See accompanying notes to unaudited condensed consolidated
financial statements.
See accompanying notes to unaudited condensed consolidated
financial statements.
See accompanying notes to unaudited condensed consolidated
financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States
(“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally
included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information
not misleading.
In the opinion of management, the consolidated
balance sheet as of December 31, 2021 which has been derived from audited financial statements and these unaudited condensed consolidated
financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented.
The results for the period ended September 30, 2022 are not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 2022 or for any future period.
NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND
Cosmos Group Holdings Inc. (the “Company”
or “COSG”) was incorporated in the state of Nevada on August 14, 1987.
The Company currently offers financial and money
lending services in Hong Kong and operates an online platform for the sale and distribution of arts and collectibles around the world,
through the use of blockchain technologies and minting token.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
Description of subsidiaries
Company name |
|
Place of incorporation and kind of legal entity |
|
Principal activities and place of operation |
|
Particulars of registered/ paid up share capital |
|
Effective
interest held |
|
Massive Treasure Limited |
|
BVI, limited liability company |
|
Investment holding |
|
50,000 ordinary shares with a par value of US$1 each |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Coinllectibles (HK) Limited |
|
Hong Kong, limited liability company |
|
Corporate management in Hong Kong |
|
1,000 ordinary shares for HK$1,000 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Coinllectibles Wealth Limited |
|
Hong Kong, limited liability company |
|
Corporate management in Hong Kong |
|
1 ordinary share for HK$1 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Coinllectibles DeFi Limited |
|
Hong Kong, limited liability company |
|
Financing service management in Hong Kong |
|
10,000 ordinary shares for HK$10,000 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Coinllectibles Private Limited |
|
Singapore, limited liability company |
|
Corporate management and IT development in Singapore |
|
1,000 ordinary shares for S$1,000 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Coinllectibles Limited |
|
BVI, limited liability company |
|
Procurement of art and collectibles in Singapore |
|
1,000 ordinary shares with a par value of US$1 each |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Healthy Finance Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
10,000 ordinary shares for HK$10,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
8M Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
10 ordinary shares for HK$10 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Dragon Group Mortgage Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
10,000 ordinary shares for HK$10,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
E-on Finance Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
2 ordinary shares for HK$2 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Lee Kee Finance Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
920,000 ordinary shares for HK$920,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
Rich Finance (Hong Kong) Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
10,000 ordinary shares for HK$10,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
Long Journey Finance Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
100 ordinary shares for HK$100 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
Vaav Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
10,000 ordinary shares for HK$10,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
Star Credit Limited |
|
Hong Kong, limited liability company |
|
Money lending service in Hong Kong |
|
1,000,000 ordinary shares for HK$1,000,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
NFT Limited |
|
BVI, limited liability company |
|
Procurement of intangible assets in Hong Kong |
|
10,000 ordinary shares with a par value of US$1 each |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
Grandway Worldwide Holding Limited |
|
BVI, limited liability company |
|
Development of mobile application |
|
50,000 ordinary shares for USD$50,000 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
Grand Town Development Limited |
|
Hong Kong, limited liability company |
|
Provision of treasury management |
|
2 ordinary shares for HK$2 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Grand Gallery Limited |
|
Hong Kong, limited liability company |
|
Procurement of art and collectibles in Hong Kong |
|
400,000 ordinary shares for HK$400,000 |
|
80 |
% |
|
|
|
|
|
|
|
|
|
|
Phoenix Waters Group Limited |
|
BVI, limited liability company |
|
Investment holding |
|
50,000 ordinary shares with a par value of US$1 each |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Phoenix Waters Productions (HK) Limited |
|
Hong Kong, limited liability company |
|
Film Production |
|
100,000 ordinary shares for HK$100,000 |
|
51 |
% |
The Company and
its subsidiaries are hereinafter referred to as (the “Company”).
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accompanying condensed consolidated financial
statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying
condensed consolidated financial statements and notes.
These accompanying condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
● | Use of estimates and assumptions |
In preparing these condensed consolidated financial
statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet
and revenues and expenses during the periods reported. Actual results may differ from these estimates. If actual results significantly
differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.
Significant estimates in the period include the goodwill, impairment loss on digital assets, valuation and useful lives of intangible
assets and property and equipment and deferred tax valuation allowance.
The condensed consolidated financial statements
include the accounts of COSG and its subsidiaries. All significant inter-company balances and transactions within the Company have been
eliminated upon consolidation.
The Company accounts for noncontrolling interest
in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total
shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling interest
be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss.
Accounting Standard Codification (“ASC”)
Topic 280, Segment Reporting establishes standards for reporting information about operating segments on a basis consistent with
the Company’s internal organization structure as well as information about geographical areas, business segments and major customers
in condensed consolidated financial statements. Currently, the Company operates in two reportable operating segments in Hong Kong and
Singapore.
● | Cash and cash equivalents |
Cash and cash equivalents are carried at cost
and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an
original maturity of three months or less as of the purchase date of such investments.
Inventories are stated at the lower of cost (first-in,
first-out method) or net realizable value. The cost includes the purchase cost of arts and collectibles from related party and independent
artists and the costs associated with token minting for collectible pieces. The Company will reduce inventory on hand to its net
realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its
original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below cost.
Management regularly reviews the Company’s inventories for such declines in value. Although inventories are classified as current
assets in the accompanying balance sheets, the Company anticipates that certain inventories will be sold beyond twelve months from September
30, 2022.
The Company’s digital assets mainly represent
the cryptocurrencies held in its e-wallet. The Company accounts for its digital assets in accordance with Financial Accounting Standards
Board (“FASB”) ASC Topic 350, “General Intangibles Other Than Goodwill” (“ASC 350”). ASC 350 requires
assets to be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever
is more clearly evident and, thus, more reliably measurable. Accordingly, the Company performs an analysis each quarter to identify whether
events or changes in circumstances and determines the fair value of its cryptocurrencies based on quoted closing prices on the active
exchange on the balance sheet date, if the fair market value is lower than the carrying value an impairment loss equal to the difference
will be recognized as “Impairment loss of digital assets” in the unaudited condensed consolidated statement of operations.
If the fair market value is higher than the carrying value the basis of the digital assets will not be adjusted to account for this increase.
Gains on digital assets, if any, will be recognized upon sale, exchange or disposal of the assets.
The Company’s cryptocurrencies are deemed
to have an indefinite useful life, therefore amounts are not amortized, but rather are assessed for impairment.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
Loans receivables are carried at unpaid principal
balances, less the allowance for loan losses and charge-offs. The loans receivables portfolio consists of real estate mortgage loans,
commercial and personal loans.
Loans are placed on nonaccrual status when they
are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When
a loan is placed on nonaccrual status, any interest accrued but not received is reversed against interest income. Payments received on
a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending
on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual status when principal and interest payments
have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months).
If the Company determines that a loan is impaired,
the Company next determines the amount of the impairment. The amount of impairment on collateral dependent loans is charged off within
the given fiscal quarter. Generally, the amount of the loan and negative escrow in excess of the appraised value less estimated selling
costs, for the fair value of collateral valuation method, is charged off. For all other loans, impairment is measured as described below
in Allowance for Loan Losses.
● | Allowance for loan losses (“ALL”) |
The adequacy of the Company’s ALL is determined,
in accordance with ASC Topic 450-20 Loss Contingencies includes management’s review of the Company’s loan portfolio,
including the identification and review of individual problem situations that may affect a borrower’s ability to repay. In addition,
management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value
of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations,
an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.
The ALL reflects management’s evaluation
of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant
judgment applied in estimating the ALL. These assumptions and estimates are susceptible to significant changes based on the current environment.
Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALL even though there
may not be a decline in credit quality or an increase in potential problem loans.
Property and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following
expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| |
Expected useful life |
Computer and office equipment | |
5 years |
Expenditure for repairs and maintenance is expensed
as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the results of operations.
Depreciation
expense for the three months ended September 30, 2022 and 2021 totaled $2,016 and $856, respectively.
Depreciation expense for the nine months ended
September 30, 2022 and 2021 totaled $6,341 and $10,916, respectively.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
We allocate the fair value of purchase consideration
to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of
the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to
reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets
and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas
any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one
year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to
goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses
are recognized separately from business combinations and are expensed as incurred.
In accordance with ASC 350, the goodwill we determined
for reporting units is based on the expected benefit from business combinations. We evaluate our reporting units annually, as well as
when changes in our operating segments occur. For changes in reporting units, we reassign goodwill using a relative fair value allocation
approach. Goodwill is tested for impairment at the reporting unit level annually or more frequently if events or changes in circumstances
would more likely than not reduce the fair value of a reporting unit below its carrying value. We have two reporting units subject to
goodwill impairment testing. As of September 30, 2022 and December 31, 2021, no impairment of goodwill has been identified.
The Company accounts for its intangible assets
in accordance with ASC 350. Intangible assets represented the acquired technology software, licensed technology know-how, trademark and
trade names for its internal use to facilitate and support its platform operation. They are stated at the purchase cost and are amortized
based on their economic benefit expected to be realized.
