 2017, SkyPharm entered into an additional three-year lease at a rate of €1,250 per month that commenced May 2017. As a result, the total monthly lease amount is now €7,750 ($8,758) per month. Rent expense for the years ended three months ended March 31, 2018 and 2017 was €27,000 ($33,180) and €23,348 ($24,891), respectively.
The offices of Decahedron are located at Unit 11, Spire Greene Centre, Flex Meadow, Harlow, CM19 5TR, Essex, U.K., for which we pay approximately ₤1,908 ($2,470) per month, under an amendment to a lease dated October 25, 2011, which commenced on October 25, 2016 and expires on October 24, 2021. Rent expense for the three months ended March 31, 2018 and from the date of acquisition through March 31, 2017 was ₤8,477 ($11,800) and ₤3,817 ($4,729), respectively.
Future minimum operating lease commitments consisted of the following at March 31, 2018:
Years Ended December 31, |
| Amount (USD) |
| |
Remainder 2018 |
| $ | 130,949 |
|
2019 |
| $ | 168,822 |
|
2020 |
| $ | 76,468 |
|
2021 |
| $ | 26,764 |
|
2022 |
| $ | - |
|
Thereafter |
| $ | - |
|
Total |
| $ | 403,003 |
|
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Intellectual Property Sale Agreement
On October 1, 2016, the Company entered into an Intellectual Property Sale Agreement with Anastasios Tsekas and Olga Parthenea Georgatsou (the “IPSA”) for the purchase of certain intellectual property rights relating to proprietary pharmaceutical formulas and any related technical information arising or related thereto (the “Intellectual Property”). The IPSA provides that the sellers shall be entitled to an aggregate of 200,000 shares of common stock of the Company, none of which have been issued to date, and issuable as follows in equal parts to each seller:
· | 50,000 shares upon the successful conclusion of Preclinical Trials. | |
· | 50,000 shares upon the conclusion of Phase I testing. | |
· | 50,000 shares upon the conclusion of Phase II testing. | |
· | 50,000 shares upon the conclusion of Phase III testing. |
The Company has agreed to pay Anastasios Tsekas €1,500 per month until the first issuance of the shares referenced above. The Company has also agreed that in the event the Company disposes of the Intellectual Property prior to the periods referenced above, the sellers shall be entitled to the issuance of all the shares referenced above. The Company is in the process of locating a suitable lab to conduct the Preclincal trial phase, which has not yet begun as of the date of filing.
Letter of Intent
On June 21, 2017, the Company signed a Letter of Intent (LOI) to acquire the outstanding shares of CC Pharma GmbH, a leading re-importer of EU pharmaceuticals to Germany. Under the terms of the LOI, Cosmos Holdings holds the exclusive right to complete its due diligence process and complete the transaction by October 31, 2017. In connection with the non-binding LOI, the Company is required to pay a non-refundable fee of €400,000 ($454,800) to the shareholders of CC Pharma GmbH in connection with the costs of due diligence and the exclusive right to negotiate the terms of the definitive agreements. On July 6, 2017, the Company paid the €400,000 ($454,800) to CC Pharma GmbH and the Company has recorded an expense of €400,000 ($454,800) for the year ended December 31, 2017. The Company did not enter into any definitive agreements by March 31, 2018 and is currently negotiating with CC Pharma for an extension. The Company makes no assurances that the parties will enter into any definitive agreements in the future.
Placement Agreement
On August 8, 2017, the Company entered into an agreement with a third-party placement agent (the “Agent”) who will serve as the Company’s exclusive placement agent or sole book running manager with respect to any offerings of equity or equity-linked securities as well as any debt offering with the two organizations named in the agreement (the “Offering”) for a period of 120 days. In the event that an Offering is agreed upon by the Agent and the Company, the Company shall provide payment as follows: (1) a cash commission of 6% of the total gross proceeds for two named investors (2) a cash commission of 4% of total gross proceeds from five named investors and (3) excluding the five named investors in “(2)” a cash commission equal to 8% of the total gross proceeds from the Offering and the issuance to the Agent or its designees of warrants covering 8% of the shares of common stock issued or issuable by the Company in the Offering. Additionally, the Agent will receive a cash fee of 8% payable within 5 business days, but only in the event of, the receipt by the Company of any cash proceeds from the exercise of any warrants with an expiration equal to or less than 24 months sold in the Offering. In connection with the Company’s November 16, 2017 Note offering, the Agent received a cash commission of $240,000, equal to eight (8%) percent of the total gross proceeds of the offering and the issuance of five-year warrants to purchase eight (8%) percent of the shares of Common Stock issued or issuable in the offering (excluding shares of Common Stock issuable upon exercise of any Warrants issued to investors, or 53,600 shares); however, will receive eight (8%) percent of any cash proceeds received from the exercise of any Warrants sold in the offering with an expiration equal to or less than twenty-four (24) months. The Warrants are exercisable six (6) months after the date of issuance, or May 16, 2018.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Distribution and Equity Acquisition Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was recently formed to be a global supplier of Cannabis, cannabidiol (CBD) and/or any Cannabis Extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe. There was no relationship between Cosmos Holdings or its affiliates and Marathon other than the agreement.
The Agreement is to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (5) years of this Agreement. Following a thirty (30) day due diligence period, and subject to satisfactory due diligence of the Company, Marathon shall: (a) grant the Company a 33 1/3% equity interest in Marathon as partial consideration for the Company’s distribution services; and (b) make a cash payment of CAD $2,000,000 to the Company, subject to repayment by the Company in Common Shares of the Company if it fails to meet certain performance milestones. The Company is entitled to receive an additional CAD $2,750,000 upon the Company’s receipt of gross sales of CAD $6,500,000 and an additional CAD $2,750,000 upon receipt of gross sales of CAD $13,000,000. The Company was also given the right to nominate one director to the Marathon Board of Directors. On April 19, 2018, the Company and Marathon amended the Distribution Agreement to provide for Marathon to conduct due diligence on the Company until May 10, 2018. The Company shall continue to provide confidential information even after the initial payment of CAD $2,000,000 (See Note 12). As of March 31, 2018 and the date of filing, the Company has not received the initial CAD $2,000,000 payment, the due diligence has not been completed and the transaction has not closed.
NOTE 10 – STOCK OPTIONS AND WARRANTS
On January 1, 2017 the Company entered into a two-year agreement whereby the employee was granted compensation of €1,000 per month and an annual retainer of 25,000 stock options as compensation for being appointed the International Finance Manager of the Company. On January 1, 2018, 25,000 options were granted to the employee. These options have an exercise period of four years with an exercise price of $1.00. In the event that he ceases to work for the Company for any reason, he will be entitled to a pro rata portion of the annual options. The options vest monthly, with a total of 6,250 options fully vested as of March 31, 2018. The options were valued at $242,002 using the Black Scholes Option Pricing Model with the following inputs: stock price on measurement date: $10.20; Exercise price: $1.00; Option term: 4 years; Computed volatility: 120.92%. The fair value of the options will be amortized over a year with $59,671 expensed during the three months ended March 31, 2018.
As of March 31, 2018, there were 74,000 options outstanding and 55,250 options exercisable with expiration dates commencing October 2020 and continuing through January 2022.
A summary of the Company’s option activity during the three months ended March 31, 2018 is presented below:
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|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, December 31, 2017 |
|
| 49,000 |
|
| $ | 1.49 |
|
|
| 3.19 |
|
| $ | 426,800 |
|
Granted |
|
| 25,000 |
|
|
| 1.00 |
|
|
| 4.00 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, March 31, 2018 |
|
| 74,000 |
|
| $ | 1.32 |
|
|
| 3.22 |
|
|
| 567,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2018 |
|
| 55,250 |
|
| $ | 1.43 |
|
|
| 3.04 |
|
| $ | 417,448 |
|
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Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
As of March 31, 2018, there were 599,640 warrants outstanding and 10,040 warrants exercisable with expiration dates commencing April 2018 and continuing through May 2023.
A summary of the Company’s warrant activity during the three months ended March 31, 2018 is presented below:
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| Weighted |
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|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, December 31, 2017 |
|
| 599,640 |
|
| $ | 7.65 |
|
|
| 5.29 |
|
| $ | - |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, March 31, 2018 |
|
| 599,640 |
|
| $ | 7.65 |
|
|
| 5.04 |
|
| $ | 1,012,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2018 |
|
| 10,040 |
|
| $ | 30.00 |
|
|
| .06 |
|
| $ | - |
|
NOTE 11 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue. The following table presents our revenue disaggregated by country for the three months ended:
Country |
| March 31, 2018 |
|
| March 31, 2017 |
| ||
Denmark |
| $ | 96,518 |
|
| $ | 22,669 |
|
France |
|
| 72,351 |
|
|
| 45,553 |
|
Germany |
|
| 4,410,792 |
|
|
| 2,071,879 |
|
Greece |
|
| 759,999 |
|
|
| 521,157 |
|
Hungary |
|
| 318,974 |
|
|
| 49,593 |
|
Indonesia |
|
| 6,707 |
|
|
| - |
|
Ireland |
|
| 568,669 |
|
|
| 124,403 |
|
Italy |
|
| 156,612 |
|
|
| 53,831 |
|
Jordan |
|
| 33,637 |
|
|
| - |
|
Netherlands |
|
| 1,537,743 |
|
|
| 615,293 |
|
Poland |
|
| 364,730 |
|
|
| 94,367 |
|
Sweden |
|
| - |
|
|
| 9,495 |
|
UK |
|
| 3,638,697 |
|
|
| 507,676 |
|
Total |
| $ | 11,965,429 |
|
| $ | 4,115,916 |
|
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Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
NOTE 12 – SUBSEQUENT EVENTS
Synthesis Peer-to-Peer Amendment
On April 18, 2018, the Company entered into an amendment with Synthesis Peer-to-Peer Income Fund, (the “Lender”) pursuant to which the interest rate of ten (10%) percent per annum was restated as of January 1, 2018 to four (4%) percent plus quarterly Libor payments, and two (2%) percent default interest on unpaid amounts in addition to the interest rate. The final repayment date was extended from August 31, 2018 to December 31, 2021. The Lender also forgave €32,468 ($40,000) in fees related to the July 6, 2017 advance and the Company and the Lender agreed that the March 20, 2017 Bridge Loan would have a fixed USD payoff amount of $106,542.
Advisory Agreement
On April 18, 2018, SkyPharm S.A. entered into a ten-year Advisory Agreement with Synthesis Management Limited (the “Advisor”). The Advisor was retained to assist SkyPharm to secure corporate finance capital. The Advisor shall be paid €104,000 per year during the ten-year term.
Issuance of Pre-Delivery Shares
Pursuant to the Securities Purchase Agreement dated November 15, 2017, and amended on February 20, 2018, the Company had an obligation to deliver an aggregate total of approximately 670,000 pre-delivery shares (see Note 7). On April 23, 2118 and April 24, 2018, the Company issued 558,334 and 111,667 shares of common stock, respectively.
Trade Finance Facility Deed of Amendment
On May 16, 2018, SkyPharm S.A., as Commodity Buyer, entered into a Supplemental Deed of Amendment (the “Deed”) relating to a Trade Finance Facility dated May 12, 2017, as amended, with Synthesis Structured Commodity Trade Finance Limited (“Synthesis”), as Loan Receivables Originator. Under the Trade Finance Facility (the “TFF”) first entered into on May 12, 2017, as amended, there was a principal balance of €5,866,910 outstanding as of March 31, 2018. SkyPharm has agreed to make a payment of €1,000,000 of interest and principal on May 31, 2018 under the terms and conditions of the Deed.
