COSG Cosmos Group Holdings Inc (PK)

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking statements

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly report on Form 10-Q contains certain forward-looking statements and our future operating results could differ materially from those discussed herein. Certain statements contained in this discussion, including, without limitation, statements containing the words "believes," "anticipates," "expects" and the like, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). However, as we issue “penny stock,” as such term is defined in Rule 3a51-1 promulgated under the Exchange Act, we are ineligible to rely on these safe harbor provisions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained herein to reflect future events or developments.

Currency and exchange rate

Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “$” refer to the legal currency of the United States. Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

Overview

We are a Hong Kong based specialty commercial logistic company and online to offline vehicle purchasing platform. Our specialty commercial logistic company operates through Lee Tat Transportation Int’l Limited, our wholly owned Hong Kong subsidiary (“Lee Tat”), and provide timely and reliable logistics and delivery services to commercial clients located in Hong Kong. We offer service to the cable supply industry in Hong Kong, and expect to provide small parcel delivery service in cities near Shanghai in the near future. Lee Tat was organized as a private limited liability company on August 11, 2014, in Hong Kong. We acquired Lee Tat on May 12, 2017.

Our online to offline (O2O) vehicle purchasing platform solution is offered through COSG Car International Limited, a Hong Kong private limited company (“Car International”) and Foshan Cosmos Xi Yue Car Rental Co. Ltd a wholly foreign owned entity (“WFOE”). Through our platform, we offer an online to offline loyalty membership program, which allows members to purchase competitively priced goods and services, with the intent of developing an ecosystem that will provide our members with discounted products and services relating to vehicle purchasing, leasing, and maintenance and other services. Concurrently, we also intend to build a business ecosystem from the big data obtained from our members and other participants of our O2O platform. Our current core product is future car purchasing services whereby we offer our customers the opportunity to purchase a car at a 3%-30% discount.

Effective July 15, 2018, our Board of Directors dismissed Huan-Ting Peng, our Chief Operating Officer and the statutory representative of our WFOE, from all of her positions with the company and its subsidiaries and affiliated entities. Miky Wan, our President, interim Chief Financial Officer and Director, was concurrently appointed to fill the vacancies created by Ms. Peng’s removal and to serve as our Chief Operating Officer and statutory representative of WFOE.

Concurrently with the dismissal of Ms. Peng, our Board of Directors also terminated that certain Car Rental Collaboration Agreement (the “Car Rental Collaboration Agreement”) with Foshan YY Car Rental Limited (“YY”), a vehicle sales and leasing company. Ms. Peng owns approximately 51%of YY and is an officer and executive director of YY.

With the dismissal of Ms. Peng and the termination of the Car Rental Collaboration Agreement, we are uncertain about our ability to continue to offer our core products of future car purchasing and investment vehicle leasing services services and memberships. If we are unable to offer our core products, our business plan of accessing the auto market in China and developing an ecosystem that will provide our members with discounted products and services relating to vehicle purchasing, leasing, and maintenance and other services may be materially and adversely affected. Management is reassessing its ability to proceed with its business plan and is now considering alternative options.

We do not have any current intention to further develop our logistics business segment at this time.

History

We were incorporated in the state of Nevada on August 14, 1987, under the name Shur De Cor, Inc. and engaged in developing certain mining claims. In April 1999, Shur De Cor merged with Interactive Marketing Technology, a New Jersey corporation that was engaged in the business of developing and direct marketing of consumer products. As the surviving company, Shur De Cor changed its name to Interactive Marketing Technology, Inc. Shur De Cor's then management resigned and the management of Interactive New Jersey became the Company’s management. The prior management of Shur De Cor retained Shur De Cor’s business and assets. After that acquisition, the Company, through a wholly owned subsidiary, IMT's Plumber, Inc., produced, marketed, and sold a licensed product called the Plumber's Secret, which was discontinued in fiscal 2001. In May 2002, the Company ceased to actively pursue its product development and marketing business and actively sought to either acquire a third party, merge with a third party or pursue a joint venture with a third party in order to re-enter its former business of development and direct marketing of proprietary consumer products in the United States and worldwide.