The Company enters into a technical knowhow license
and servicing agreement with a company controlled by its major shareholder and are required to make payments for technical knowhow development.
Technical knowhow consists of Visual Intelligence Engine, Speech Recognition Engine, Text Analytics Engine, Emotion Recognition Engine,
Motion Recognition Engine, AI Agent Creation Engine and NFT Generation and Loading Engine for development of metaverse. In accordance
with ASC 350-14-25-1, all development costs are charged to expenses as incurred and to be recognized as “Metaverse and AI development
expense” in the unaudited condensed consolidated statement of operations during the preliminary project stage. After establishing
technological feasibility, the Company capitalizes all development payments to service provider as development costs. Significant management
judgements are made in the assessment of when technological feasibility is established. Amortization of capitalized development costs
commences when a product is available for general release. For capitalized development costs, annual amortization is calculated using
the straight-line method over the remaining estimated life of the title. The Company evaluates the future recoverability of capitalized
development costs on a quarterly basis. For the nine months ended September 30, 2022 and 2021, the Company incurred the related development
costs of $5,000,000 and $0, respectively. The Company did not capitalize any related development costs during the nine months ended September
30, 2022 and 2021.
● | Impairment of long-lived assets |
In accordance with the provisions of ASC Topic
360, Impairment or Disposal of Long-Lived Assets, all long-lived assets such as property and equipment and intangible assets owned
and held by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset
to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
ASC Topic 606, Revenue from Contracts with
Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty
of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.
The Company applies the following five steps in
order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
● |
identify the contract with a customer; |
● |
identify the performance obligations in the contract; |
● |
determine the transaction price; |
● |
allocate the transaction price to performance obligations in the contract; and |
● |
recognize revenue as the performance obligation is satisfied. |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
Revenue is recognized when the Company satisfies
its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product
and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product or service to
a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services
is not separately identifiable from other promises in the contract and, therefore, not distinct.
Lending Business
The Company is licensed to originate personal
loan, company loan and mortgage loan in Hong Kong. During the nine months ended September 30, 2022 and 2021, the Company originated
loans generally ranging from $644 to $579,000, with terms ranging from 1 week to 120 months. The Company mainly derives a portion of its
revenue from loan which is specifically excluded from the scope of this standard, that is, interest on loan receivable is accrued monthly
and credited to income as earned.
Arts and Collectibles Technology Business
The Company currently operates its online platform in the sale and
distribution of arts and collectibles, with the use of blockchain technologies and minting tokens. The item of arts and collectibles is
individually monetized as non-interchangeable unit of data stored on a blockchain, which is a form of digital ledger that can be sold,
in the form of a minting token on the online platform. The Company is involved with the following activities to earn its revenue in this
segment:
Sale of arts and collectibles products: The Company recognizes revenue
derived from the sales of the arts and collectibles when the Company has transferred the risks and rewards of the arts and collectibles
to the customers.
The minted item of the individual art or collectible which is sold
in crypto asset transaction is the only performance obligation under the fixed-fee arrangements. The corresponding fees received upon
each sale transaction is recognized as revenue when the designated token, minted with the corresponding art and collectibles is delivered
to the end user, together with the transfer of both digital and official title.
Transaction fee income:
The Company also generates revenue through transaction
fees transacted on its platform or other marketplaces. The Company charges a fee to individual customers at the secondary transaction
level, which is allocated to the single performance obligation. The transaction fee is collected from the customer in digital assets,
with revenue measured based on a certain percentage of the value of digital assets at the time the transaction is executed.
The Company’s service comprises of a single
performance obligation to provide a platform facilitating the transfer of its DOTs. The Company considers its performance obligation satisfied,
and recognizes revenue, at the point when the transaction is processed.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
In this segment, the transaction consideration
that the Company receives is a non-cash consideration in the form of digital assets, which are cryptocurrencies. The Company measures
the related cryptocurrencies at fair value on the date received, at the same time, the revenue is recognized. Fair value of the digital
asset award received is determined using the average U.S. dollar spot rate of the related digital currency at the time of receipt.
Expenses associated with operating the Arts and
Collectibles Technology Business, such as minting cost and purchase cost of collectibles and artworks are also recorded as cost of revenues.
At the inception of an arrangement, the Company
determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater
than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company
has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding
right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain
adjustments to the right-of-use assets may be required for items such as prepaid or accrued lease payments. The interest rate implicit
in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are
the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic
environment.
In accordance with the guidance in ASC Topic 842,
components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g.
common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed and in-substance
fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values
to the lease components and non-lease components.
The Company made the policy election to not separate
lease and non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.
In accordance with the guidance in ASC Topic 926,
costs related directly to the production of content are capitalized as film costs as they are incurred. Capitalized content costs are
recognized as “Produced content cost” in the unaudited condensed consolidated balance sheet. The concept of “predominant
monetization strategy” to classify capitalized content costs for purposes of amortization and impairment as follows:
Individual
Lifetime value is predominantly derived from third-party
revenues that are directly attributable to the specific film or television title (e.g. theatrical revenues or sales to third-party television
programmers).
Group
Lifetime value is predominantly derived from third-party
revenues that are attributable only to a bundle of titles (e.g. subscription revenue).
Production costs for content that is predominantly
monetized individually is amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues.
Production costs that are predominantly monetized
as a group are amortized based on projected usage (which may be, for example, derived from historical viewership patterns), typically
resulting in an accelerated or straight-line amortization pattern. Participations and residuals are generally expensed in line with the
pattern of usage.
The costs of produced content are subject to regular recoverability
assessments. For content that is predominantly monetized individually, the unamortized costs are compared to the estimated fair value.
The fair value will be determined based on a discounted cash flow analysis of the cash flows directly attributable to the title in accordance
with ASC Topic 926-20 Entertainment-Films. To the extent the unamortized costs exceed the fair value, an impairment charge is recorded
for the excess. For content that is predominantly monetized as a group, the aggregate unamortized costs of the group are compared to the
present value of the discounted cash flows using the lowest level for which identifiable cash flows are independent of other produced
content. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and
allocated to individual titles based on the relative carrying value of each title in the group. If there are no plans to continue to use
an individual film or television program that is part of a group, the unamortized cost of the individual title is written-off immediately.
The Company adopted the ASC Topic 740 Income
tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the unaudited condensed consolidated financial statements. Under paragraph
740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit
that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also
provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits
according to the provisions of paragraph 740-10-25-13.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The estimated future tax effects of temporary
differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs
and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides
valuation allowances as management deems necessary.
● | Uncertain tax positions |
The Company did not take any uncertain tax positions
and had no adjustments to its income tax liabilities or benefits pursuant to the ASC Topic 740 provisions of Section 740-10-25 for the
six months ended September 30, 2022 and 2021.
● | Foreign currencies translation |
Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement
of operations.
The reporting currency of the Company is United
States Dollar (“US$”) and the accompanying consolidated financial statements have been expressed in US$. In addition, the
Company has operations in Hong Kong and Singapore and maintains the books and record in the local currency, Hong Kong Dollars (“HKD”)
and Singapore Dollars (“SGD”), which is a functional currency as being the primary currency of the economic environment in
which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiary whose functional
currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, Translation of Financial Statement, using the
exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains
and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated
other comprehensive income within the statements of changes in stockholder’s equity.
Translation of amounts from HKD and SGD into US$
has been made at the following exchange rates for the following periods:
|
|
September 30,
2022 |
|
|
September 30,
2021 |
|
Period-end HKD:US$ exchange rate |
|
|
0.1274 |
|
|
|
0.1284 |
|
Period average HKD:US$ exchange rate |
|
|
0.1277 |
|
|
|
0.1288 |
|
| |
September 30, 2022 | | |
September 30, 2021 | |
Period-end SGD:US$ exchange rate | |
| 0.6973 | | |
| 0.7355 | |
Period average SGD:US$ exchange rate | |
| 0.7271 | | |
| 0.7469 | |
ASC Topic 220, Comprehensive Income, establishes
standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying
consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency
translation. This comprehensive income is not included in the computation of income tax expense or benefit.
The Company calculates net loss per share in accordance
with ASC Topic 260, Earnings per Share. Basic income per share is computed by dividing the net income by the weighted-average number
of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the
denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock
equivalents had been issued and if the additional common shares were dilutive.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
● | Stock based compensation |
Pursuant to ASU 2018-07, the Company follows ASC
718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense
for all share-based payment awards (employee or non-employee), are measured at grant-date fair value of the equity instruments that an
entity is obligated to issue. Restricted stock units are valued using the market price of the Company’s common shares on the date
of grant. The Company uses a Black-Scholes option model to estimate the fair value of employee stock options at the date of grant. As
of September 30, 2022, those shares issued and stock options granted for service compensations were immediately vested, and therefore
these amounts are thus recognized as expense in the operation.
The Company follows the ASC 850-10, Related
Party for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties
include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election
of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method
by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under
the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly
influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting
parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The unaudited condensed consolidated
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in
the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:
a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or
nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed
necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions
for each of the periods for which income statements are presented and the effects of any change in the method of establishing the
terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet
presented and, if not otherwise apparent, the terms and manner of settlement.