The TFF was amended to provide, among other things:
| · | A listing of approved purchasers; |
|
|
|
| · | To permit SkyPharm to request Synthesis to make payments under the TFF directly to SkyPharm so that SkyPharm can discharge its obligations to a commodity seller directly; |
|
|
|
| · | To prohibit SkyPharm from entering into a commodity contract which grants more than seventy-five (75) days delay between the payment for products and receipt of the purchase price and placed other limitations on terms of commodity contracts; |
|
|
|
| · | If Grigorios Siokas, CEO of Cosmos Holdings Inc. (“Cosmos”), ceases to own or control at least fifty-one (51%) percent of the shares of Cosmos, or SkyPharm ceases to be a wholly-owned subsidiary of Cosmos, either event shall constitute an Event of Default (as defined); |
|
|
|
| · | The maximum aggregate amount of the TFF is €15,000,000, although there is no commitment for any future loans under the TFF; |
|
|
|
| · | The interest rate on the TFF for: (i) all lending in U.S. dollars is the one-month LIBOR plus six (6%) percent margin; and (ii) for all lending in Euro, the one-month Euribor Rate plus six (6%) percent per annum, commencing June 1, 2018. |
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COSMOS HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements
March 31, 2018
Synthesis is permitted to terminate the TFF at any time and demand repayment of all outstanding principal and interest in full within six (6) months from the date of notification.
The Deed is conditioned upon, among other things, execution and perfection of a Bulgarian Amended Pledge (“BAP”) having priority over the Bulgarian Pledge Accounts with Unicredit Bulbank AD; and the Approved Purchasers are to make all payments to SkyPharm directly to the BAP.
On May 16, 2018, SkyPharm and Synthesis also entered into an Account Merge Agreement (the “Pledge”) as a requirement under the above-described Deed. Under the Pledge, Synthesis is to receive a first ranking securities interest in SkyPharm’s outstanding receivables under the Bulgarian bank account.
Share Exchange Agreement
On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon Global Inc. (“Marathon”), Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA,and subject to the satisfactory completion of the due diligence of the Company by Marathon (see Note 9), the Company agrees to transfer its previously reported 33 1/3% interest in Marathon, together with all other shareholders of Marathon (under separate agreements) to KBB, a corporation incorporated under the laws of the Province of British Columbia and a public reporting issuer on the Canadian Securities Exchange. Cosmos will receive 10 million shares of KBB constituting approximately twenty-six (26%) percent of the approximately 38 million shares of KBB issued and outstanding. As of the date of filing, the due diligence has not been completed and this transaction has not closed.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
Overview
Cosmos Holdings Inc. (“us”, “we”, or the “Company”) was incorporated in the State of Nevada on July 21, 2009 under the name Prime Estates and Developments, Inc. for the purpose of acquiring and operating commercial real estate and real estate related assets. On November 14, 2013, we changed our name to Cosmos Holdings Inc and changed our focus and business strategy to the healthcare and pharmaceutical industry.
The Company, through its subsidiaries, is operating within the pharmaceutical industry and in order to compete successfully 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.
The pharmaceutical industry is highly competitive and subject to comprehensive government regulations. Many factors may significantly affect the Company’s sales of its products, including, but not limited to, efficacy, safety, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance as well as our research and development of new products.
We are currently focusing our existing operations on expanding the business of our subsidiaries, SkyPharm (Greece) and Decahedron (UK), in order to become an international pharmaceutical company. The Company’s focus will be on Branded Pharmaceuticals, Over-the-Counter (OTC) medicines, and Generic Pharmaceuticals. The Company also intends to expand into Cosmetic-Beauty Products as well as Food Supplements and targets areas where we can build and maintain a strong position. 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.
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In 2016, the Company leased and equipped additional office space for our subsidiary SkyPharm in Thessaloniki, Greece in order to facilitate its growing business activity. The warehouse was already equipped with the proper shelves, working tables, medicine, cold fridge and barcode machines in compliance with all regulations. The offices in Thessaloniki have been also equipped with the proper equipment and specifically with the office tables, chairs and the terminals for each one working station. The hardware systems and software programs that are needed for the efficient trading of pharmaceuticals are already installed. As of July 22, 2015 the Hellenic Ministry of Health and more specifically the National Organization for Medicines granted the license for the wholesale of pharmaceutical products for human use to SkyPharm. The license is valid for a period of five years and pursuant to the EU directive of (2013/C 343/01) the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company has already incorporated the methodologies, procedures, processes and resources in order to be in accordance with the guidelines of the Good Distribution Practices.
On May 20, 2016, the Company entered into a Non-Binding Memorandum of Understanding with Doc.Pharma SA to purchase Doc.Pharma SA for a combination of cash and stock to be agreed upon. Doc.Pharma SA is controlled by Grigorios Siokas, the Company’s CEO. The Memorandum of Understanding is subject to the Company’s completion of due diligence and expired on December 31, 2016, and has not been formally renewed or extended, however is being pursued.
On November 16, 2016, the Company entered into a Stock Purchase Agreement (the “Medihelm SPA”) with Medihelm Pharmaceutical Wholesellers SA (“Medihelm”), Konstantinos Metsovitis (the “Medihelm Stockholder”) and Eleni Metsovitis. The SPA provides for the following:
| · | At closing, as consideration for all of the stock of Medihelm, the Company shall issue the Medihelm Stockholder two hundred thousand (200,000) shares of restricted common stock of the Company. |
| · | The Company also agreed that following the closing of the Medihelm SPA, Eleni Metsovitis would receive 3,100,000 shares of the Company’s restricted common stock and shall be retained as Medihelm’s chief operating officer and director and shall be appointed to the Board of Directors of the Company. |
The closing of the Medihelm SPA is subject to, among other things, the completion of the Company’s due diligence of Medihelm and the delivery of audited financial statements of Medihelm by a registered PCAOB auditor. The Medihelm SPA provides Medihelm with a period of forty-five (45) days to submit all due diligence items required by the Company. The Company shall be entitled to a period of ten (10) days to review all due diligence materials and audited financials provided by Medihelm. In the event the Company does not approve of any due diligence item, the Company is entitled to terminate the transactions contemplated by the Medihelm SPA. The Company anticipates that Medihelm will deliver disclosure schedules referenced in the Medihelm SPA prior to closing. Given the delays in completing this transaction, the Company cannot give any assurances that the acquisition will be completed.
On November 17, 2016, Cosmos Holdings Inc. entered into a Stock Purchase Agreement (the “Decahedron SPA”) with Decahedron Ltd. (“Decahedron”) and the shareholders of Decahedron (as amended). The terms of the Decahedron SPA provided that the Company would acquire all of the issued and outstanding shares of Decahedron. In exchange for the shares of Decahedron, the Company will issue to the Decahedron shareholders an aggregate amount of 170,000 shares of the Company’s common stock. The Decahedron SPA provided that following the closing of the transaction, the principal and majority shareholder of Decahedron, Nicholas Lazarou would be retained as a Director and COO of Decahedron with a salary of 10,000 GBP per month (approximately US $12,270.00). The Company completed this transaction on February 10, 2017.
On November 11, 2016, the Company entered into a Memorandum of Understanding (the “CC Pharma MOU”) with CC Pharma GmbH (“CCP”), a leading re-importer of EU pharmaceuticals to Germany, Dr. Thomas Weppelmann (“Weppelmann”) and Mrs. Alexandra Gerke (“Gerke” and together with Weppelmann, collectively referred to as (the “Stockholders”). The CC Pharma MOU provides that the Company intends to acquire all of the issued and outstanding shares of CCP from the Stockholders, payable in cash on a pro rata basis to the Stockholders based on their percentage ownership of CCP. The purchase price was not disclosed in the CC Pharma MOU and remains confidential. The CC Pharma MOU expired on December 31, 2016.
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On June 21, 2017, the Company signed a new Letter of Intent (LOI) to acquire the outstanding shares of CC Pharma GmbH. Under the terms of the LOI, Cosmos Holdings held the exclusive right to complete its due diligence process and complete the transaction by October 31, 2017. In connection with the non-binding LOI, the Company is required to pay a non-refundable fee of 400,000 Euros to CC Pharma GmbH in connection with the costs of due diligence and the exclusive right to negotiate the terms of the definitive agreements. The Company makes no assurances that the parties will enter into definitive agreements prior to October 31, 2017. On July 6, 2017, the Company paid the 400,000 Euros to CC Pharma GmbH. The Company has not entered into any definitive agreements and there is no assurance this Company will enter into any definitive agreements in the future.
As of October 3, 2017, the Company, entered into a Research & Development agreement with Doc Pharma S.A., a pharmaceutical manufacturer company controlled by Grigorios Siokas and certified under Good Manufacturer Practices (GMP), which covers the development and contract manufacturing of Cosmos Holdings’ complete line of Nutraceutical Products. Doc Pharma S.A. is a GMP licensed contract manufacturer with production facilities in Athens, Greece. Under the agreement, Doc Pharma S.A. will provide its services to research, develop formulation, complete product registration, design product packaging, and provide market-ready products. Production is expected to begin in 2018 and the first sales are expected to start in the second quarter of 2018.
On November 15, 2017, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Buyers”) with which it had no prior relationship, pursuant to which the Company issued for a purchase price of $3,000,000, $3,350,000 in aggregate principal amount of Senior Convertible Notes (the “Notes”) to the Buyers, convertible into 670,000 shares of the Company’s common stock, par value $.001 per share at $5,00 per share and warrants to purchase an aggregate of 536,000 shares of Common Stock exercisable at $7.50 per share. See Below.
On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of Common Stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements. All share and per share date in this Report gave retroactive effect to the reverse stock split unless otherwise noted.
On November 18, 2016, the Board of Directors of Company appointed John J. Hoidas as a member of the Board of Directors of the Company. The Company has not yet entered into an agreement with Mr. Hoidas setting forth any compensation for the serves provided as a member of the Board.
The Company, for the three months ended March 31, 2018, has recorded total revenues of $11,965,429 and has incurred expenses of approximately $11,355,433, in connection with these operations. There can be no assurance that we will ever raise the required capital necessary to effectuate our business plan; and even if we do, there is no assurance that we will ever commence or successfully develop this line of business.
Results of Operations
Three Months Ended March 31, 2018 versus March 31, 2017
For the three months ended March 31, 2018, the Company had a net loss of $3,055,802 on revenue of $11,965,429, versus a net loss of $2,033,734 on revenue of $4,115,916 for the three months ended March 31, 2017.
Revenue
The Company had revenue for the three months ended March 31, 2018 of $11,965,429, versus revenue of $4,115,916 for the three months ended March 31, 2017. This increase is mainly because of the organic growth attributed to our subsidiary, SkyPharm, which continued even more aggressively during the three months ended March 31, 2018, as well as through the additional revenue source from our subsidiary in the UK, Decahedron.
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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.
Operating Expenses
Total operating expenses for the three months ended March 31, 2018 were $759,545, versus $2,348,520 during the three months ended March 31, 2017. The approximate 68% decrease in operating expenses in the three months ended March 31, 2018, against the corresponding period in 2017, is primarily attributed to an impairment of 100% of the goodwill acquired through the acquisition of Decahedron, or $1,949,884, which was fully impaired during the three months ended March 31, 2017. Accounting for the impact of the impairment on goodwill, additional operating expenses are due to the increased operating resource needs from our subsidiaries SkyPharm and Decahedron, along with professional fees and other associated expenses in connection with being a public company, as well as increased expenditures for potential company acquisitions. Consulting, auditing and accounting expenses consistently constitute a critical bulk of operating costs for the activities of the Company.