On November 17, 2004, the Company acquired MPL, a company organized under the laws of the British Virgin Islands, and its subsidiaries in accordance with the terms of a Share Exchange Agreement executed by the parties (the “2004 Agreement”). In connection with the acquisition, the Company issued an aggregate of 109,623,006 shares of its common stock to Imperial International Limited, a company incorporated under the laws of the British Virgin Islands (“Imperial”), the sole shareholder of MPL, in exchange for 100% of the issued and outstanding shares of MPL capital stock (the "2004 Share Exchange"). Upon completion of the share exchange, MPL became the Company's wholly owned subsidiary and the Company’s former owner transferred control of the Company to Imperial. The Company relied on Rule 506 of Regulation D of the Securities Act of 1933, as amended (the "Act"), in regard to the shares that we issued pursuant to the 2004 Share Exchange. The Company treated this transaction as a qualified "business combination" as defined by Rule 501(d). The Company relied on the exemption from registration pursuant to Section 4(2) of, and or Regulation D promulgated under, the Act in issuing the Company’s securities.

In connection with the 2004 Share Exchange, the Company: (i) changed its name from Interactive Marketing Technology, Inc. to China Artists Agency, Inc. ("China Artists"); (ii) obtained a new stock symbol, "CAAY", and CUSIP Number, effective on December 21, 2004; (iii) increased its authorized common stock to 200,000,000 shares; (iv) effectuated a 1 for 1.69 reverse stock split; and (v) spun off the Company’s existing business into a separate public company, All Star Marketing, Inc., a Nevada corporation ("All Star"). All Star was formed as a wholly owned subsidiary of the Company. The Spin-off was satisfied by means of a pro-rata share dividend to the Company's shareholders of record as of December 10, 2004. The purpose of the Spin-Off was to allow the subsidiary to operate as a separate public company and raise working capital through the sale of its own equity. This allowed the Company’s management to focus on its business, while at the same time, allowing the spun-off company to have greater exposure by trading as an independent public company. Additionally, the shareholders and the market would then more easily identify the results and performance of the Company as a separate entity from that of All Star. In August 2005, the Company changed its name to China Entertainment Group, Inc. and, effective August 9, 2005, obtained a new stock symbol "CGRP", and CUSIP Number.

Because the Company failed to generate revenues in its new business, prior management commenced litigation in the Superior Court for Los Angeles County California which action was removed to the United States District Court for the Central District of California Case No. CV07-1068 GHK. On January 30, 2008, the parties entered into a Settlement Agreement and Conditional Release (the “Settlement Agreement”), pursuant to which, among other things, the Company’s former management reacquired control of the Company and all assets related to the Chinese entertainment business were transferred out of the Company. The Company, under its former management, once again entered the business of locating products to develop and mass market. These efforts did not prove fruitful and the Company, while continuing its product development business, also began to seek another business to acquire.

Effective July 22, 2010, the Company merged with Safe and Secure TV Channel, LLC, a Delaware limited liability company (the “Merger”). In connection with the Merger, the management of the Company resigned and was replaced by the management and principals of Safe and Secure TV Channel, LLC. The holders of interests in Safe and Secure TV Channel, LLC exchanged their interests for approximately 50.2% of the issued and outstanding stock of the Company. In September 2010, the Company effectuated a 9.85 for one stock split to shareholders of record as of August 23, 2010. After the Merger, the Company became a television network and multimedia information and distribution company focused on serving the homeland security and emergency preparedness industry.

On February 15, 2016, the Company sold to Asia Cosmos Group Limited, a private limited liability company incorporated under the laws of British Virgin Islands (“ACOSG”), 10,000,000 shares of its common stock at a per share price of $0.027. ACOSG’s sole shareholder is Miky Wan. The Company relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s securities to ACOSG.