● | Commitments and contingencies |
The Company follows the ASC 450-20, Commitments
to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result
in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such
contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the
perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If the assessment of a contingency indicates that
it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would
be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an
estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon
information available at this time that these matters will have a material adverse effect on the Company’s financial position, results
of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s
business, financial position, and results of operations or cash flows.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
● | Fair value of financial instruments |
The Company follows paragraph 825-10-50-10 of
the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments.
Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair
value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value
hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting
Standards Codification are described below:
Level 1 |
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
Level 2 |
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
Level 3 |
Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their
fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable.
The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If
the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is
based on the lowest level input that is significant to the fair value measurement of the instrument.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The carrying amounts of the Company’s financial
assets and liabilities, such as cash and cash equivalents, loan and fee receivable, prepayments and other receivables, amounts due from
related parties, accrued liabilities and other payables, loans payable, amounts due to related parties approximate their fair values because
of the short maturity of these instruments.
● | Recent accounting pronouncements |
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company
as of the specified effective date. The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and
do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or
the results of its operations.
NOTE 4 - GOING CONCERN UNCERTAINTIES
The accompanying condensed consolidated financial
statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company has suffered from an accumulated deficit of $116,680,664
and working capital deficit of $3,605,373 at September 30, 2022. The continuation of the Company as a going concern in the next twelve
months is dependent upon the continued financial support from its stockholders. Management believes the Company is currently pursuing
additional financing for its operations. However, there is no assurance that the Company will be successful in securing sufficient funds
to sustain the operations.
These and other factors raise substantial doubt
about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result
in the Company not being able to continue as a going concern.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 5 - BUSINESS COMBINATION
On February 10, 2022, the Company issued 153,060
shares of its common stock, at a price of $4.00 per share at its current market price, in exchange for 80% of equity interest of Grand
Gallery Limited, a Hong Kong limited liability company. The Company accounted for the transaction as an acquisition of a business pursuant
to ASC 805, “Business Combinations” (“ASC 805”).
The transaction was accounted for using the acquisition
method. Accordingly, goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable
assets acquired and liabilities assumed based on their preliminary estimated fair values.
The purchase price allocation resulted in $552,729
of goodwill, as below:
Acquired assets: | |
| |
Property and equipment | |
$ | 2,593 | |
Cash and cash equivalents | |
| 33,322 | |
Deposit, prepayment and other receivables | |
| 11,218 | |
Amounts due from related parties | |
| 21,778 | |
| |
| 68,911 | |
Less: Assumed liabilities | |
| | |
Accrued liabilities and other payables | |
| (4,242 | ) |
| |
| (4,242 | ) |
Fair value of net assets acquired | |
| 64,669 | |
Noncontrolling interest | |
| (12,966 | ) |
Foreign translation adjustment | |
| 7,808 | |
Goodwill recorded | |
| 552,729 | |
Consideration allocated, payable by the Company’s common stock | |
$ | 612,240 | |
On August 18, 2022, the Company issued
164,516 shares of its common stock, at a price of $1.50 per share at its current market price, in exchange for 51% of equity
interest of Phoenix Waters Productions (HK) Limited, a Hong Kong limited liability company. The acquisition was completed on August
31, 2022. The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805, “Business
Combinations” (“ASC 805”).
The transaction was accounted for using the acquisition
method. Accordingly, goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable
assets acquired and liabilities assumed based on their preliminary estimated fair values.
The purchase price allocation resulted in $263,548
of goodwill, as below:
Acquired assets: | |
| |
Produced content cost | |
$ | 540,985 | |
Amount due from a director | |
| 69,270 | |
| |
| 610,255 | |
Less: Assumed liabilities | |
| | |
Accrued liabilities and other payables | |
| (507,472 | ) |
Loan from related party | |
| (135,674 | ) |
| |
| (643,146 | ) |
Fair value of net liabilities assumed | |
| (32,891 | ) |
Noncontrolling interest | |
| 16,117 | |
Goodwill recorded | |
| 263,548 | |
Consideration allocated, payable by the Company’s common stock | |
$ | 246,774 | |
Under the acquisition method of accounting, the
total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated
fair values. The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market
data. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things:
(i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) finalization of the valuation
of accrued expenses; and (iii) finalization of the fair value of non-cash consideration.
The Acquisition was accounted for as a business
combination in accordance with ASC 805 “Business Combinations”. The Company has allocated the purchase price consideration
based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Management of the Company
is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition
date and considered a number of factors including valuations from management estimation. Acquisition-related costs incurred for the acquisitions
are not material and have been expensed as incurred in general and administrative expense.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 6 - REVENUE FROM CONTRACTS WITH CUSTOMERS
The following is a disaggregation of the Company’s
revenue by major source for the respective periods:
| |
Three months ended September 30, | | |
Nine months ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Interest income | |
$ | 1,517,764 | | |
$ | 1,757,531 | | |
$ | 4,833,433 | | |
$ | 4,985,476 | |
ACT income | |
| | | |
| | | |
| | | |
| | |
- Sale of arts and collectibles products | |
| 418,998 | | |
| 257,956 | | |
| 1,825,448 | | |
| 257,956 | |
- Transaction fee income and others | |
| 2,074,102 | | |
| 266,912 | | |
| 6,225,988 | | |
| 266,912 | |
| |
| 2,493,100 | | |
| 524,868 | | |
| 8,051,436 | | |
| 524,868 | |
| |
| | | |
| | | |
| | | |
| | |
| |
$ | 4,010,864 | | |
$ | 2,282,399 | | |
$ | 12,884,869 | | |
$ | 5,510,344 | |
NOTE 7 - BUSINESS SEGMENT INFORMATION
Currently, the Company has two reportable business
segments:
(i) |
Lending Segment, mainly provides financing and lending services; and |
|
|
(ii) |
Arts and Collectibles Technology (“ACT”) Segment, mainly operates an online platform to sell and distribute the arts and collectibles to end-users, with the use of blockchain technologies and minting tokens. |
In the following table, revenue is disaggregated
by primary major product line, and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue
with the reportable segments.
|
|
Three months ended September 30, 2022 |
|
|
|
Lending
Segment |
|
|
ACT
Segment |
|
|
Total |
|
Revenue from external customers: |
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1,517,764 |
|
|
$ |
- |
|
|
$ |
1,517,764 |
|
Arts and collectibles technology income |
|
|
- |
|
|
|
2,493,100 |
|
|
|
2,493,100 |
|
Total revenue, net |
|
|
1,517,764 |
|
|
|
2,493,100 |
|
|
|
4,010,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(27,046 |
) |
|
|
- |
|
|
|
(27,046 |
) |
Arts and collectibles technology expense |
|
|
- |
|
|
|
(311,620 |
) |
|
|
(311,620 |
) |
Total cost of revenue |
|
|
(27,046 |
) |
|
|
(311,620 |
) |
|
|
(338,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,490,718 |