Other Income (Expense)
During the three months ended March 31, 2018, other income (expense) is primarily comprised of $286,578 interest expense related to notes payable, $1,284,012 of non-cash interest expense related to the amortization of debt discount and $1,464,698 loss on extinguishment of debt related to the Exchange Agreement. During the three months ended March 31, 2017, other income (expense) is primarily comprised of $110,128 interest expense related to notes payable offset by a foreign currency gain of $72,970.
Unrealized Foreign Currency losses
Additionally, we had an unrealized foreign currency loss of $135,054 for the three months ended March 31, 2018 such that our net comprehensive loss for the period was $3,190,856 versus the unrealized foreign currency loss of $15,019 for the three months ended March 31, 2017 such that our net comprehensive loss for the period was $2,048,753.
Liquidity and Capital Resources
At March 31, 2018, the Company had a working capital deficit of $5,775,611 and $4,192,984 as of December 31, 2017, respectively. This increase in the working capital deficit is primarily attributed to 100% of the Company’s prepaid financing costs balance, or $1,137,793, being expensed during the year ended December 31, 2017, and to the increase in notes payable that are outstanding as of March 31, 2018.
At March 31, 2018, the Company had cash of $1,328,047 versus $782,853 as of December 31, 2017. For the three months ended March 31, 2018, net cash used in operating activities was $1,866,845 versus $658,546 net cash used in operating activities for the three months ended March 31, 2017. The variation in the use of cash is mainly attributed an increase in inventory, prepaid expenses and accounts receivable in the three months ended March 31, 2018. 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.
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During the three months ended March 31, 2018, there was $12,307 net cash used in investing activities versus $36,886 provided by investing activities during the three months ended March 31, 2017. This decrease in net cash from investing activities is attributed mainly to the cash received from the acquisition of Decahedron that took place within the three months ended March 31, 2018.
During the three months ended March 31, 2018, there was $2,376,225 of net cash provided by financing activities versus $334,556 provided by financing activities during the three months ended March 31, 2017. This variation was primarily because of the increase in financing activities of our subsidiary in Greece, SkyPharm.
We anticipate using cash in our bank account as of March 31, 2018, cash generated from the operations of the Company and its operating subsidiary and from debt or equity financing, or from a loan from management, to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on the over the counter markets. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.
Revenue Recognition
The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed below.
Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.
Plan of Operation in the Next Twelve Months
Specifically, our plan of operations for the next 12 months is as follows:
We are planning to develop and expand our business through organic growth and at the same level through the acquisition of carefully targeted companies that are operating in the pharmaceutical industry and would add value to our Company and its shareholders. Our organic growth would be driven by entering into new markets and areas where we can sell and distribute a more profitable series of pharmaceutical products and over the counter products and nutraceuticals. We are committed to capitalizing on sales growth opportunities by increasing our customer pipeline across the European Market and entering into countries outside the European Union.
We are also committed to pursuing various forms of business development; this can include trading, alliances, licenses, joint ventures, dispositions and acquisitions. Moreover we hope to continue to build on our portfolio of pharmaceutical products and expand our product pipeline to generic and nutraceutical products. Thus, we plan to formulate a sound sales distribution network specializing in generic as well as in cosmetic and food supplement products.
Our main objective is expanding the business operations of our current subsidiaries, SkyPharm and Decahedron, by concentrating our efforts on becoming an international manufacturing, trading and distribution pharmaceutical company. The Company’s focus is on branded pharmaceuticals, over-the-counter (OTC) medicines, and generics, with plans to expand into nutraceuticals and to target areas where we believe we can build and maintain a strong position.
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Through our new subsidiary, Decahedron, we plan to penetrate into the English pharmaceutical market and expand our wholesale networks. We could utilize the ability of trading pharmaceutical products in and out of the English market according to the FX currency exchange rate of euro to English pounds.
We view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. Under these principles we assess our businesses and assets as part of our regular, ongoing portfolio review process and continue to consider trading development activities for our businesses.
The Company, in the following twelve months, intends to start its business operations within the markets of generic pharmaceutical products as well as nutraceuticals. These industries are highly competitive and may significantly affect the Company’s sales of these products, including, but not limited to, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance.
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.
In addition to expanding our product portfolio, we also plan to evaluate offering our products and services to different geographical markets. We are currently focused on our customers throughout the European Union. We plan on expanding our geographical reach to new areas outside of the European Union market, although we currently have no binding agreements, commitments or contracts in any of these geographical markets. Some of the methods we intend to use to accomplish this are: promoting our brand and marketing our products and services through the Internet to new geographic areas, creating strategic relationships with companies in the different geographical regions, and possibly acquiring companies that operate in new geographical regions. We anticipate that we will spend approximately $70,000 evaluating the different methods and regions to which we plan to expand. This cost is made up of primarily legal fees, consulting fees, accounting and auditing fees as well as related development expenses. We assess the foreseeable development of the Company as being positive.
We expect to continue growing through expansion into adjacent products, product categories and channels, as well as through entry into new geographic markets. We evaluate potential acquisition targets based on whether they have the capacity to deliver a return on invested capital.
As to potential acquisitions we are targeting companies that are operating primarily in the pharmaceutical sector and within the European Union boarders. SEC filing requirements are such that we will have to file audited financial statements of all our operations, including any acquired business. So we plan that our first step in any potential acquisition process we undertake is to ascertain whether we can obtain audited financials of a company if we were to acquire them. We anticipate that we will spend approximately $500,000 to locate, conduct due diligence, and evaluate possible acquisitions. As noted above, as of the date of this report, we do not have any binding agreements, commitments, or understandings with any potential acquisition candidates.
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. We will continue to encounter the competition in the market by product, service, reliability and a high level of quality. On the procurement side we can access a wide range of supply possibilities. To minimize business risks we diversify our sources of supply all over Europe. We secure our high quality demands through careful supplier qualification and selection as well as active suppliers’ system management.
We assess the foreseeable development of the Company as being positive. Over the medium term we assume that we will be able to further expand our market shares. However, during the course of further organizational optimization there may be associated extraordinary additional costs.
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We still see the risks for the future development in a difficult and competitive environment, increasing purchase prices and the stagnating selling price level. On the background of our financial stability we however see ourselves as being well-equipped for managing the future risks. Risks that could endanger the survival of the Company are currently not able to be identified.
We will evaluate and, where appropriate, execute on opportunities to expand our businesses through the acquisition of products and companies in areas that will serve patients and customers and that we believe will offer above average growth characteristics and attractive margins. In particular, we are looking to continue to enhance our product lines by acquiring or licensing rights to additional products and regularly evaluate selective acquisition and license opportunities. In addition, we remain committed to strategic R&D across each business unit with a particular focus on assets with inherently lower risk profiles and clearly defined governmental regulatory pathways.
Off Balance Sheet Arrangements
As of March 31, 2018 there were no off balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management 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.
Revenue Recognition: The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed below.
Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.
Foreign Currency. The Company requires translation of the Amplerissimo financial statements from euros to dollars since the reverse take-over on September 27, 2013. 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. 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 the Republic of Cyprus, Greece and the United Kingdom of England. The corporate income tax rate in Cyprus is 12.5%, 29% in Greece (tax losses are carried forward for five years effective January 1, 2013. Prior to 2013, losses were carried forward indefinitely) and 20% in 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 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 Holdings, Inc. which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the Republic of Cyprus. 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 the Republic of Cyprus.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable. A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer/Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer/Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective.
Changes in Internal Controls Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
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None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Subsequent Events
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(a) Exhibits.
Exhibit No. | Document Description | |
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Certification of CEO/CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
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101.INS | XBRL Instance Document** | |
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101.SCH | XBRL Taxonomy Extension Schema Document** | |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
_________________
* | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cosmos Holdings Inc. | |||
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Date: May 21, 2018 | By: | /s/ Grigorios Siokas | |
Grigorios Siokas | |||
Chief Executive Officer (Principal Executive Officer, Acting Principal Financial Officer and Acting Principal Accounting Officer ) |
In accordance with the Exchange Act, this report has been duly signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signatures | Title | Date | ||
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/s/ Grigorios Siokas | Chief Executive Officer | May 21, 2018 | ||
Grigorios Siokas | (Principal Executive Officer, Acting Principal Financial Officer and Acting Principal Accounting Officer) and Director | |||
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/s/ Dimitrios Goulielmos | Director | May 21, 2018 | ||
Dimitrios Goulielmos | ||||
/s/ John J. Hoidas | Director |
May 21, 2018 | ||
John J. Hoidas | ||||
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/s/ Demetrios G. Demetriades | Secretary and Director | May 21, 2018 | ||
Demetrios G. Demetriades |
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EXHIBIT INDEX
Exhibit No. | Document Description | |
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101.INS | XBRL Instance Document** | |
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101.SCH | XBRL Taxonomy Extension Schema Document** | |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** | |
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Exhibit 101 | Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.** |
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* | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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EXHIBIT 31.1
CERTIFICATION
I, Grigorios Siokas, certify that:
1. | I have reviewed this report on Form 10-Q of Cosmos Holdings Inc.; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): | ||||
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | ||||
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| Cosmos Holdings Inc. | ||||
Date: May 21, 2018 | By: | /s/ Grigorios Siokas | |||
Grigorios Siokas | |||||
Principal Executive Officer, Acting Principal Financial Officer and Acting Principal Accounting Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended March 31, 2018 of Cosmos Holdings Inc. (the "Company") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Cosmos Holdings Inc. | |||
Date: May 21, 2018 | By: | /s/ Grigorios Siokas | |
Grigorios Siokas | |||
Principal Executive Officer, Acting Principal Financial Officer and Acting Principal Accounting Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cosmos Holdings Inc. and will be retained by Cosmos Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 10.1
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT is made as of the 17th day of May, 2018 and is
AMONG
THE PERSONS IDENTIFIED ON SCHEDULE A TO THIS AGREEMENT AS THE SELLERS,
(together, the “Sellers”)
AND
MARATHON GLOBAL INC., a corporation incorporated under the laws of the Province of Ontario
(“Marathon”)
AND
KANEH BOSM BIOTECHNOLOGY INC., a corporation incorporated under the laws of the Province of British Columbia
(“KBB”)
RECITALS:
A. | The Sellers are the registered and beneficial owners of an aggregate of seven million five hundred thousand (7,500,000) shares, representing approximately 44.12% of the issued and outstanding common shares of Marathon (the “Purchased Shares”). |
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B. | KBB is a reporting issuer in the provinces of British Columbia, Alberta and Ontario with its common shares listed for trading on the Canadian Securities Exchange. |
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C. | The Sellers wish to sell to KBB, and KBB wishes to purchase from the Sellers, all of the Purchased Shares on the terms and conditions set forth in this Agreement. |
IN CONSIDERATION of the premises and mutual covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties agree with one another as follows:
1. | Definitions and Interpretation |
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1.1 | Definitions. Whenever used in this Agreement, the following words and terms will have the respective meanings ascribed to them below: |
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1.1.1 | “Agreement” means this Share Exchange Agreement, all of the Schedules to this Share Exchange Agreement and all instruments supplemental to or in amendment or confirmation of this Share Exchange Agreement. |
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| 1.1.2 | “Assets” means the undertaking, property and assets of Marathon or KBB, as the case may be, as a going concern of every kind and description, wheresoever situated. |
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| 1.1.3 | “Business” means in the case of KBB, as applicable, its current business as presently conducted, as disclosed in the KBB Public Record. |
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| 1.1.4 | “Closing” means the completion of the purchase and sale of the Purchased Shares pursuant to this Agreement. |
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| 1.1.5 | “Closing Date” means the date on which the purchase and sale of all of the issued and outstanding Marathon Shares is completed, which shall be the date mutually agreed by Marathon and KBB. |
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| 1.1.6 | “Closing Time” means 10:00 a.m. (Toronto time) on the Closing Date or such other time on such date as the parties may agree as the time at which the Closing will take place. |
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| 1.1.7 | “Damages” has the meaning given in Section 6.1. |