In connection with the private placement to ACOSG, a change of control occurred and Bryan Glass resigned from his position as President, Secretary, Treasurer and Chairman of the Company. Miky Wan was appointed to serve as Chief Executive Officer, Chief Operating Officer, President and Director, effective February 19, 2016. Peter Tong, our Chief Financial Officer, Secretary and director continued in his positions with the Company. Calvin K.W. Lai, Anthony H.H. Chan, Jenher Jeng, Alice K.M. Tang, Connie Y.M. Kwok were appointed to serve on our Board of Directors effective February 19, 2016. Effective February 26, 2016, the Company changed its name to Cosmos Group Holdings Inc. and filed a Certificate of Amendment to such effect with the Nevada Secretary of State. The name change and the related stock symbol change to “COSG” were approved by the Financial Industry Regulatory Authority on March 31, 2016. The Company also increased the number of its authorized common stock, par value $0.001, from 90,000,0000 shares to 500,000,000 and its preferred stock, par value $0.001, from 10,000,000 to 30,000,000 shares. After the private placement, the Company shifted its business plan to focus on acquiring undervalued companies including those in the Greater China region.

On September 27, 2016, Peter Tong and Calvin Lai resigned from all of their positions with the Company. Connie Y.M. Kwok was appointed to serve as the Secretary and Miky Wan, our Chief Executive Officer, was appointed to serve as the interim Chief Financial Officer.

On January 13, 2017, the Company sold 200,000,000 shares of its common stock to ACOSG at a per share price of $0.001 per share for aggregate consideration of US $200,000. The Company relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s securities to ACOSG.

Acquisition of Lee Tat, Our Logistics Business

On May 12, 2017, we acquired all of the issued and outstanding shares of Lee Tat from Mr. Koon Wing CHEUNG, Lee Tat’s sole shareholder, in exchange for 219,222,938 shares of our issued and outstanding common stock. In connection with the Lee Tat acquisition, Miky Wan resigned from her positions as Chief Executive Officer and Chief Operating Officer and Koon Wing CHEUNG and Yongwei HU were appointed to serve as our Chief Executive Officer and Chief Operating Officer, respectively, and also as our directors. The Company relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s securities to the shareholders of Lee Tat.

Our O2O Vehicle Sales and Leasing Platform Solution

Our original business plan was to develop an ecosystem to address the entire vehicle purchasing, leasing and maintenance process. Our core product and services consisted of the following:

Our former cooperation partner, Foshan YY Car Rental Limited (“YY”), was an integral part of our ability to offer future car purchasing services and investment vehicle leasing services. Effective July 15, 2018, our Board of Directors dismissed Huan-Ting Peng, our Chief Operating Officer and the statutory representative of our WFOE, from all of her positions with the company and its subsidiaries and affiliated entities. Miky Wan, our President, interim Chief Financial Officer and Director, was concurrently appointed to fill the vacancies created by Ms. Peng’s removal and to serve as our Chief Operating Officer and statutory representative of WFOE. Concurrently with the dismissal of Ms. Peng, our Board of Directors also terminated the Car Rental Collaboration Agreement with YY. Ms. Peng owns approximately 51%of YY and is an officer and executive director of YY.

With the dismissal of Ms. Peng and the termination of the Car Rental Collaboration Agreement, we are uncertain about our ability to continue to offer our core product of future car purchasing and investment vehicle leasing services and memberships. If we are unable to offer our core products, our business plan of accessing the auto market in China and develop an ecosystem that will provide our members with discounted products and services relating to vehicle purchasing, leasing, and maintenance and other services may be materially and adversely affected. Management is reassessing its ability to proceed with its business and is now considering alternative options.

Sales and Marketing .

Logistics Segment

We expect to continue to focus on providing express delivery and logistic services to cable and data equipment suppliers in Hong Kong and mainland China. We anticipate focusing on business to business marketing, cold callings or attending local chamber of commerce events to obtain customers. In the near future, we expect to focus on consolidating our Hong Kong and Shanghai operations. We will sustain and consolidate the existing business in Hong Kong, and the branch in Hong Kong will also support our Shanghai client (Yunda) and the Suzhou office for cross border logistic and delivery. We do not have any current intention to further develop our logistics business segment at this time.