|
|
|
2,181,480 |
|
|
|
3,672,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
(7,681 |
) |
|
|
(491,783 |
) |
|
|
(499,464 |
) |
Corporate development |
|
|
- |
|
|
|
(510,786 |
) |
|
|
(510,786 |
) |
Technology and development |
|
|
- |
|
|
|
(273,839 |
) |
|
|
(273,839 |
) |
Metaverse and AI development |
|
|
- |
|
|
|
(5,000,000 |
) |
|
|
(5,000,000 |
) |
General and administrative |
|
|
(737,558 |
) |
|
|
(3,607,243 |
) |
|
|
(4,344,801 |
) |
Total operating expenses |
|
|
(745,239 |
) |
|
|
(9,883,651 |
) |
|
|
(10,628,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
745,479 |
|
|
|
(7,702,171 |
) |
|
|
(6,956,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
104 |
|
|
|
84 |
|
|
|
188 |
|
Gain (loss) on disposal of digital assets |
|
|
- |
|
|
|
206 |
|
|
|
206 |
|
Impairment loss on digital assets |
|
|
- |
|
|
|
(2,477 |
) |
|
|
(2,477 |
) |
Convertible notes interest expense |
|
|
- |
|
|
|
(979 |
) |
|
|
(979 |
) |
Loan interest expense |
|
|
- |
|
|
|
(1,360 |
) |
|
|
(1,360 |
) |
Imputed interest expense |
|
|
(235,205 |
) |
|
|
- |
|
|
|
(235,205 |
) |
Sundry income |
|
|
36,564 |
|
|
|
- |
|
|
|
36,564 |
|
Total other expense, net |
|
|
(198,537 |
) |
|
|
(4,526 |
) |
|
|
(203,063 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
$ |
546,942 |
|
|
$ |
(7,706,697 |
) |
|
$ |
(7,159,755 |
) |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
| |
Three months ended September 30, 2021 | |
| |
Lending
Segment | | |
ACT
Segment | | |
Total | |
Revenue from external customers: | |
| | |
| | |
| |
Interest income | |
$ | 1,757,531 | | |
$ | - | | |
$ | 1,757,531 | |
Arts and collectibles technology income | |
| - | | |
| 524,868 | | |
| 524,868 | |
Total revenue, net | |
| 1,757,531 | | |
| 524,868 | | |
| 2,282,399 | |
| |
| | | |
| | | |
| | |
Cost of revenue: | |
| | | |
| | | |
| | |
Interest expense | |
| (7,249 | ) | |
| - | | |
| (7,249 | ) |
Arts and collectibles technology expense | |
| - | | |
| (213,484 | ) | |
| (213,484 | ) |
Total cost of revenue | |
| (7,249 | ) | |
| (213,484 | ) | |
| (220,733 | ) |
| |
| | | |
| | | |
| | |
Gross profit | |
| 1,750,282 | | |
| 311,384 | | |
| 2,061,666 | |
| |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | |
Sales and marketing | |
| (1,340 | ) | |
| (93,168 | ) | |
| (94,508 | ) |
General and administrative | |
| (433,911 | ) | |
| (3,957,237 | ) | |
| (4,391,148 | ) |
Total operating expenses | |
| (435,251 | ) | |
| (4,050,405 | ) | |
| (4,485,656 | ) |
| |
| | | |
| | | |
| | |
Loss from operations | |
| 1,315,031 | | |
| (3,739,021 | ) | |
| (2,423,990 | ) |
| |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | |
Interest income | |
| 73 | | |
| - | | |
| 73 | |
Loss on disposal of digital assets | |
| - | | |
| (14 | ) | |
| (14 | ) |
Impairment loss on digital assets | |
| - | | |
| (37,451 | ) | |
| (37,451 | ) |
Sundry income | |
| 803 | | |
| - | | |
| 803 | |
Gain from forgiveness of related party debt | |
| 2,298 | | |
| - | | |
| 2,298 | |
Total other income (expense), net | |
| 3,174 | | |
| (37,465 | ) | |
| (34,291 | ) |
| |
| | | |
| | | |
| | |
Segment income (loss) | |
$ | 1,318,205 | | |
$ | (3,776,486 | ) | |
$ | (2,458,281 | ) |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
|
|
Nine months ended September 30, 2022 |
|
|
|
Lending
Segment |
|
|
ACT
Segment |
|
|
Total |
|
Revenue from external customers: |
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
4,833,433 |
|
|
$ |
- |
|
|
$ |
4,833,433 |
|
Arts and collectibles technology income |
|
|
- |
|
|
|
8,051,436 |
|
|
|
8,051,436 |
|
Total revenue, net |
|
|
4,833,433 |
|
|
|
8,051,436 |
|
|
|
12,884,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(367,337 |
) |
|
|
- |
|
|
|
(367,337 |
) |
Arts and collectibles technology expense |
|
|
- |
|
|
|
(1,118,755 |
) |
|
|
(1,118,755 |
) |
Total cost of revenue |
|
|
(367,337 |
) |
|
|
(1,118,755 |
) |
|
|
(1,486,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
4,466,096 |
|
|
|
6,932,681 |
|
|
|
11,398,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
(260,599 |
) |
|
|
(26,495,720 |
) |
|
|
(26,756,319 |
) |
Corporate development |
|
|
- |
|
|
|
(26,242,917 |
) |
|
|
(26,242,917 |
) |
Technology and development |
|
|
- |
|
|
|
(32,832,406 |
) |
|
|
(32,832,406 |
) |
Metaverse and AI development |
|
|
- |
|
|
|
(5,000,000 |
) |
|
|
(5,000,000 |
) |
General and administrative |
|
|
(2,550,218 |
) |
|
|
(7,192,879 |
) |
|
|
(9,743,097 |
) |
Total operating expenses |
|
|
(2,810,817 |
) |
|
|
(97,763,922 |
) |
|
|
(100,574,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
1,655,279 |
|
|
|
(90,831,241 |
) |
|
|
(89,175,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
211 |
|
|
|
90 |
|
|
|
301 |
|
Gain on disposal of digital assets |
|
|
- |
|
|
|
206 |
|
|
|
206 |
|
Impairment loss on digital assets |
|
|
- |
|
|
|
(12,633 |
) |
|
|
(12,633 |
) |
Convertible notes interest expense |
|
|
- |
|
|
|
(979 |
) |
|
|
(979 |
) |
Loan interest expense |
|
|
- |
|
|
|
(1,360 |
) |
|
|
(1,360 |
) |
Imputed interest expense |
|
|
(714,696 |
) |
|
|
- |
|
|
|
(714,696 |
) |
Sundry income |
|
|
93,108 |
|
|
|
506 |
|
|
|
93,614 |
|
Total other expense, net |
|
|
(621,377 |
) |
|
|
(14,170 |
) |
|
|
(635,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
$ |
1,033,902 |
|
|
$ |
(90,845,411 |
) |
|
$ |
(89,811,509 |
) |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
| |
Nine months ended September 30, 2021 | |
| |
Lending Segment | | |
ACT Segment | | |
Total | |
Revenue from external customers: | |
| | |
| | |
| |
Interest income | |
$ | 4,985,476 | | |
$ | - | | |
$ | 4,985,476 | |
Arts and collectibles technology income | |
| - | | |
| 524,868 | | |
| 524,868 | |
Total revenue, net | |
| 4,985,476 | | |
| 524,868 | | |
| 5,510,344 | |
| |
| | | |
| | | |
| | |
Cost of revenue: | |
| | | |
| | | |
| | |
Interest expense | |
| (784,195 | ) | |
| - | | |
| (784,195 | ) |
Arts and collectibles technology expense | |
| - | | |
| (213,484 | ) | |
| (213,484 | ) |
Total cost of revenue | |
| (784,195 | ) | |
| (213,484 | ) | |
| (997,679 | ) |
| |
| | | |
| | | |
| | |
Gross profit | |
| 4,201,281 | | |
| 311,384 | | |
| 4,512,665 | |
| |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | |
Sales and marketing | |
| (43,694 | ) | |
| (93,168 | ) | |
| (136,862 | ) |
General and administrative | |
| (2,083,635 | ) | |
| (3,957,237 | ) | |
| (6,040,872 | ) |
Total operating expenses | |
| (2,127,329 | ) | |
| (4,050,405 | ) | |
| (6,177,734 | ) |
| |
| | | |
| | | |
| | |
Income (loss) from operations | |
| 2,073,952 | | |
| (3,739,021 | ) | |
| (1,665,069 | ) |
| |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | |
Interest income | |
| 89 | | |
| - | | |
| 89 | |
Loss on disposal of digital assets | |
| - | | |
| (14 | ) | |
| (14 | ) |
Impairment loss on digital assets | |
| - | | |
| (37,451 | ) | |
| (37,451 | ) |
Sundry income | |
| 3,085 | | |
| - | | |
| 3,085 | |
Gain from forgiveness of related party debt | |
| 140,712 | | |
| - | | |
| 140,712 | |
Total other income (expense), net | |
| 143,886 | | |
| (37,465 | ) | |
| 106,421 | |
| |
| | | |
| | | |
| | |
Segment income (loss) | |
$ | 2,217,838 | | |
$ | (3,776,486 | ) | |
$ | (1,558,648 | ) |
The below revenues are based on the countries
in which the customer is located. Summarized financial information concerning the geographic segments is shown in the following tables:
| |
Three months ended September 30, | | |
Nine months ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Hong Kong | |
$ | 1,517,764 | | |
| 1,757,531 | | |
$ | 4,833,433 | | |
| 4,985,476 | |
Around the world | |
| 2,493,100 | | |
| 524,868 | | |
| 8,051,436 | | |
| 524,868 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| 4,010,864 | | |
| 2,282,399 | | |
| 12,884,869 | | |
| 5,510,344 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 8 – LOAN RECEIVABLES, NET
The Company’s loan portfolio was as follows:
| |
September
30,
2022 | | |
December
31,
2021 | |
| |
| | |
| |
Personal loans | |
$ | 19,127,321 | | |
$ | 17,352,856 | |
Commercial loans | |
| 997,431 | | |
| 1,186,339 | |
Mortgage loans | |
| 2,443,795 | | |
| 1,294,601 | |
Total loans | |
| 22,568,547 | | |
| 19,833,796 | |
Less: Allowance for loan losses | |
| (2,086,203 | ) | |
| (781,202 | ) |
Loans receivables, net | |
$ | 20,482,344 | | |
$ | 19,052,594 | |
| |
| | | |
| | |
Reclassifying as: | |
| | | |
| | |
Current portion | |
$ | 18,449,707 | | |
$ | 16,186,351 | |
Non-current portion | |
| 2,032,637 | | |
| 2,866,243 | |
| |
| | | |
| | |
Total loans receivables | |
$ | 20,482,344 | | |
$ | 19,052,594 | |
The interest rates on loans issued were ranged
from 13% to 59% per annum for the nine months ended September 30, 2022 and for the year ended December 31, 2021.
All loans are made to either business or individual
customers in Hong Kong for a period of 1 week to 120 months.