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| 1.1.8 | “Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, pre-emptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). |
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| 1.1.9 | “Exchange” means the Canadian Securities Exchange. |
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| 1.1.10 | “Governmental Authority” means any federal, provincial, state, municipal, county or regional government or governmental authority, domestic or foreign and includes any department, commission, board, administrative agency or regulatory body thereof. |
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| 1.1.11 | “IFRS” means International Financial Reporting Standards. |
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| 1.1.12 | “Intellectual Property Rights” means all patents and inventions, trademarks, trade names and styles, logos and designs, service marks, trade dress, industrial designs, internet domain names, world wide websites, website names, electronic mail addresses, copyrights, trade secrets, technical information, engineering procedures, designs, know-how and processes (whether confidential or otherwise), software, other industrial property (including applications for any of these) and other similar rights and properties. |
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| 1.1.13 | “KBB Financial Statements” means the audited consolidated financial statements of KBB for the fiscal years ended February 29, 2017 and February 28, 2016, and the unaudited consolidated financial statements of KBB for the period ended November 30, 2017, copies of which have been filed by KBB on SEDAR. |
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| 1.1.14 | “KBB Public Record” means all publicly available press releases, material change reports, annual information forms, information circulars, financial statements and other documents that have been disclosed by KBB to the public and filed with any applicable Canadian or other securities regulatory authority or otherwise posted on SEDAR. |
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| 1.1.15 | “KBB Shares” means the common shares in the capital of KBB as they are presently constituted. |
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| 1.1.16 | “Marathon Shares” means the common shares in the capital of Marathon as they are presently constituted. |
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| 1.1.17 | “Payment Shares” has the meaning given in Section 2.2. |
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| 1.1.18 | “Person” includes an individual, corporation, partnership, joint venture, trust, unincorporated organization, the Crown or any agency or instrumentality thereof or any other juridical entity. |
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| 1.1.19 | “Purchase Price” has the meaning given in Section 2.2. |
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| 1.1.20 | “Purchased Shares” has the meaning given in the recitals above. |
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| 1.1.21 | “SEDAR” means the System for Electronic Document Analysis and Retrieval. |
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| 1.1.22 | “Subsidiary” means, with respect to a specified body corporate, any body corporate of which more than 50% of the outstanding shares ordinarily entitled to elect a majority of the board of directors thereof (whether or not shares of any other class or classes will or might be entitled to vote upon the happening of any event or contingency) are at the time owned directly or indirectly by such specified body corporate and will include any body corporate, partnership, joint venture or other entity over which it exercises direction or control. |
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| 1.1.23 | “Taxes” means all levies and assessments imposed by any Governmental Authority, including but not limited to all income, sales, use, ad valorem, value added, franchise, withholding, payroll, employment, excise or property taxes, together with any applicable interest or penalty. |
1.2 | Gender and Number. In this Agreement, words importing the singular include the plural and vice versa and words importing gender include all genders. |
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1.3 | Article and Section Headings. Article and Section headings contained in this Agreement are included solely for convenience, are not intended to be full or accurate descriptions of the content of any Article or Section and will not be considered to be part of this Agreement. |
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1.4 | Schedules. The following Schedules are an integral part of this Agreement: |
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Schedule A – The Sellers, Purchased Shares and Payment Shares | |
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1.5 | Accounting Terms. Unless otherwise indicated, all accounting terms not otherwise defined have the meanings assigned to them, and all calculations are to be made and all financial data to be submitted are to be prepared, in accordance with IFRS. |
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1.6 | Arm’s Length. For purposes of this Agreement, Persons are not dealing “at arm’s length” with one another if they would not be considered to be dealing at arm’s length with one another for purposes of the Income Tax Act (Canada), as amended. |
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1.7 | Statutory Instruments. Unless otherwise specifically provided in this Agreement, any reference in this Agreement to any law, by law, rule, regulation, order, act or statute of any government, Governmental Authority or other regulatory body will be construed as a reference to those as amended or re-enacted from time to time or as a reference to any successor thereof. |
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2. | Purchase and Sale |
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2.1 | Purchased Shares. Upon and subject to the terms of this Agreement, the Sellers agree to sell, assign and transfer, free and clear of all Encumbrances, and KBB agrees to purchase, all of the Purchased Shares, as at the Closing Time on the Closing Date, in accordance with subsection 2.3.1 below. |
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2.2 | Purchase Price. The aggregate purchase price (the “Purchase Price”) payable by KBB to the Sellers for the Purchased Shares shall be the issuance to the Sellers of an aggregate of 15,000,000 KBB Shares (the “Payment Shares”) as fully paid and non-assessable. The Payment Shares will be allocated among the Sellers as set forth in Schedule A. |
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2.3 | Acknowledgements and Agreements of the Sellers. Each of the Sellers acknowledges and agrees as follows with respect to the sale of the Purchased Shares and the receipt of the Payment Shares by such Seller pursuant to this Agreement: |
| 2.3.1 | Effective as at the Closing Time (i) the Sellers shall be deemed to have sold, assigned and transferred the Purchased Shares to KBB, (ii) KBB shall be delivered one or more share certificates registered as directed by KBB representing the total number of Marathon Purchased Shares, (iii) the Payment Shares shall be issued to the Sellers, allocated among the Sellers pursuant to section 2.2 above, and evidenced by certificates delivered to the Sellers representing the Payment Shares, and (iv) any certificates representing the Purchased Shares held by the Sellers shall be cancelled and thereafter shall be of no further force or effect. |
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| 2.3.2 | Such Seller has been independently advised as to the applicable hold periods imposed in respect of the Payment Shares by the securities legislation in the jurisdiction in which such Seller resides, and such Seller confirms that no representation has been made respecting the applicable hold periods for the Payment Shares and that such Seller is aware of the risks and other characteristics of the Payment Shares and of the fact that such Seller may not resell the Payment Shares except in accordance with applicable securities legislation and regulatory policy until expiry of the applicable hold periods and compliance with the other requirements of applicable law. Such Seller acknowledges that the certificates representing the Payment Shares will contain legends denoting the applicable resale restrictions, if any, and such Seller will not resell the Payment Shares except in accordance with the provisions of applicable securities legislation and Exchange rules. |
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| 2.3.3 | Such Seller has been advised that no prospectus has been filed in connection with the issuance and granting of the Payment Shares and as the Payment Shares are being issued and granted to the Sellers pursuant to exemptions from the prospectus requirements of applicable securities laws: |
| (a) | most of the civil remedies applicable to the issuance and granting of securities by way of prospectus provided for in such laws are not available to such Seller; |
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| (b) | such Seller may not receive information that would be provided if no such exemptions were available; and |
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| (c) | KBB is relieved of certain obligations in respect of offerings by way of prospectus which would otherwise apply under applicable securities laws. |
| 2.3.4 | Such Seller will comply with any requirements imposed by the Exchange or securities legislation as a result of the shareholdings of such Seller in KBB exceeding certain thresholds, such requirements to include, without limitation, the filing of insider and early warning reports under applicable Canadian securities laws. |
3. | Representations and Warranties |
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3.1 | Representations and Warranties of Marathon. Marathon represents, warrants and covenants to KBB as follows, and acknowledges that KBB is relying on these representations, warranties and covenants in entering into this Agreement and in completing the transactions contemplated hereby: |
| 3.1.1 | Organization and Good Standing – Marathon is duly incorporated or organized and validly existing under the laws of the Province of Ontario. |
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| 3.1.2 | Bankruptcy – No bankruptcy, insolvency or receivership proceedings have been instituted or are pending against Marathon, and Marathon is able to satisfy its liabilities as they become due. |
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| 3.1.3 | Due Authorization – Marathon has all necessary power, authority and capacity to enter into this Agreement and to perform its obligations under this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of Marathon. |
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| 3.1.4 | Authorized and Issued Capital – The authorized capital of Marathon consists of an unlimited number of common shares and an unlimited number of special shares, issuable in series, of which 17,000,000 Marathon Shares have been validly issued and are outstanding as fully paid and non-assessable. The Sellers are the registered owners of all of the Purchased Shares and the Purchased Shares are held by them as set out in Schedule A. |
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| 3.1.5 | Enforceability of Obligations – This Agreement constitutes a valid and binding obligation of Marathon enforceable against Marathon in accordance with its terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors’ rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. |
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| 3.1.6 | Subsidiaries – Marathon does not have any Subsidiaries. |
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| 3.1.7 | Assets - Marathon is party to a Distribution and Equity Acquisition Agreement (the “Distribution Agreement”) dated March 19, 2018, as amended, with Cosmos Holdings Inc. (“Cosmos”). The execution and delivery of this Agreement and the performance by Marathon and the Sellers, and their respective obligations hereunder as agreed to by Marathon and Cosmos, do not and will not result in or constitute a breach of any term or provision of, or constitute a default, under the Distribution Agreement or constitute an event which would permit Cosmos to terminate the Distribution Agreement or to accelerate other obligations of Marathon. |
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3.2 | Representations and Warranties of the Sellers: Each Seller severally (and not jointly or jointly and severally) makes the following representations and warranties to KBB and acknowledges that KBB is relying on such representations and warranties in entering into this Agreement and in completing the transactions contemplated under this Agreement: | |
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| 3.2.1 | The Purchased Shares – Such Seller is the legal and beneficial owner of the number of Purchased Shares shown as held by such Seller on Schedule A and on Closing KBB will acquire good and marketable title to such Purchased Shares free and clear of all Encumbrances. |
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| 3.2.2 | Litigation (Shares) – There is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or threatened against such Seller relating to the Purchased Shares. |
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| 3.2.3 | Enforceability of Obligations – When executed and delivered, this Agreement will constitute valid and legally binding obligations enforceable against such Seller in accordance with its terms subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy or similar proceedings and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. | |
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| 3.2.4 | Residence – Such Seller is resident in the jurisdiction set out opposite its name on Schedule A. | |
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| 3.2.5 | Corporate Seller – If the Seller is a corporation: | |
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| (a) | it is duly incorporated or organized and validly existing in its jurisdiction of incorporation and is in good standing with respect to the filing of annual reports; and |
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| (b) | it has all necessary power, authority and capacity to enter into this Agreement and to perform its obligations under this Agreement; and the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of such Seller. |
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3.3 | Representations and Warranties of KBB. KBB hereby represents, warrants and covenants to Marathon and the Sellers as follows and acknowledges that Marathon and the Sellers are relying on these representations, warranties and covenants in entering into this Agreement and in completing the transactions contemplated under this Agreement: | ||
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| 3.3.1 | Organization and Good Standing – KBB is duly incorporated or organized and validly existing under the laws of the Province of British Columbia, Canada. | |
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| 3.3.2 | Bankruptcy – No bankruptcy, insolvency or receivership proceedings have been instituted or are pending against KBB, and KBB is able to satisfy its liabilities as they become due. | |
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| 3.3.3 | Capacity to Carry on Business – KBB has all necessary corporate power, authority and capacity to own its Assets and to carry on its business as presently owned and carried on by it and KBB is duly licensed, registered and qualified as a corporation to do business and is in good standing in each jurisdiction in which the nature of its business makes such qualification necessary. | |
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| 3.3.4 | Due Authorization – KBB has all necessary power, authority and capacity to enter into this Agreement and to perform its obligations under this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of KBB. |
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| 3.3.5 | Authorized and Issued Capital – The authorized capital of KBB consists of an unlimited number of common shares, of which 38,009,108 KBB Shares have been validly issued and are outstanding as fully paid and non-assessable. |
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| 3.3.6 | Absence of Conflicting Agreements – The execution and delivery of this Agreement and the performance by KBB and its obligations hereunder do not and will not: |
| (a) | result in the violation of any applicable laws; |
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| (b) | result in or constitute a breach of any term or provision of, or constitute a default under, any constating documents of KBB or any agreement to which KBB is a party or its Assets are bound; or |
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| (c) | constitute an event which would permit any party to any agreement with KBB to terminate such agreement or to accelerate the maturity of any indebtedness or other obligation of KBB. |
| 3.3.7 | Consents – There are no consents, authorizations, licenses, agreements, permits, approvals or orders of any Person or Governmental Authority required to permit KBB to complete the transactions contemplated by this Agreement other than those that have already been obtained by KBB and disclosed by KBB to Marathon. |