Allowance for loan losses is estimated on an annual
basis based on an assessment of specific evidence indicating doubtful collection, historical experience, loan balance aging and prevailing
economic conditions.
Interest on loan receivable is accrued and credited
to income as earned. The Company determines a loan’s past due status by the number of days that have elapsed since a borrower has
failed to make a contractual loan payment. Accrual of interest is generally discontinued when either (i) reasonable doubt exists as to
the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 180 days (The further extension
of loan past due status is subject to management final approval and on case-by-case basis).
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The following table presents the activity in the
allowance for loan losses as of and for the nine months ended September 30, 2022 and the year ended December 31, 2021:
| |
September 30,
2022 | | |
December 31,
2021 | |
| |
| | |
| |
Balance at Beginning of Period/Year | |
$ | 781,202 | | |
$ | 53,506 | |
Provisions | |
| 1,270,017 | | |
| 783,694 | |
Foreign translation adjustment | |
| 34,984 | | |
| (55,998 | ) |
| |
| | | |
| | |
Balance at End of Period/Year | |
$ | 2,086,203 | | |
$ | 781,202 | |
For the nine months ended September 30, 2022,
the Company had $1,270,017 provision for the allowance of loan losses.
Allowance for loan losses is estimated on a annual
basis based on an assessment of specific evidence indicating doubtful collection, historical experience, loan balance aging and prevailing
economic conditions.
AGE ANALYSIS LOANS BY CLASS
All classes of loans are considered past due if
the required principal and interest payments have not been received as of the date such payments were due. Interest and fees continue
to accrue on past due loans until the date the loan is placed in nonaccrual status, if applicable. The following table includes an aging
analysis of loans as of the dates indicated. Also included in the table below are loans that are 90 days or more past due as to interest
and principal and still accruing interest, because they are well-secured and in the process of collection.
| |
Age Analysis of Loans by Class | |
| |
Mortgage | | |
Commercial
loan | | |
Personal
loan | | |
September 30,
2022 | | |
Mortgage | | |
Commercial
loan | | |
Personal
loan | | |
December 31, 2021 | |
| |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Within credit term | |
| 1,609,689 | | |
| 458,361 | | |
| 11,241,479 | | |
| 13,309,529 | | |
| 1,051,202 | | |
| 647,677 | | |
| 13,003,233 | | |
| 14,702,112 | |
Past due: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
30-59 days | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
60-89 days | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
90 or more days due and still accruing | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Nonaccrual | |
| 834,106 | | |
| 539,070 | | |
| 7,885,842 | | |
| 9,259,018 | | |
| 89,859 | | |
| 25,650 | | |
| 5,016,175 | | |
| 5,131,684 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans | |
| 2,443,795 | | |
| 997,431 | | |
| 19,127,321 | | |
| 22,568,547 | | |
| 1,141,061 | | |
| 673,327 | | |
| 18,019,408 | | |
| 19,833,796 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
LOAN MATURITY BY CLASS
The following table presents the maturities of
loan balances for the years presented:
Maturities | |
Mortgage | | |
Commercial
loan | | |
Personal
loan | | |
September 30,
2022 | | |
Mortgage | | |
Commercial
loan | | |
Personal
loan | | |
December 31,
2021 | |
| |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Within 1 year | |
| 1,943,735 | | |
| 742,644 | | |
| 16,867,446 | | |
| 19,553,825 | | |
| 1,019,780 | | |
| 673,327 | | |
| 13,553,132 | | |
| 15,246,239 | |
1-5 years | |
| 500,060 | | |
| 254,787 | | |
| 2,259,875 | | |
| 3,014,722 | | |
| 121,281 | | |
| - | | |
| 4,466,276 | | |
| 4,587,557 | |
5-10 years | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
More than 10 years | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans | |
| 2,443,795 | | |
| 997,431 | | |
| 19,127,321 | | |
| 22,568,547 | | |
| 1,141,061 | | |
| 673,327 | | |
| 18,019,408 | | |
| 19,833,796 | |
Interest on loans receivable is accrued and credited
to income as earned. The Company determines a loan’s past due status by the number of days that have elapsed since a borrower has
failed to make a contractual loan payment. Accrual of interest is generally discontinued when either (i) reasonable doubt exists as to
the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 180 days (The further extension
of loan past due status is subject to management final approval and on case-by-case basis).
CREDIT QUALITY INFORMATION
The Company uses internally-assigned risk grades
to estimate the capability of borrowers to repay the contractual obligations of their loan agreements as scheduled or at all. The Company’s
internal risk grade system is based on experiences with similarly graded loans and the assessment of borrower credit quality, such as,
credit risk scores, collateral and collection history. Individual credit scores are assessed by credit bureau, such as TransUnion. Internal
risk grade ratings reflect the credit quality of the borrower, as well as the value of collateral held as security. The Company requires
collateral arrangements to all mortgage loans and has policies and procedures for validating the reasonableness of the collateral valuations
on a regular basis. Management believes that these policies effectively manage the credit risk from advances.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The Company’s internally
assigned risk grades are as follows:
Pass: Loans are
of acceptable risk.
Other Assets Especially
Mentioned (OAEM): Loans have potential weaknesses that deserve management’s close attention.
Substandard: Loans
reflect significant deficiencies due to several adverse trends of a financial, economic or managerial nature.
Doubtful: Loans
have all the weaknesses inherent in a substandard loan with added characteristics that make collection or liquidation in full based on
currently existing facts, conditions and values highly questionable or improbable.
Loss: Loans have
been identified for charge-off because they are considered uncollectible and of such little value that their continuance as bankable assets
is not warranted.
The following table presents credit quality
exposures by internally assigned risk ratings as of the dates indicated:
Credit grades |
|
Mortgage |
|
|
Commercial
loan |
|
|
Personal
loan |
|
|
September 30,
2022 |
|
|
Mortgage |
|
|
Commercial
loan |
|
|
Personal
loan |
|
|
December 31,
2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets especially mentioned |
|
|
1,542,680 |
|
|
|
490,210 |
|
|
|
13,806,233 |
|
|
|
15,839,123 |
|
|
|
1,051,202 |
|
|
|
673,327 |
|
|
|
13,997,540 |
|
|
|
15,722,069 |
|
Substandard |
|
|
187,417 |
|
|
|
- |
|
|
|
952,890 |
|
|
|
1,140,307 |
|
|
|
- |
|
|
|
- |
|
|
|
330,278 |
|
|
|
330,278 |
|
Doubtful |
|
|
713,698 |
|
|
|
507,221 |
|
|
|
4,368,198 |
|
|
|
5,589,117 |
|
|
|
89,859 |
|
|
|
- |
|
|
|
3,691,590 |
|
|
|
3,781,449 |
|
Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
2,443,795 |
|
|
|
997,431 |
|
|
|
19,127,321 |
|
|
|
22,568,547 |
|
|
|
1,141,061 |
|
|
|
673,327 |
|
|
|
18,019,408 |
|
|
|
19,833,796 |
|
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 9 - DIGITAL ASSETS, NET
The following tables present changes in carrying
value of digital assets as of and for the nine months ended September 30, 2022 and December 31, 2021:
|
|
USDT |
|
|
OKT |
|
|
ETH |
|
|
BNB |
|
|
BUSD |
|
|
MATIC |
|
|
COTK |
|
|
Total |
|
Balance at January 1, 2022 |
|
$ |
25,576 |
|
|
$ |
34 |
|
|
$ |
5,658 |
|
|
$ |
1,612 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,571 |
|
|
$ |
35,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Received as revenue |
|
|
118,800 |
|
|
|
- |
|
|
|
42,789 |
|
|
|
958 |
|
|
|
7,863,338 |
|
|
|
- |
|
|
|
- |
|
|
|
8,025,885 |
|
Paid as expense |
|
|
(143,786 |
) |
|
|
(3 |
) |
|
|
(22,621 |
) |
|
|
(561 |
) |
|
|
(7,862,585 |
) |
|
|
|
|
|
|
- |
|
|
|
(8,029,556 |
) |
Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
19 |
|
Impairment loss |
|
|
- |
|
|
|
(24 |
) |
|
|
(9,395 |
) |
|
|
(643 |
) |
|
|
|
|
|
|
- |
|
|
|
(2,571 |
) |
|
|
(12,633 |
) |
Balance at September 30, 2022 |
|
$ |
590 |
|
|
$ |
7 |
|
|
$ |
16,431 |
|
|
$ |
1,366 |
|
|
$ |
753 |
|
|
$ |
19 |
|
|
$ |
- |
|
|
$ |
19,166 |
|
|
|
USDT |
|
|
OKT |
|
|
ETH |
|
|
BNB |
|
|
COTK |
|
|
Total |
|
Balance at January 1, 2021 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Received as revenue |
|
|
3,008,129 |
|
|
|
- |
|
|
|
257,956 |
|
|
|
- |
|
|
|
- |
|
|
|
3,266,085 |
|
Paid as expense |
|
|
(2,982,553 |
) |
|
|
(22 |
) |
|
|
(214,677 |
) |
|
|
(6,050 |
) |
|
|
(226 |
) |
|
|
(3,203,528 |
) |
Purchase |
|
|
- |
|
|
|
57 |
|
|
|
269 |
|
|
|
7,766 |
|
|
|
4,718 |
|
|
|
12,810 |
|
Impairment loss |
|
|
- |
|
|
|
(1 |
) |
|
|
(37,890 |
) |
|
|
(104 |
) |
|
|
(1,921 |
) |
|
|
(39,916 |
) |
Balance at December 31, 2021 |
|
$ |
25,576 |
|
|
$ |
34 |
|
|
$ |
5,658 |
|
|
$ |
1,612 |
|
|
$ |
2,571 |
|
|
$ |
35,451 |
|
As of September 30, 2022 and December 31, 2021,
the fair value of the digital assets held by the Company was $19,166 and $35,451, respectively.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 10 - INVENTORIES
A summary of inventories as of September 30, 2022
and December 31, 2021 is as follows:
| |
As of September 30, 2022 | |
| |
No. of token | | |
No. of art and
collectible
items | | |
Total
amount | |
| |
| | |
| | |
| |
Balance at January 1, 2022 | |
| 10 | | |
| 45 | | |
$ | 2,103,038 | |
Purchased | |
| - | | |
| 102 | | |
| 2,021,913 | |
Token minted | |
| 36 | | |
| - | | |
| | |
Sold | |
| (22 | ) | |
| (27 | ) | |
| (1,046,401 | ) |
Balance at September 30, 2022 | |
| 24 | | |
| 120 | | |
$ | 3,078,550 | |
| |
As of December 31, 2021 | |
| |
No. of token | | |
No. of art and
collectible
items | | |
Total
amount | |
| |
| | |
| | |
| |
Balance at January 1, 2021 | |
| - | | |
| - | | |
$ | - | |
Purchased | |
| - | | |
| 57 | | |
| 3,111,542 | |
Token minted | |
| 24 | | |
| - | | |
| | |
Sold | |
| (13 | ) | |
| (13 | ) | |
| (993,020 | ) |
Marketing expense | |
| (1 | ) | |
| (1 | ) | |
| (15,484 | ) |
Balance at December 31, 2021 | |
| 10 | | |
| 43 | | |
$ | 2,103,038 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 11 - INTANGIBLE ASSETS, NET
A summary of intangible assets as of September
30, 2022 and December 31, 2021 is as follows:
| |
Estimated useful life | |
September 30, 2022 | | |
December 31, 2021 | |
At cost: | |
| |
| | |
| |
Acquired technology software | |
5 years | |
$ | 17,344,690 | | |
$ | 17,344,690 | |
Licensed technology knowhow | |
4 years | |
| 2,000,000 | | |
| 2,000,000 | |
Trademarks and trade name | |
10 years | |
| 41,144 | | |
| 39,270 | |
Less: accumulated amortization | |
| |
| (3,809,333 | ) | |
| (829,575 | ) |
Foreign translation adjustment | |
| |
| (249 | ) | |
| 4 | |
| |
| |
$ | 15,576,252 | | |
$ | 18,554,389 | |
As of September 30, 2022, the estimated annual
amortization expense for intangible assets for each of the succeeding five years and thereafter is as follows
Period ending September 30: | |
| |
2023 | |
$ | 3,973,026 | |
2024 | |
| 3,973,026 | |
2025 | |
| 3,848,026 | |
2026 | |
| 3,473,026 | |
2027 | |
| 293,166 | |
Thereafter | |
| 15,982 | |
| |
$ | 15,576,252 | |
Amortization of
intangible assets for the three months ended September 30, 2022 and 2021 totaled $993,257 and $0, respectively.
Amortization of intangible assets for the nine
months ended September 30, 2022 and 2021 totaled $2,979,763 and $0, respectively.
NOTE 12 – PRODUCED CONTENT COST
Total capitalized produced content by predominant
monetization strategy as of September 30, 2022 and December 31, 2021 is as follows:
| |
September 30,
2022 | | |
December 31,
2021 | |
Produced content: | |
| | | |
| | |
Released, net of amortization | |
$ | - | | |
$ | - | |
Completed, not released | |
| - | | |
| - | |
In-process | |
| 608,257 | | |
| - | |
| |
$ | 608,257 | | |
$ | - | |
The produced content cost is not amortized as
of September 30, 2022 as the production of the film is still in process.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 13 - ACCRUED CONSULTING AND SERVICE FEE
For the nine months ended September 30, 2022,
the Company agreed to compensate certain business or professional service providers, in which rendered IT development service, sale and
marketing service, corporate development service and administrative service. These accrued consulting and service fees totaled $2,642,821
and agreed to be settled in lieu of the common stock of the Company.
NOTE 14 - LOAN PAYABLES
The amounts represented temporary advances received
from the third parties for the lending business, which carried annual interest at the rate of 18% to 21%. These amounts were unsecured
and will become repayable within one year. The loan payable balance was $816,946 and $489,836 as of September 30, 2022 and December 31,
2021, respectively.
Interest related to the loan payables was $27,046
and $7,249 for the three months ended September 30, 2022 and 2021, respectively.
Interest related to the loan payables was $367,337
and $784,195 for the nine months ended September 30, 2022 and 2021, respectively.
NOTE 15 - CONVERTIBLES NOTE PAYABLES
Securities purchase agreement and related convertible
note
Chan Hin Yip Note
On August 2, 2022, the Company entered into a
Sale and Purchase Agreement (“SPA”) with CHAN Hin Yip, pursuant to which the Company agreed to purchase approximately 58 collectible
items from Mr. Chan for a purchase price of HKD 1,305,000 (approximately USD $167,308) (the “Purchase Price”), through its
subsidiaries holds approximately 80% of the issued and outstanding securities of Grand Gallery Limited (“GGL”), and Mr. Chan
is a director and 5% equity owner of GGL.
On August 2, 2022, the Company and Mr. Chan entered
into a Note Purchase Agreement (“Chan Hin Yip Note”) pursuant to which the Company agreed to pay the Purchase Price via a
promissory note that will be converted into shares of the Company’s common stock at a conversion price equal to 90% of the volume
weighted average closing price of the Company’s common stock for the ten days immediately prior to February 2, 2023. The Chan Hin
Yip Note bears interest at 1% per annum and is due on February 2, 2023
1800 Diagonal Note
On August 26, 2022, the Company and 1800
Diagonal Lending LLC (“1800 Diagonal”) entered into a Securities Purchase Agreement, whereby the Company issued a
promissory note to 1800 Diagonal (“1800 Diagonal Note”) in the original principal amount of $89,250. The 1800 Diagonal
Note is convertible into shares of the common stock of the Company one hundred eighty (180) days following the date of funding at a
price equal to 65% of the average of two (2) lowest trading price of the Company’s common stock for the twenty (20) trading
days prior to conversion. The Company has the option to prepay the 1800 Diagonal Note by paying an amount equal to the then
outstanding amount multiplied by premium percentage during the first one hundred eighty (180) days. The 1800 Diagonal Note bears
interest at 8% per annum and is due on August 26, 2023.
As of September 30, 2022, the Company did not
prepay any of the convertible note payables.
As of September 30, 2022, accrued convertible
notes interest expense were amounted to $979.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE 16 - AMOUNTS DUE TO RELATED PARTIES
The amounts represented temporary advances to
the Company for the lending business, which were unsecured, interest-free and had no fixed terms of repayments. The related party balances
were $21,059,146 and $20,954,836 as of September 30, 2022 and December 31, 2021, respectively.
During the three and nine months ended September
30, 2022, the Company recorded an imputed additional non-cash interest of $235,205 and $714,696 at the market rate of 5% per annum on
these interest-free related party loans, under ASC 835-30 “Imputation of Interest”.
NOTE 17 - LEASES
The Company entered into operating leases primarily
for office premises with lease terms generally 2 years. The Company adopted Topic 842, using the modified-retrospective approach as discussed
in Note 3, and as a result, recognized a right-of-use asset and a lease liability. The Company uses a 5% rate to determine the present
value of the lease payments. The remaining life of the lease was two years.
The Company excludes short-term leases (those
with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets.
As of September 30, 2022, right-of-use assets
were $222,287 and lease liabilities were $229,734.
For
the three months ended September 30, 2022 and 2021, the Company charged to operations lease as expenses of $66,470 and
$0, respectively.
For the nine months ended September 30, 2022 and
2021, the Company charged to operations lease as expenses of $206,453 and $0, respectively.
The maturity of the Company’s lease obligations
is presented below:
Period Ending September 30, | |
| |
2023 | |
$ | 179,951 | |
2024 | |
| 57,279 | |
2025 | |
| - | |
| |
| | |
Total | |
| 237,230 | |
Less: interest | |
$ | (7,496 | ) |
| |
| 229,734 | |
| |
| | |
Present value of lease liabilities – current liability | |
| 173,340 | |
Present value of lease liabilities – non-current liability | |
$ | 56,394 | |
NOTE 18 – STOCK-BASED COMPANESATION
On May 19, 2022, the Company has filed a Registration
Statement on Form S-8 and includes a Reoffer Prospectus that the Reoffer Prospectus may be used for reoffers and resales of shares of
the Company. The Reoffer Prospectus covers the Shares issuable to the Selling Securityholders pursuant to awards granted to the Selling
Securityholders under the Coinllectibles Inc. 2022 Stock Incentive Plan. The Company will not receive any proceeds from the sale of the
shares offered by the Reoffer Prospectus.