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| 3.3.8 | Rights and Privileges – There are no rights, privileges or advantages presently enjoyed by KBB which might be lost as a result of the consummation of the transactions contemplated under this Agreement. |
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| 3.3.9 | Enforceability of Obligations – This Agreement constitutes a valid and binding obligation of KBB enforceable against KBB in accordance with its terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors’ rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. |
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| 3.3.10 | Books and Records – The books and records of KBB are fully and accurately maintained and its books of account provide for all excise, sales, business and property taxes and other rates, charges, assessments, levies, duties, taxes, contributions, fees, licenses and other governmental charges of whatsoever kind and nature that have become due and payable or, to the extent such amount is material, that may become due and payable before the Closing Time. The minute books of KBB are complete and accurate in all material respects and reflect all material actions taken and resolutions passed by the directors and shareholders, as the case may be, of KBB, since the date of incorporation or organization. |
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| 3.3.11 | Financial Statements – The KBB Financial Statements are true and correct in every material respect and present fairly the Assets, liabilities and financial position of KBB as at November 30, 2017, and the results of its operations to that date, in accordance with IFRS applied on a basis consistent with that of previous periods. | |
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| 3.3.12 | No Other Liabilities – There are no liabilities, contingent or otherwise, of KBB which are not disclosed or reflected in the KBB Financial Statements except those incurred in the ordinary course of business and KBB has not guaranteed, or agreed to guarantee, any debt, liability or other obligation of any Person. There are no liabilities of any Person capable of creating an Encumbrance on any of KBB’s Assets. | |
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| 3.3.13 | Non-Arm’s Length Obligations – KBB is not indebted to any shareholder, affiliate, director, officer or employee of KBB except as shown on the KBB Financial Statements and none of the shareholders or any affiliate, officer, director or employee of KBB is now indebted or under obligation to KBB on any account. | |
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| 3.3.14 | Absence of Changes – Since November 30, 2017, KBB’s Business has been carried on in the normal course and: | |
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| (a) | no dividend or other distribution on any shares in the capital of KBB has been made, declared or authorized and KBB has neither purchased nor redeemed nor agreed to purchase or redeem any of the shares in its capital; |
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| (b) | no payment of any kind has been made or authorized to or on behalf of any officers, directors or shareholders of KBB; and KBB (i) has not paid or agreed to pay any compensation, pension, bonus, share of profits or other benefit to, or for the benefit of, any employee, director or officer of KBB except in the ordinary course of business and (ii) has not increased or agreed to increase the compensation of any director, officer or management employee except in the ordinary course of business; |
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| (c) | there has not been any material adverse change in the financial position or condition of KBB or any damage, loss or other material adverse change in circumstances affecting KBB’s Business or Assets or the right or capacity of KBB to carry on business; |
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| (d) | KBB has not transferred, assigned, sold or otherwise disposed of any of its Assets except in the ordinary course of business and has not mortgaged, pledged, subjected to lien, granted a security interest in or otherwise encumbered any of its Assets; |
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| (e) | KBB has not discharged or satisfied any Encumbrance or paid any obligation or liability (fixed or contingent) other than liabilities included in the KBB Financial Statements and liabilities incurred since incorporation in the ordinary course of business; |
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| (f) | KBB has not suffered an extraordinary loss, or waived any rights of material value, or entered into any material commitment or transaction not in the ordinary course of business; and |
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| (g) | KBB has not incurred or assumed any obligation or liability (fixed or contingent), except secured and unsecured current obligations and liabilities incurred in the ordinary course of business. |
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| 3.3.15 | Subsidiaries –KBB has one Subsidiary, Kaneh Bosm BioTechnology Inc., which is wholly-owned by KBB and does not have any other subsidiaries. | |
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| 3.3.16 | Since November 30, 2017, other than in respect of the transactions contemplated by this Agreement: | |
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| (a) | KBB has not incurred any liabilities or obligations (whether accrued, absolute, contingent or otherwise), which continue to be outstanding; and |
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| (b) | there has not been any material change in the financial condition, operations or prospects of KBB not fully disclosed in the KBB Public Record. |
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| 3.3.17 | Litigation (KBB) – There is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or to the knowledge of KBB, threatened against or relating to KBB. There is not presently outstanding against KBB any judgement, decree, injunction, rule or order of any court, Governmental Authority, commission, agency, instrumentality or arbitrator. | |
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| 3.3.18 | Litigation (Shares) – There is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or threatened against KBB relating to the Payment Shares. | |
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| 3.3.19 | Compliance with Applicable Laws – KBB has conducted and is conducting its Business in compliance in all material respects with all applicable laws, rules and regulations in each jurisdiction in which its Business is carried on. KBB has not received any notices to the effect that its Business or Assets are not in full compliance with all of the requirements of applicable federal, provincial or local environmental, health and safety statutes and regulations. | |
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| 3.3.20 | Compliance with Securities Laws – KBB is in compliance with its timely disclosure obligations under applicable securities laws, and no order ceasing or suspending trading in securities of KBB or prohibiting the transactions contemplated hereby has been issued and no proceedings for such purpose are ongoing or pending, or to the best knowledge of KBB, threatened. |
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| 3.3.21 | Tax Matters – As of the date of this Agreement, KBB has duly and timely filed all tax returns and reports required by law to have been filed by it (except for such tax returns and reports with respect to which the failure to timely file would not have a materially adverse effect on KBB), has duly and correctly reported all income and other amounts required to be reported and has paid all Taxes to the extent that such Taxes have been assessed by the relevant taxation authority. KBB has duly and timely paid all installments of Taxes required to be paid by it and has made full provision on its books for all Taxes that are not yet due, that will become due and which relate to periods ending immediately prior to the date of this Agreement. There are no actions, suits, proceedings, investigations, audits or claims now pending or, to the knowledge of KBB, threatened against KBB in respect of any Taxes and there are no matters under discussion with any taxation or other Government Authority relating to any such matters. KBB has made all elections required to be made under any legislation relating to income or other taxes payable by it in connection with any distributions by it and all such elections were true and correct. KBB has not before the date of this Agreement: | |
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| (a) | acquired any asset from a Person with whom it was not dealing at arm’s length; or |
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| (b) | disposed of anything to a Person with whom it was not dealing at arm’s length for proceeds less than the fair market value. |
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| 3.3.22 | The Payment Shares – On Closing the Payment Shares: | |
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| (a) | will be issued to the Sellers as fully paid and non-assessable KBB Shares; |
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| (b) | will be duly registered in the names of the Sellers in the books and registers of KBB; and |
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| (c) | will be conditionally approved for listing and posting for trading on the Exchange, subject only to satisfying any conditions stipulated by the Exchange for listing. |
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| 3.3.23 | KBB Public Record – The KBB Public Record is, in all material respects, accurate and complete and omits no facts, the omission of which makes the KBB Public Record or any particulars therein, materially misleading or incorrect at the time such statements were made. KBB has not filed any confidential material change reports which are, as of the date of this Agreement, maintained on a confidential basis. Except as disclosed in the KBB Public Record, there is no fact known to KBB which has, or so far as KBB which has, or so far as KBB can reasonably foresee, will have a material adverse effect, or which would otherwise be material to any person intending to make an investment in KBB. | |
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| 3.3.24 | Title to Properties – KBB has good and marketable title to all its Assets, real and personal, including without limitation those reflected in the KBB Financial Statements or acquired since the date of such statements (except as otherwise permitted in this Agreement or as since transferred, sold or otherwise disposed of in the ordinary course of business), free and clear of all Encumbrances. |
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| 3.3.25 | Intellectual Property Rights – KBB has all Intellectual Property Rights which are necessary to the conduct of its Business. KBB’s Intellectual Property Rights are valid and subsisting and held by KBB with good and marketable title and are in good standing free and clear of all Encumbrances. All registrations with respect to KBB’s Intellectual Property Rights have been made and kept renewed and are in full force and effect. To the knowledge of KBB, the operation of KBB’s Business does not infringe the Intellectual Property Rights of any other Person. To the knowledge of KBB, there are no outstanding moral rights attaching to any copyright owned or used by KBB that have not been waived in favour of KBB. |
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| 3.3.26 | Condition of Assets – All material tangible Assets of KBB used in or in connection with its Business are in good condition, repair and, where applicable, working order, having regard to ordinary wear and tear resulting from the use and age thereof. |
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| 3.3.27 | Shareholders’ Agreements – There is no agreement among any of the shareholders of KBB with respect to KBB and their rights and obligations as shareholders of KBB to which KBB is a party. |
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| 3.3.28 | Disclosure – None of the foregoing representations, warranties and statements of fact contains any untrue statement of material fact or omits to state any material fact necessary to make any such representation, warranty or statement not misleading to a prospective holder of Payment Shares seeking full information concerning the matters which are the subject of such representations, warranties and statements. |
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3.4 | Survival. The representations, warranties and covenants made by the parties in sections 3.1, 3.2, and 3.3 shall terminate (and be of no further force or effect) on the earlier of: (a) the termination of this Agreement in accordance with its terms; and (b) the Closing Time. | |
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3.5 | Investigation. No investigation by or on behalf of Marathon or the Sellers into the Business, operations prospects, Assets, or condition (financial or otherwise) of KBB will diminish in any way the effect of any representations or warranties made by KBB in this Agreement or will relieve KBB of any of its obligations under this Agreement. | |
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4. | Covenants |
| 4.1 | Covenants of Marathon, and the Sellers. Until the earlier of the Closing Time or the termination of this Agreement in accordance with its terms, each of the Sellers and Marathon severally (and not jointly or jointly and severally) hereby covenants and agrees with KBB as follows: |
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| 4.1.1 | Necessary Consents. The Sellers and Marathon shall use commercially reasonable efforts to obtain all approvals or consents as are required to complete the transactions contemplated by this Agreement, including those of the directors and shareholders of Marathon or any applicable Governmental Authority; and if applicable, of Cosmos with respect to the Distribution Agreement. |
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| 4.1.2 | Satisfaction of Conditions Precedent. Each of the Sellers and Marathon shall use commercially reasonable efforts to satisfy or cause to be satisfied the conditions precedent to the transactions contemplated herein which are within his, her or its control. |
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| 4.1.3 | All other Actions. The Sellers and Marathon shall cooperate fully with KBB, and will use all commercially reasonable efforts to assist KBB in its efforts to complete the transactions contemplated by this Agreement, unless such cooperation and efforts would subject the Sellers or Marathon to any extraordinary cost or liability or would be in breach of any applicable statutory or regulatory requirements. |
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4.2 | Covenants of KBB. KBB hereby covenants and agrees with the Sellers and Marathon as follows: | |
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| 4.2.1 | Necessary Consents. KBB shall use commercially reasonable efforts to obtain all approvals or consents as are required to complete the transactions contemplated by this Agreement, including those of the directors and shareholders of KBB, the Exchange or any applicable Governmental Authority. |
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| 4.2.2 | Satisfaction of Conditions Precedent. KBB shall use commercially reasonable efforts to satisfy or cause to be satisfied the conditions in section 5.1 and 5.3 which are within its control. |
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| 4.2.3 | All other Actions. KBB shall cooperate fully with the Sellers and Marathon and will use all commercially reasonable efforts to assist the Sellers and Marathon in their efforts to complete the transactions contemplated by this Agreement, unless such cooperation and efforts would subject KBB to any extraordinary cost or liability or would be in breach of any applicable statutory or regulatory requirements. |
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| 4.2.4 | Material Changes. KBB shall promptly advise Marathon in writing of any event, change or development that has or is reasonably expected to have an adverse effect in respect of the KBB or the transactions contemplated hereunder. |
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5. | Conditions Precedent | |
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5.1 | Conditions Precedent for the Benefit of Marathon. The obligation of Marathon to complete the transactions contemplated by this Agreement are subject to the satisfaction of, or compliance with, at or before the Closing Time, each of the following conditions precedent (each of which is hereby acknowledged to be inserted for the exclusive benefit of Marathon and may be waived by it in whole or in part): | |
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| 5.1.1 | Truth of Representations and Warranties – The representations and warranties of KBB and the Sellers contained in this Agreement will be true and correct on and as of the Closing Date as though made at and as of the Closing Date. |
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| 5.1.2 | Covenants and Agreements – Each of KBB and the Sellers will have satisfied and complied with all covenants and agreements in this Agreement agreed to be performed or caused to be performed by him, her or it on or before the Closing Time. |