As of September 30, 2022, there were 28,438,341
shares of the Company have been issued to consultants who have provided services to the Company.
The following table presents the stock-based compensation
expenses for shares granted consultants during the three and nine months ended September 30, 2022 and 2021:
|
|
Three months ended
September 30, |
|
|
Nine months ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate development expenses |
|
$ |
333,225 |
|
|
$ |
- |
|
|
$ |
25,646,926 |
|
|
$ |
- |
|
Technology and development expenses |
|
|
45,000 |
|
|
|
- |
|
|
|
32,105,000 |
|
|
|
- |
|
Sales and marketing expenses |
|
|
150,225 |
|
|
|
- |
|
|
|
25,913,695 |
|
|
|
- |
|
General and administrative expenses |
|
|
2,172,839 |
|
|
|
- |
|
|
|
2,811,839 |
|
|
|
- |
|
|
|
$ |
2,701,289 |
|
|
$ |
- |
|
|
$ |
86,477,460 |
|
|
$ |
- |
|
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The stock-based compensation expense was $2,701,289
during the three months ended September 30, 2022.
The stock-based compensation expense was $86,477,460
during the nine months ended September 30, 2022.
NOTE 19 - STOCKHOLDERS’ EQUITY
Authorized stock
The Company’s authorized share is 500,000,000
common shares with a par value of $0.001 per share.
Common stock outstanding
On January 19, 2022, the Company issued 100,000
shares of its common stock as Commitment Shares to Williamsburg Venture Holdings, LLC (the “Investor”), under an Equity Purchase
Agreement dated December 31, 2021 (the “Agreement”), in consideration for the Investor’s execution and delivery of,
and performance under the Agreement.
On February 10, 2022, the Company issued 153,060
shares of its common stock, at a price of $4.00 per share at its current market price, in exchange for 80% of equity interest of Grand
Gallery Limited, a Hong Kong limited liability company, which is engaged in the business of selling traditional art and collectible pieces.
The Company believes that this acquisition will strengthen the DOT business by expanding its access to buyers of arts and collectibles.
On May 19, 2022, the Company issued 26,921,356
shares of its common stock to settle the common stock to be issued and accrued consulting and service fee to consultants who have provided
services to the Company.
On May 24, 2022, the Company issued 64,200 shares
of its common stock, at a price of $4.00 per shares at its current market price, to a consultant who has provided service to the Company
under Rule 144.
On August 18, 2022, the Company issued 164,516
shares of its common stock, at a price of $1.50 per shares at its current market price, in exchange for 51% of equity interest of Phoenix
Waters Productions (HK) Limited, a Hong Kong Limited liability company, which is engaged in filmmaking in Hong Kong. The acquisition was
completed on September 1, 2022.
On September 16, 2022, the Company issued 1,452,785
shares of its common stock, at a price of $0.826 per shares at its current market price, to a consultant who has provided service to the
Company under Rule 144.
As of September 30, 2022 and December 31, 2021,
the Company had a total of 386,923,398 shares and 358,067,481 shares of its common stock issued and outstanding, respectively.
Common stock to be issued
As of September 30, 2022, the Company had 800,000,000
shares of its common stock to be issued to Dr. Lee, a director of the Company, in connection with the acquisition of Massive Treasure.
As of December 31, 2021, the Company had 806,321,356 shares of its
common stock to be issued, comprising of 800,000,000 shares outstanding to Dr. Lee, a major shareholder and former director of the Company,
in connection with the acquisition of Massive Treasure, 235,294 shares outstanding to Mr. Tan, a director of the Company, in connection
with his service to the Company for the year ended December 31, 2021, and 6,086,062 shares outstanding to consultants for their services
rendered to the Company for the year ended December 31, 2021.
NOTE 20 - INCOME TAX
The provision for income taxes consisted of the
following:
| |
Nine months ended
September 30, | |
| |
2022 | | |
2021 | |
Current tax: | |
| | |
| |
- Local | |
$ | - | | |
$ | - | |
- Foreign | |
| 546,146 | | |
| 377,453 | |
| |
| | | |
| | |
Deferred tax | |
| | | |
| | |
- Local | |
| - | | |
| - | |
- Foreign | |
| - | | |
| - | |
| |
| | | |
| | |
Income tax expense | |
$ | 546,146 | | |
$ | 377,453 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The effective tax rate in the periods presented
is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company mainly
operates in Singapore and Hong Kong that is subject to taxes in the jurisdictions in which they operate, as follows:
United States of America
COSG is registered in the State of Nevada and
is subject to the tax laws of United States of America. The U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into
law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate
tax rate from 35% to 21% effective January 1, 2018. The Company’s policy is to recognize accrued interest and penalties related
to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were not material
to its results of operations for the periods presented. Deferred tax asset is not provided for as the tax losses may not be able to carry
forward after a change in substantial ownership of the Company.
For the nine months ended September 30, 2022 and
2021, there were no operating income in US tax regime.
BVI
Under the current BVI law, the Company is not
subject to tax on income.
Republic of Singapore
The Company’s subsidiaries are registered
in Republic of Singapore and are subject to the Singapore corporate income tax at a standard income tax rate of 17% on the assessable
income arising in Singapore during its tax year. The operation in Singapore incurred an operating loss due to certain charges within the
group and there is no provision for income tax for the nine months ended September 30, 2022 and 2021.
| |
Nine months ended September 30, | |
| |
2022 | | |
2021 | |
Loss before income taxes | |
$ | (87,384,457 | ) | |
$ | (52,736 | ) |
Statutory income tax rate | |
| 17 | % | |
| 17 | % |
Income tax expense at statutory rate | |
| (14,855,358 | ) | |
| (8,965 | ) |
Net operating loss | |
| 14,855,358 | | |
| 8,965 | |
Income tax expense | |
$ | - | | |
$ | - | |
Hong Kong
The Company and subsidiaries operating in Hong
Kong is subject to the Hong Kong Profits Tax at the two-tiered profits tax rates from 8.25% to 16.5% on the estimated assessable profits
arising in Hong Kong during the current year, after deducting a tax concession for the tax year. The reconciliation of income tax rate
to the effective income tax rate for the nine months ended September 30, 2022 and 2021 is as follows:
| |
Nine months ended September 30, | |
| |
2022 | | |
2021 | |
Income before income taxes | |
$ | 1,191,436 | | |
$ | 2,217,838 | |
Statutory income tax rate | |
| 16.5 | % | |
| 16.5 | % |
Income tax expense at statutory rate | |
| 196,587 | | |
| 365,943 | |
Tax effect of non-deductible items | |
| 342,096 | | |
| 11,510 | |
Tax effect of non-taxable items | |
| (8,499 | ) | |
| - | |
Net operating loss | |
| 15,962 | | |
| - | |
| |
| | | |
| | |
Income tax expense | |
$ | 546,146 | | |
$ | 377,453 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The following table sets forth the significant
components of the deferred tax assets and liabilities of the Company as of September 30, 2022 and December 31, 2021:
| |
September 30, 2022 | | |
December 31, 2021 | |
Deferred tax assets: | |
| | |
| |
Net operating loss carryforward, from | |
| | |
| |
US tax regime | |
$ | 128,579 | | |
$ | 68,955 | |
Singapore tax regime | |
| 18,009,235 | | |
| 3,153,877 | |
Hong Kong tax regime | |
| 36,148 | | |
| 20,186 | |
Less: valuation allowance | |
| (18,173,962 | ) | |
| (3,243,018 | ) |
Deferred tax assets, net | |
$ | - | | |
$ | - | |
As of September 30, 2022, the operations in the
United States of America incurred $612,279 of cumulative net operating losses which can be carried forward indefinitely to offset future
taxable income. The Company has provided for a full valuation allowance against the deferred tax assets of $128,579 on the expected future
tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not
be realized in the future.
As of September 30, 2022, the operations in Singapore
incurred $105,936,672 of cumulative net operating losses which can be carried forward to offset future taxable income. There is no expiry
in net operating loss carryforwards under Singapore tax regime. the Company has provided for a full valuation allowance against the deferred
tax assets of $18,009,235 on the expected future tax benefits from the net operating loss carryforwards as the management believes it
is more likely than not that these assets will not be realized in the future.
As of September 30, 2022, the operations in Hong
Kong incurred $219,079 of cumulative net operating losses which can be carried forward indefinitely to offset future taxable income. The
Company has provided for a full valuation allowance against the deferred tax assets of $36,148 on the expected future tax benefits from
the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the
future.
The Company filed income tax returns in the United
States federal tax jurisdiction and several state tax jurisdictions. Since the Company is in a loss carryforward position, it is generally
subject to examination by federal and state tax authorities for all tax years in which a loss carryforward is available.
NOTE 21 - RELATED PARTY TRANSACTIONS
From time to time, the directors of the Company
advanced funds to the Company for working capital purpose. Those advances were unsecured, non-interest bearing and had no fixed terms
of repayment.
During the three months ended September 30, 2022,
the Company paid the management service fee of $931,059, to a company controlled by its major shareholder and former director, Dr.
Lee.
During the three months ended September 30, 2022,
the Company paid the director fee of $30,000 to Mr. Tan, a director of the Company, for his service to the Company’s subsidiary.
During the nine months ended September 30, 2022,
the Company paid the management service fee of $2,746,911, to a company controlled by its major shareholder and former director,
Dr. Lee.
During the nine months ended September 30, 2022,
the Company paid the director fee of $90,000 to Mr. Tan, a director of the Company, for his service to the Company’s subsidiary.
On July 1, 2022, the Company’s wholly-owned
subsidiary entered into a technical knowhow license and servicing agreement (the “Servicing Agreement”) with Total Chase Limited
(“Total Chase”), a company controlled by its major shareholder and former director, Dr. Lee. Pursuant to which the Company
engaged Total Chase to develop the technical knowhow for a term of three-year. Marvel Digital AI Limited (“MDAI”), the subsidiary
of Total Chase, owns several intellectual properties and provides technical development services to Total Chase. The technical knowhow
consists of Visual Intelligence Engine, Speech Recognition Engine, Text Analytics Engine, Emotion Recognition Engine, Motion Recognition
Engine, AI Agent Creation Engine and NFT Generation and Loading Engine for development of metaverse on Roblox. Under the terms of the
Servicing Agreement, the Company is required to pay to Total Chase an aggregate of $50,000,000 for the development of technical knowhow.
The consideration is payable in cash or cryptocurrencies. All MDAI’s proprietary items remain the sole and exclusive property of
MDAI, Total Chase will grant the Company a perpetual, non-exclusive, paid-up license to use certain MDAI’s proprietary items. The
Company reserves the right to terminate services in whole or in part, upon 7 days written notice to Total Chase. The foregoing description
of the Servicing Agreement is qualified in its entirety by reference to such agreement which is filed as Exhibit 10.8 to this quarterly
report on Form 10-Q and incorporated herein by reference.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The Company charged all related development costs
to expenses as incurred and recognized as “Metaverse and AI development expenses” in the unaudited condensed consolidated
statement of operations. During the nine months ended September 30, 2022, the Company incurred developmental costs of $5,000,000 and paid
$2,689,000.
On August 2, 2022, the Company entered into a
Sale and Purchase Agreement (“SPA”) with CHAN Hin Yip, pursuant to which the Company agreed to purchase approximately 58 collectible
items from Mr. Chan for a purchase price of HKD1,305,000 (approximately USD167,308) (the “Purchase Price”), through its subsidiaries
holds approximately 80% of the issued and outstanding securities of Grand Gallery Limited (“GGL”), and Mr. Chan is a director
and 5% equity owner of GGL.
On August 2, 2022, the Company and Mr. Chan entered
into a Note Purchase Agreement (“Chan Hin Yip Note”) pursuant to which the Company agreed to pay the Purchase Price via a
promissory note that will be converted into shares of the Company’s common stock at a conversion price equal to 90% of the volume
weighted average closing price of the Company’s common stock for the ten days immediately prior to February 2, 2023. The Chan Hin
Yip Note bears interest at 1% per annum and is due on February 2, 2023
On September 1, 2022, the Company purchased 42
collectibles items from companies controlled by its major shareholder and former director, Dr. Lee, for a purchase price of $1,851,520
On September 16, 2022, the Company issued 1,452,785
shares of its common stock, at a price of $0.826 per shares at market price under Rule 144, to a partnership fund beneficially owned by
its major shareholder and former director, Dr. Lee, which has rendered service to the Company.
As of September 30, 2022, Phoenix Waters Production
(HK) Limited (“PWHK”), a subsidiary of the Company, has promissory notes payables to a company controlled by the Company’s
major shareholder and former director, Dr. Lee, amounted to HKD512,000 (approximately USD65,225). The promissory notes payables are subject
to interest at 12% per annum and repayable within 1 year upon delivery of the note.
As of September 30, 2022, PWHK has loan payables
to a company controlled by the Company’s major shareholder and former director, Dr. Lee, amounted to HKD1,939,554 (approximately
USD240,086). The loan is unsecured, interest-free with 1% penalty on late repayment and repayable in January 2023.
Apart from the transactions and balances detailed
elsewhere in these accompanying condensed consolidated financial statements, the Company has no other significant or material related
party transactions during the periods presented.
NOTE 22 - COMMITMENTS AND CONTINGENCIES
As of September 30, 2022, the Company is committed
to the below contractual arrangements.
In May 2021, The Company, through its subsidiary,
Massive Treasure entered into a Share Swap Letter Agreement (the “100% Share Swap Letter”) with the shareholders of each of
E-on Finance Limited (“E-on”) and 8M Limited ("8M") to acquire 100% of each of E-on and 8M for 20,110,604 and 10,055,302
shares of common stock of COSG respectively based upon the closing price of the common stock of COSG as of the date of signing of the
100% Share Swap Letter and determined in accordance with the terms of the 100% Share Swap Letter on the date. The acquisition of E-on
and 8M consummated in May 2021. Thereon, the Company issued 10,256,409 shares and 5,128,204 shares to the shareholders of E-on and 8M
respectively, during 2021.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The Company is obligated to issue 9,854,195 and
4,927,098 shares on the first anniversary of the closing of the acquisition to the former shareholders of E-on and 8M respectively, subject
to certain clawback provisions. E-on and 8M are obligated to meet certain financial milestones in each of the two-year anniversaries following
the closing. Failure to meet such milestones will result in a clawback of the shares issued to the former shareholders. On the second
anniversary of the closing, if E-on or 8M exceeds the aggregate financial milestone set for the two years, the former shareholders thereof
shall be entitled to additional shares of COSG as determined in accordance with the 100% Share Swap Letter.
In May and June 2021, the Company, through its
subsidiary, Massive Treasure entered into a Share Swap Letter Agreement (the “51% Share Swap Letter”) with the shareholders
of Healthy Finance Limited, Dragon Group Mortgage Limited, Lee Kee Finance Limited, Rich Finance (Hong Kong) Limited, Long Journey Finance
Limited, Vaav Limited and Star Credit Limited (collectively “the entities”), to acquire each of the entities 51% of the issued
and outstanding securities of the entities for an aggregate amount of 23,589,736 shares of COSG’s common stock as set forth below
(the “First Tranche Shares”), based upon the closing price of the common stock of COSG as of the date of signing the 51% Share
Swap Letter and determined in accordance with the terms of the 51% Share Swap Letter. The acquisition of the entities consummated in May
and June 2021. Thereon, COSG issued the First Tranche Shares.
On the first anniversary of the closing, the Company
is obligated to issue a second tranche of shares of its common stock, based upon the closing price of its shares as of the fifth business
day prior to such first anniversary as determined in accordance with the terms of the 51% Share Swap Letter (the “Second Tranche
Shares”). Upon the issuance of the Second Tranche Shares, each of the entities will deliver the remaining 49% of the issued
and outstanding securities to COSG to become wholly owned subsidiaries of COSG. Each of the entities are obligated to meet certain
financial milestones in each of the two-year anniversaries following the closing. Failure to meet such milestones will result in a clawback
of the shares issued to the former shareholders. On the second anniversary of the closing, if any entity exceeds the aggregate financial
milestone set for the two years, the former shareholders thereof shall be entitled to additional shares of COSG as determined in accordance
with the 51% Share Swap Letter.
On December 31, 2021, the Company entered into
an Equity Purchase Agreement with Williamsburg Venture Holdings, LLC, a Nevada limited liability company (“Investor”), pursuant
to which the Investor agreed to invest up to Thirty Million Dollars ($30,000,000) over a 36-month period in accordance with the terms
and conditions of that certain Equity Purchase Agreement, dated as of December 31, 2021, by and between the Company and the Investor (the
“Equity Purchase Agreement”). During the term, the Company shall be entitled to put to the Investor, and the Investor shall
be obligated to purchase, such number of shares of the Company’s common stock and at such price as are determined in accordance
with the Equity Purchase Agreement. The per share purchase price for the Williamsburg Put Shares will be equal to 88% the lowest traded
price of the Common Stock on the principal market during the five (5) consecutive trading days immediately preceding the date which Williamsburg
received the Williamsburg Put Shares as DWAC Shares in its brokerage account (as reported by Bloomberg Finance L.P., Quotestream, or other
reputable source). In connection with the Equity Purchase Agreement, both parties also entered into a Registration Rights Agreement (the
“Registration Rights Agreement”) pursuant to which the Company agreed to register with the SEC the common stock issuable under
the Equity Purchase Agreement, among other securities. As of September 30,2022, the remaining balance for Equity Purchase from the Investor
was $30,000,000.
NOTE 23 - SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent
Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date
but before consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after September
30, 2022, up through the date the Company issued the unaudited condensed consolidated financial statements.