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| 5.1.3 | Consents – All consents, approvals, orders and authorizations of or from Governmental Authorities or the Exchange required in connection with the completion of the transactions contemplated by this Agreement will have been obtained on or before the Closing Time on terms and conditions satisfactory to Marathon, including the conditional approval of the listing of the Payment Shares. |
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| 5.1.4 | No Material Adverse Change – No material adverse change (nor any condition, event or development involving a prospective material adverse change) shall have occurred in the Business, Assets, operations, capital or financial condition of KBB. |
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| 5.1.5 | Closing Documents – KBB and the Sellers will have tendered the documents to be delivered by them at Closing in accordance with this Agreement. |
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5.2 | Non-satisfaction of Conditions. If any of the conditions set forth in Section 5.1 are not fulfilled or waived to the reasonable satisfaction of Marathon, Marathon may, acting reasonably, terminate this Agreement by notice in writing to KBB. In such event, Marathon will be released from all obligations under this Agreement and KBB will also be so released unless they were reasonably capable of causing such condition or conditions to be fulfilled or they have breached any of their representations, warranties, covenants or agreements in this Agreement. | |
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5.3 | Conditions Precedent for the Benefit the Sellers. The obligations of each of the Sellers to complete the transactions contemplated by this Agreement are subject to the satisfaction of, or compliance with, at or before the Closing Time, each of the following conditions precedent (each of which is hereby acknowledged to be inserted for the exclusive benefit of each of the Sellers and may be waived by him, her or it in whole or in part): | |
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| 5.3.1 | Truth of Representations and Warranties – The representations and warranties of each of KBB and Marathon contained in this Agreement will be true and correct on and as of the Closing Date as though made at and as of the Closing Date. |
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| 5.3.2 | Covenants and Agreements – Each of KBB and Marathon will have complied with all covenants and agreements in this Agreement agreed to be performed or caused to be performed by it on or before the Closing Time. |
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| 5.3.3 | Consents – All consents, approvals, orders and authorizations of or from Governmental Authorities or the Exchange required in connection with the completion of the transactions contemplated by this Agreement will have been obtained on or before the Closing Time on terms and conditions satisfactory to the Sellers, including the conditional approval of the Exchange to the listing of the Payment Shares. |
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| 5.3.4 | No Material Adverse Change – No material adverse change (nor any condition, event or development involving a prospective material adverse change) shall have occurred in the Business, Assets, operations, capital or financial condition of KBB. |
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| 5.3.5 | The Payment Shares – When issued, the Payment Shares, will be subject to a statutory hold period of four months plus a day from the date of issuance in accordance with applicable securities law. |
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| 5.3.6 | Closing Documents – KBB and Marathon will have tendered the documents to be delivered by it at Closing in accordance with this Agreement. |
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5.4 | Non-satisfaction of Conditions. If any of the conditions set forth in Section 5.3 are not fulfilled or waived to the reasonable satisfaction of the Sellers, the Sellers may, acting reasonably, terminate this Agreement by notice in writing to KBB and Marathon. In such event the Sellers and Marathon will be released from all obligations under this Agreement and KBB will also be so released unless it was reasonably capable of causing such condition or conditions to be fulfilled or it has breached any of its representations, warranties, covenants or agreements in this Agreement. | |
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5.5 | Waivers. Each of the parties on his, her or its behalf, may waive any condition for his, her or its benefit in this Agreement, in whole or in part, without prejudice to any right of rescission or any other right in the event of the non-fulfilment of any other condition or conditions. A waiver will only be binding if it is in writing. | |
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6. | Indemnification | |
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6.1 | Indemnification by KBB. KBB agrees to indemnify and save harmless Marathon from and against any and all losses, debts, obligations, liabilities, expenses, costs and damages (including reasonable legal fees) (collectively, the “Damages”) suffered or incurred by Marathon as a result of any breach of, or untruth of, any of the covenants, warranties or representations contained in section 3.3 and 4.2 of this Agreement. | |
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6.2 | Indemnification by Marathon. Marathon agrees to indemnify and save harmless KBB from and against any and all Damages suffered or incurred by KBB as a result of any breach of, or untruth of, any of the covenants, warranties or representations contained in section 3.1, or 4.1 of this Agreement. | |
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7. | Closing Arrangements | |
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7.1 | The closing of this transaction shall take place at the offices of Irwin Lowy LLP, located at 365 Bay Street, Suite 400, on the Closing Date. | |
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7.2 | On the Closing Date, Marathon and the Sellers shall deliver, or cause to be delivered, to KBB such documents as may reasonably be required to perfect the transactions contemplated by this Agreement and KBB shall deliver, or cause to be delivered, to Marathon and the Sellers such documents as may reasonably be required to perfect the transactions contemplated by this agreement. |
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8. | Notices |
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8.1 | Delivery of Notice. Any notice, direction or other instrument required or permitted to be given by any party under this Agreement will be in writing and will be sufficiently given if delivered personally or by courier, or transmitted by fax or email means during the transmission of which no indication of failure of receipt is communicated to the sender: |
| 8.1.1 | in the case of Marathon and the Sellers: |
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| Marathon Global Inc. 5264 Cedar Springs Road Burlington, Ontario L7P 0B9 Attention: Gavin Treanor Email: gtreanor3187@gmail.com
with a copy to:
Irwin Lowy LLP 365 Bay Street, Suite 400 Toronto, Ontario M5H 2V1
Attention: Steven Agnew Facsimile #: (416) 361-2519 Email: sagnew@irwinlowy.com |
| 8.1.2 | in the case of KBB: |
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| Kaneh Bosm BioTechnology Inc. Suite 810-789 West Pender Street Vancouver, British Columbia V6C 1H2
Attention: Chief Financial Officer Email: theo@pashleth.com |
8.2 | Receipt of Notice. Any such notice, direction or other instrument, if delivered personally, will be deemed to have been given and received on the date on which it was received at such address and, if sent by fax or email, will be deemed to have been given and received on the date of transmission in accordance with this Section. |
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9. | Termination |
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9.1 | Grounds for Termination. This Agreement may be terminated at any time before the Closing: |
| 9.1.1 | by the mutual agreement of KBB and Marathon; |
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| 9.1.2 | by either Marathon or KBB if it is not in material breach of its obligations under this Agreement, and if there has been a breach by the other of any of its representations and warranties or covenants hereunder and in either case such breach has not been cured within ten days after written notice, specifying such breach, to such Party; or |
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| 9.1.3 | by KBB or Marathon if the Closing Date is not on or before June 30, 2018 or such later date as may be agreed in writing by KBB and Marathon. |
9.2 | Effect of Termination. If this Agreement is terminated as provided in Section 9.1, it will, except as provided herein, forthwith become void, and, subject to Sections 3.4, 5.2 and 5.4 none of the parties or their respective officers, directors, employees, agents, or shareholders will have any liability or obligation with respect to the terminated provisions of the Agreement. Sections 3.4, 5.2, 5.4, 11.3 and 11.4 will survive termination of this Agreement and will continue to be in effect notwithstanding the termination of this Agreement. |
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10. | Power of Attorney |
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10.1 | Each of the Sellers hereby severally and irrevocably appoints Marathon as their attorney to take any action that is required and hereby authorizes any director or officer of Marathon, on behalf of Marathon, to sign any documents on their behalf, including without limitation, for the purposes of all Closing matters and deliveries of documents and to do and cause to be done all such acts and things as may be necessary or desirable in connection with the transactions contemplated hereunder, including the sale, assignment and transfer of the Purchased Shares to KBB. Without limiting the generality of the foregoing, Marathon may, on behalf of itself and the Sellers, extend the Time of Closing, modify or waive such conditions as are contemplated herein, negotiate, settle and deliver the final forms of this Agreement and any other documents that are necessary or desirable to give effect to the transactions contemplated herein. |
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11. | General Provisions |
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11.1 | Entire Agreement. This Agreement, including all the Schedules hereto, together with the agreements and other documents to be delivered pursuant hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes any and all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no warranties, representations or other agreements among the parties in connection with the subject matter hereof except as specifically set forth herein and therein. |
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11.2 | Costs and Expenses. KBB agrees that it will pay, up to an aggregate of $20,000.00, all fees and expenses and all applicable taxes thereon in connection with the purchase and sale of the Purchased Shares and the transactions contemplated by this Agreement, including the reasonable expenses of Marathon in connection with therewith (including all reasonable fees, expenses and disbursements of Marathon’' legal counsel). All such fees and expenses incurred by Marathon or on its behalf shall be payable by KBB immediately upon receiving an invoice therefor and shall be payable whether or not the purchase and sale of the Purchased Shares is completed. |
- 18 -
11.3 | Confidentiality. Until the Closing Time, and in the event of the termination of this Agreement without consummation of the transactions contemplated by this Agreement, for a period of two years from the date of this Agreement, each party to this Agreement will keep confidential any information obtained from the other parties, provided that a party may disclose confidential information (i) to those of its representatives and professional advisors who have a need to know the information in connection with providing advice with respect to this Agreement and the transactions contemplated thereby if such representatives and advisors commit to protect such information in a manner consistent herewith or (ii) if such disclosure is required by law or the rules of the Exchange or over Governmental Authority or (iii) if such information has been made public other than as a result of a breach of this Section. If this Agreement is terminated without consummation of the transactions contemplated thereby, promptly after such termination all documents, work papers and other written material obtained from a party in connection with this Agreement and not theretofore made public (including all copies and photocopies thereof), shall be returned to the party that provided such material. |
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11.4 | Public Announcements. Neither KBB nor Marathon will, without the prior consent of the others, make any disclosure regarding the existence, purpose, scope, content, terms or conditions of this Agreement or other agreements relating to this Agreement except in order to comply with a legal obligation, the requirements of a competent Government Authority or the requirements of the Exchange; provided that, where practicable, a copy of any proposed announcement or statement will be furnished to the other parties in advance of the proposed date of publication. Nothing herein will prevent disclosure of the terms of this Agreement to a corporate party’s directors, officers, employees or agents or its financial, legal, accounting or other advisors. |
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11.5 | Waiver. The failure of a party in any one or more instances to insist upon strict performance of any of the terms of this Agreement or to exercise any right or privilege arising under it will not preclude it from requiring by reasonable notice that any other party duly perform its obligations or preclude it from exercising such a right or privilege under reasonable circumstances, nor will waiver in any one instance of a breach be construed as an amendment of this Agreement or waiver of any later breach. |
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11.6 | Assignment. None of the parties will assign, transfer, charge or otherwise encumber the benefit (or any part thereof) or the burden (or any part thereof) of this Agreement without the prior written consent of the other parties, such consent not to be unreasonably withheld. |
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11.7 | Further Assurances. Each of the parties hereto will from time to time at the request of any of the other parties hereto and without further consideration, execute and deliver all such other additional assignments, transfers, instruments, notices, releases and other documents and will do all such other acts and things as may be necessary or desirable to assure more fully the consummation of the transactions contemplated hereby. |
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11.8 | Time. Time will be of the essence of this Agreement. |
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11.9 | Amendment. This Agreement may be amended or varied only by agreement in writing signed by each of the parties. Unless the context otherwise so requires, a reference to this Agreement includes a reference to this Agreement as amended or varied from time to time. |
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11.10 | Several. Unless otherwise provided, each and every covenant, representation or warranty of the Sellers contained herein is several (and not joint or joint and several). |
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11.11 | Severability. If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability will attach only to such provision or part thereof and the remaining part of such provision and all other provisions hereof will continue in full force and effect. |
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11.12 | Governing Law. This Agreement will be governed by and interpreted in accordance with the laws from time to time in force in the Province of Ontario and each of the parties hereby attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario, sitting in Toronto. |
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11.13 | Benefit of Agreement. This Agreement will enure to the benefit of and be binding upon each of the parties hereto who is a corporation and their respective successors and permitted assigns and upon each of the parties hereto who is an individual and their respective executors, personal representatives, heirs, successors and permitted assigns. |
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11.14 | Counterparts. This Agreement may be executed in as many counterparts as are necessary. It will be binding on each party when each party hereto has signed and delivered one such counterpart. Delivery may be made by facsimile or other electronic transmission. When a counterpart of this Agreement has been executed by each party, all counterparts together will constitute one agreement. |
THE PARTIES, intending to be contractually bound, have executed this Agreement as of the date and year first above written.
MARATHON GLOBAL INC. |
| KANEH BOSM BIOTECHNOLOGY INC. |
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By: | /s/ Gavin Treanor |
| By: | /s/ Eugene Beukman |
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| (Authorized Signatory) |
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| (Authorized Signatory) |
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- 20 -
SELLERS:
COSMOS HOLDINGS INC. | |||
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By: | /s/ Grigorios Siokas |
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| (Authorized Signatory) |
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SIGNED, SEALED & DELIVERED In the presence of:
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/s/ Gavin Treanor |
Witness | Gavin Treanor |
SIGNED, SEALED & DELIVERED In the presence of:
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/s/ Lianne Treanor |
Witness | Lianne Treanor |
SIGNED, SEALED & DELIVERED In the presence of:
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/s/ Brian Treanor |
Witness | Brian Treanor |
SCHEDULE A
THE SELLERS, PURCHASED SHARES AND PAYMENT SHARES
Shareholder |
Shareholder Address |
Number of Purchased Shares Held |
Number of Payment Shares to be Received |
Cosmos Holdings Inc. |
5,000,000 |
10,000,000 | |
Gavin Treanor |
1,000,000 |
2,000,000 | |
Lianne Treanor |
1,000,000 |
2,000,000 | |
Brian Treanor |
500,000 |
1,000,000 | |
Total |
7,5000,000 |
15,000,000 |
EXHIBIT 10.2
Dated 16 May 2018
SKYPHARM S.A.
as Commodity Buyer
and
SYNTHESIS – structured commodity trade finance limited
as Loan Receivables Originator
SUPPLEMENTAL DEED OF AMENDMENT
relating to a Trade Finance Facility dated 12 May 2017
as amended
1 |
Index
Clause Page 1 Definitions and Interpretation 3 2 Variations 4 3 Repayment 6 4 Conditions Precedent 7 5 Representations 8 6 Further Assurance 8 7 Costs and Expenses 9 8 Severability 9 9 Notices 9 10 Counterparts 9 11 Governing Law 9 12 Enforcement 9 Execution Page 10
2 |
THIS DEED is made on 16 May 2018 (the "Agreement")
PARTIES
(1) | SKY PHARM S.A. (ΦΑΡΜΑΠΟΘΗΚΗ ΣΚΑΪ ΦΑΡΜ Α.Ε.), a société anonyme duly incorporated and validly existing and operating under the laws of the Hellenic Republic, holder of General Commercial Registry (ΓΕΜΗ) No. 131417304000 and Tax Registration No. 800597686/Tax Authority FAE Thessaloniki, having its registered office at 5, Agiou Georgiou Street, 57001 Thessaloniki, as Commodity Buyer (the “Commodity Buyer”) |
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(2) | SYNTHESIS - STRUCTURED COMMODITY TRADE FINANCE LIMITED, a private limited company incorporated in England and Wales, with registered office at 16 Great Queen Street, London, WC2B 5AH, United Kingdom, as Loan Receivables Originator (the “Loan Receivables Originator”) |
BACKGROUND
(A) | By a facility agreement dated 12 May 2017 entered into between the Commodity Buyer and the Loan Receivables Originator (the “Trade Finance Facility Agreement”) and a facility letter entered into between the Loan Receivables Originator and the Commodity Buyer dated 12 May 2017 (the “Original Trade Finance Facility Offer Letter”), as amended and supplemented by a facility letter entered into between the Loan Receivables Originator and the Commodity Buyer dated 16 November 2017 (the “Amended Trade Finance Facility Offer Letter” and, together with the Trade Finance Facility Agreement and the Original Trande Finance Facility Offer Letter, the "Facility Documents"), the Loan Receivables Originator granted a trade finance facility to the Commodity Buyer (the “Trade Finance Facility”), in accordance with the terms of the Facility Documents. |
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(B) | The amount of principal of the Trade Finance Facility which remains outstanding as of 31 March 2018 is €5,866,910. |
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(C) | The Commodity Buyer has agreed to make a payment in respect of interest and principal in the amount of €1,000,000 on 31 May 2018 (as provided below). |
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(D) | The Parties now wish to amend certain terms of the Trade Finance Facility in accordance with the terms and conditions of this Agreement. |
OPERATIVE PROVISIONS
1 Definitions and Interpretation 1.1 Definitions In this Agreement: "Facility Offer Letters" means, together, the Original Trade Finance Facility Offer Letter and the Amended Trade Finance Facility Offer Letter. "Finance Documents" means, together, the Trade Finance Facility Agreement, the Facility Offer Letters, the Security Documents, the Title Documents and any other document designated as such by the Loan Receivables Originator and the Commodity Buyer, and "Finance Document" means any of them. "Party" means a party to this Agreement.
3 |
1.2 | Defined expressions |
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Defined expressions in the Trade Finance Facility Agreement and the other Finance Documents shall have the same meanings when used in this Agreement unless the context otherwise requires or unless otherwise defined in this Agreement. | |
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1.3 | Application of construction and interpretation provisions of Trade Finance Facility Agreement |
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Clause 1.1 (definitions) of the Trade Finance Facility Agreement applies to this Agreement as if it were expressly incorporated in it with any necessary modifications. | |
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1.4 | Agreed forms of new, and supplements to, Finance Documents |
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References in Clause 1.1 (definitions) to any new or supplement to a Finance Document being in "agreed form" are to that Finance Document in a form agreed in writing between the Loan Receivables Originator and the Commodity Buyer. | |
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1.5 | Designation as a Finance Document |
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The Loan Receivables Originator and the Commodity Buyer designate this Agreement as a Finance Document. | |
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1.6 | Third party rights |
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Unless provided to the contrary in a Finance Document, a person who is not a Party has no right under the Third Parties Act to enforce or to enjoy the benefit of any term of this Agreement. | |
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2 | Variations |
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2.1 | Amendments to the Trade Finance Facility Agreement |
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| Subject to and upon the terms and conditions of this Agreement, the parties agree to amend of the Trade Finance Facility Agreement as follows: |
(a) | Clause 1 (Definitions) shall be amended to include the following definitions: |
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| "Approved Purchasers" means: |
| (i) | Day Lewis Medical Limited; |
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| (ii) | P.C.O. Manufacturing Limited; |
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| (iii) | Kohlpharma GmbH; |
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| (iv) | Beragena Arzneimittel GmbH; |
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| (v) | Dr. Fisher Farma B.V.; |
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| (vi) | MPA Pharma GmbH; |
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| (vii) | Abacus Medicine A/S; |
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| (viii) | Doncaster Pharmaceutical Group LTD; |
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| (ix) | Delfarma SP. Z.O.O; |
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| (x) | CST PHARMA LTD; |
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| (xi) | Medcor Specials B.V.; and |
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| (xii) | 2CARE4 APS, |
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| or any other entities agreed in writing by the Loan Receivables Originator.
"Bulgarian Pledged Account" means Account No. BG82 UNCR 70001 5229 79 104 in EUR with Unicredit Bulbank AD, a joint stock company, incorporated and existing under the laws of Bulgaria, having its seat and registered address in 7 Sveta Nedelya Square, Sofia 1000, Bulgaria and registered with the Bulgarian Commercial Registry under UIC 831919536.
"Bulgarian Account Pledge" means the Pledge over the Bulgarian Pledged Account executed in the form of written agreement between the Loan Receivables Originator as pledgee and the Commodity Buyer as pledgor.
"Warehouse" means the Commodity Buyer's owned warehouse at 5 Agiou Georgiou Street, 57001 Thessaloniki. |
(b) | Clause 3 (Purpose) shall be amended by the addition of the following sentence at the end of the Clause: |
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| "Alternatively, the Commodity Buyer may also request that the Loan Receivables Originator make payments under the Trade Finance Facility directly to the Commodity Buyer so that the Buyer may discharge its obligations to any Commodity Seller directly. The Loan Receivables Originator may consent to the same at its sole discretion." |
(c) | New paragraphs shall be added to Clause 10.3 as follows: |
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| "(k) it will not enter into any Commodity Contract or Onward Commodity Contract which has the effect of granting more than 75 days' delay between the payment for products under the Commodity Contract and receipt of the purchase price under the related Onward Commodity Contract."
"(l) it will not enter into any Onward Commodity Contract with any purchaser other than an Approved Purchaser."
"(m) it will not provide to any Approved Purchaser payment credit terms of more than 60 days from delivery."
"(n) it will not store any products other than in the Warehouse."
"(o) it will not open or maintain any new bank account without the prior consent of the Loan Receivables Originator."
"(p) it will ensure that all Commodity Contracts and Onward Commodity Contracts and related transaction documents for each such transaction are uploaded into a cloud-based document exchange system which is fully accessible by the Loan Receivables Originator.
"(q) it will obtain the approval of the Loan Receivables Originator for any payment of over €50,000, or any payment which causes total payments from the Bulgarian Pledged Account to exceed €500,000 per month."
"(r) it will procure that the total amounts invoiced by the Commodity Buyer to the Approved Purchasers on a quarterly basis are at least equal to the total amount of principal together with accrued interest which is outstanding at any given time under the Trade Finance Facility." |
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(d) | A new paragraph (p) shall be added to Clause 11 (Events of Default): |
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| "(p) (i) Gregorios Siokas ceases to directly or indirectly own or control a minimum of 51% of the shares of Cosmos Holdings Inc.; or |
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| (ii) The Commodity Buyer ceases to be the 100% direct or indirect subsidiary of Cosmos Holdings Inc. |
(e) | Paragraph 3 of Schedule 1 (Conditions of the Agreement) shall be amended to add the further Security Document: |
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| "Bulgarian Account Pledge" |
2.2 | Total Facility |
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(a) | The maximum aggregate Facility Amount is agreed to be €15,000,000. For the avoidance of doubt, this amount is not committed and the Loan Receivables Originator shall have no obligation to provide any further borrowing in addition to the amounts loaned under the Trade Finance Facility on the date of this Deed. |
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2.3 | Interest Rate |
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(a) | The interest rate on the Trade Finance Facility is agreed as follows: |
| (i) | for all lending in US Dollars, the one-month LIBOR rate plus 6% margin; and |
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| (ii) | for all lending in Euro, the one-month Euribor rate plus 6% per annum. If the one-month Euribor is zero or less than zero, the interest rate shall be 6% per annum. |
(b) | The Commodity Buyer shall pay all accrued interest on the amounts outstanding under the Trade Finance Facility up to the end of each calendar month on the last business day of such calendar month. |
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2.4 | Effective Date |
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(a) | The agreement of the Loan Receivables Originator contained in Clause 2.1 (Amendments to the Trade Finance Facility Agreement) shall have effect on and from the date of this Agreement. |
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(b) | The Interest Rate provisions set out in Clause 2.3 shall enter into force commencing from 1 June 2018. |
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(c) | The Parties further agree that the Trade Finance Facility Agreement shall be amended by construing references throughout to "this Agreement" and other like expressions as if the same referred to the Trade Finance Facility Agreement as amended and supplemented by this Agreement. |
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3 | Repayment |
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3.1 | Partial Repayment on 31 May 2018 |
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(a) | The Commodity Buyer hereby agrees and acknowledges that it shall deposit a minimum amount of €1,000,000 in the Loan Receivables Originator's account in partial repayment of accrued interest and principal in respect of the Trade Finance Facility in immediately available funds on or before 31 May 2018. Any failure to make such payment in full shall constitute an immediate Event of Default. |
6 |
(b) | As an amendment to the Facility Offer Letters, the Commodity Buyer agrees to repay the full principal amount of the Trade Finance Facility in accordance with a repayment schedule to be agreed by the parties and in any event no later than 31 May 2021. The Loan Receivables Originator may extend this final repayment date at its sole discretion. |
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(c) | In addition to the foregoing, the Loan Receivables Originator is entitled to terminate the Trade Finance Facility at any time and permit no further drawdowns. In such case, the Loan Receivables Originator may demand that all outstanding amounts of principal and interest under the Trade Finance Facility be repaid in full within six months from the date of notification. |
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4 | Conditions Precedent |
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The agreement of the Loan Receivables Originator to enter into the amendments contained in Clause 2 (Amendments to the Trade Finance Facility Agreement) is subject to the fulfilment, or waiver at the Loan Receivables Originator's sole discretion, of the following: | |
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(a) | No Default continuing on the date of this Agreement or resulting from the entry into and performance of the transactions contemplated by this Agreement; |
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(b) | The Commodity Buyer hereby agrees and acknowledges that it shall deposit a minimum amount of €1,000,000 in the Loan Receivables Originator's account in partial repayment of accrued interest and principal in respect of the Trade Finance Facility in immediately available funds on or before 31 May 2018. Any failure to make such payment in full shall constitute an immediate Event of Default. |
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(c) | Execution and perfection of the Bulgarian Account Pledge as a first ranking registered pledge over the Bulgarian Pledged Account in accordance with Bulgarian law, and any and all evidence of perfection of the Bulgarian Account Pledge to the satisfaction of the Loan Receivables Originator, including (i) a confirmation of registration of Bulgarian Account Pledge with Bulgarian Central Pledges Registry; (2) a certificate issued by Bulgarian Central Pledges Registry under the file of the Commodity Buyer evidencing ranking of the pledge over the Bulgarian Pledged Account; and (3) notification to the account bank Unicredit Bulbank AD of the pledge over the Bulgarian Pledged Account, received by Unicredit Bulbank AD; |
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(d) | The Commodity Buyer having submitted documentary evidence to establish that the Approved Purchasers are covered by credit insurance from Euler Hermes and that the credit insurance is fully assigned to the Loan Receivables Originator: |
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(e) | The Commodity Buyer providing proof that the Approved Purchasers have been duly notified in writing to make all payments to the Commodity Buyer directly to the Bulgarian Pledged Account; |
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(f) | Evidence that the Commodity Buyer has given irrevocable instructions to Unicredit Bulbank AG to transfer immediately all amounts which correspond to payments received from the Approved Purchasers, deposited in Account No. BG48UNCR70001522393060 - UNCRBGSF to the Bulgarian Pledged Account and that Unicredit Bulbank AG has confirmed receipt of the same; |
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(g) | Power of attorney having been executed by the Commodity Buyer in relation to the Bulgarian Pledged Account which will provide that the Loan Receivables Originator must approve any payment of over €50,000, or any payment which causes total payments from the Bulgarian Pledged Account to exceed €500,000 per month; |
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(h) | Updated evidence having been delivered to the Loan Receivables Originator that the Commodity Buyer has adequate and appropriate Warehouse storage insurance and that the Commodity Buyer is named as loss payee; and |
7 |
(i) | the representations and warranties contained in clause 10 (representations and warranties, and covenants) of the Trade Finance Facility Agreement to be made by the Commodity Buyer being true on the date of this Agreement. |
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5 | Representations |
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5.1 | Trade Finance Facility Agreement representations |
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The Commodity Buyer makes the representations and warranties set out in clause 10 (representations and warranties, and covenants) of the Trade Finance Facility Agreement, as amended and supplemented by this Agreement and updated with appropriate modifications to refer to this Agreement, by reference to the circumstances then existing on the date of this Agreement. | |
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6 | Further Assurance |
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6.1 | Further assurance |
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(a) | The Commodity Buyer shall promptly, and in any event within the time period specified by the Loan Receivables Originator do all such acts (including procuring or arranging any registration, notarisation or authentication or the giving of any notice) or execute or procure execution of all such documents (including assignments, transfers, mortgages, charges, notices, instructions, acknowledgements, proxies and powers of attorney), as the Loan Receivables Originator may specify (and in such form as the Loan Receivables Originator may require in favour of the Loan Receivables Originator or its nominee(s)) to implement the terms and provisions of this Agreement. |
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(b) | The Commodity Buyer shall promptly, and in any event within the time period specified by the Loan Receivables Originator do all such acts (including procuring or arranging any registration, notarisation or authentication or the giving of any notice) or execute or procure execution of all such documents (including assignments, transfers, mortgages, charges, notices, instructions, acknowledgments, proxies and powers of attorney), as the Loan Receivables Originator may specify (and in such form as the Loan Receivables Originator may require in favour of the Loan Receivables Originator or its nominee(s)) to create, perfect, vest in favour of the Loan Receivables Originator or protect the priority of the security or any right or any kind created or intended to be created under or evidenced by the Finance Documents as amended and supplemented by this Agreement or for the exercise of any rights, powers and remedies of the Loan Receivables Originator provided by or pursuant to the Finance Documents as amended and supplemented by this Agreement or by law; |
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(c) | the Commodity Buyer shall, take all such action as is available to it (including making all filings and registrations) as may be necessary for the purpose of the creation, perfection, protection or maintenance of any security conferred or intended to be conferred on the Loan Receivables Originator by or pursuant to the Finance Documents as amended and supplemented by this Agreement. |
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6.2 | Additional corporate action |
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At the same time as the Commodity Buyer delivers to the Loan Receivables Originator any document executed under this Clause 6 (Further Assurance), the Commodity Buyer shall deliver to the Loan Receivables Originator a letter signed by the Commodity Buyer's legal representative which shall: | |
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(a) | be accompanied by a duly certified true copy of resolution of the Commodity Buyer’ board of directors meeting specifically authorising the execution of the document specified by the Loan Receivables Originator; and |
8 |
(b) state that the resolution of the Commodity Buyer’s board of directors meeting was duly passed at a meeting of the board of directors validly convened and held, throughout which a quorum of partners entitled to vote on the resolution was present and that it is valid under the Commodity Buyer's articles of association or other constitutional documents. Clause 7 (costs) of the Trade Finance Facility Agreement, as amended and supplemented by this Agreement, applies to this Agreement as if it were expressly incorporated in it with any necessary modifications. 8 Severability The invalidity or unenforceability of any provision of this Agreement for any reason whatsoever shall in no way affect the validity or enforceability of the remaining provisions contained herein. The remaining valid, legal and enforceable clauses of this Agreement shall be interpreted taking into account the economic purpose of this Agreement. 9 Notices Clause 23 (notices) of the Facility Agreement, as amended and supplemented by this Agreement, applies to this Agreement as if it were expressly incorporated in it with any necessary modifications. 10 Counterparts This Agreement may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement. 11 Governing Law This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.
7 Costs and Expenses
12 | Enforcement |
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12.1 | Jurisdiction |
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(a) | The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement or any non-contractual obligation arising out of or in connection with this Agreement) (a "Dispute"). |
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(b) | The Parties accept that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary. |
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(c) | This Clause 12.1 (Jurisdiction) is for the benefit of the Loan Receivables Originator only. As a result, the Loan Receivables Originator shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Loan Receivables Originator may take concurrent proceedings in any number of jurisdictions. |
This Agreement has been executed as a Deed on the date stated at the beginning of this Agreement.
9 |
EXECUTION PAGE
COMMODITY BUYER | |
| |
EXECUTED AS A DEED by | ) /s/ Grigorios Siokas |
) | |
for and on behalf of | ) |
SKYPHARM S.A. | ) |
in the presence of: | ) |
| |
Witness' signature: | ) /s/ Georgios Terzis |
Witness' name: | ) |
Witness' address: | ) |
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LOAN RECEIVABLES ORIGINATOR | |
| |
EXECUTED AS A DEED by | ) /s/ Spyros Papadopoulos |
) | |
duly authorized | ) |
for and on behalf of | ) |
SYNTHESIS – STRUCTURED COMMODITY | ) |
TRADE FINANCE LIMITED | ) |
) | |
in the presence of: | ) |
| |
Witness' signature: | ) /s/ Georgios Terzis |
Witness' name: | ) |
Witness' address: | ) |
10 |
EXHIBIT 10.3
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