O2O Platform Segment

We attract customers from our internal marketing efforts, business relationships of our executive management team, and through cooperation partners such as XYY and other small car stores in Foshan. Effective February 9, 2018, we, through our wholly foreign owned enterprise in China (COSG WFOE), entered into a COSG Car APP Promotion and Membership Management Collaboration Agreement (the “Car APP Agreement”) with Foshan Shen Fan Technology Limited (“Foshan Shen Fan”), an O2O servicing company. Pursuant to the Car APP Agreement, Foshan Shen Fan agreed to promote the registration and sales of memberships on behalf of COSG, with the goal of achieving 100,000,000 registered COSG Car APP members. COSG agreed to provide its Car APP designed for use by COSG vehicle members and after-app customer service and operating environment. COSG agreed to pay Foshan Shen Fan certain fees which are more fully set forth in the Car APP Agreement. The collaboration expires in 2019.

Effective February 9, 2018, we, through COSG WFOE, also entered into an E-commerce Strategic Cooperation Agreement (the “Cooperation Agreement”) with Foshan Shen Fan. Pursuant to the Cooperation Agreement, Foshan Shen Fan agreed to build and operate an online ecommerce store for the sale of cars, which e-store will be accessed through T-Mall, Foshan’s Alibaba China Station account. COSG agreed to pay Foshan Shen Fan certain fees which are more fully set forth in the Cooperation Agreement.

In light of the dismissal of Ms. Peng and termination of the Car Rental Collaboration Agreement, we are assessing the future of these collaboration and cooperation arrangements.

We have a delivery operations team in Hong Kong consisting of two trucks, two drivers, and three network partners that pick up stocks for us and complete the delivery process. Generally, we are not a party to any long-term agreements with our customers. From time to time, we may enter into long term contracts similar to the Transportation Service with major customers and subcontract the performance of the performance of the contract to corresponding network partner according to the price and area.

Major Network Partners.

All of our major vendors are located in Hong Kong. For the six months ended June 30, 2018, one vendor, Po Won Transportation Company Limited, represented more than 10% of the Company’s operating cost. This vendor accounted for 14% of the Company’s operating cost amounting to $47,258 with $0 of accounts payable.

All of our major vendors are located in Hong Kong. For the six months ended June 30, 2017, one vendor, Tak Lee Transportation Company, represented more than 10% of the Company’s operating costs. This vendor accounted for 18% of the Company’s operating costs amounting to $20,775 with $0 of accounts payable.

Effective July 15, 2018, our Board of Directors dismissed Huan-Ting Peng, our Chief Operating Officer and the statutory representative of our WFOE, from all of her positions with the company and its subsidiaries and affiliated entities. Concurrently with the dismissal of Ms. Peng, our Board of Directors also terminated the Car Rental Collaboration Agreement with YY. Ms. Peng owns approximately 51% of YY and is an officer and executive director of YY. With the dismissal of Ms. Peng and the termination of the Car Rental Collaboration Agreement, we are uncertain about our ability to continue to offer our core product of future car purchasing and investment vehicle leasing services and memberships. If we are unable to offer our core products, our business plan of accessing the auto market in China and develop an ecosystem that will provide our members with discounted products and services relating to vehicle purchasing, leasing, and maintenance and other services may be materially and adversely affected. Management is reassessing its ability to proceed with its business and is now considering alternative options.

Seasonality.

Our logistics business is highly dependent upon the e-commerce industry in Hong Kong and China. In Hong Kong and China, we experience peak demand for our services during the double eleven festival and the Chinese New Year celebrations.

Our car sales business was highly correlated with China’s economic cycle, having its low season during Chinese Lunar New Year.

Insurance.

We maintain certain insurance in accordance customary industry practices in the jurisdiction where we operate. Under Hong Kong law it is a requirement that all employers in the city must purchase Employee's Compensation Insurance to cover their liability in the event that their staff suffers an injury or illness during the normal course of their work. Lee Tat maintains Employee’s Compensation Insurance, vehicle insurance and third party risks insurance for the business purposes.

Reverse Stock Split

Effective February 6, 2018, we engaged in a 1:20 reverse split of our common stock so that each twenty shares of issued and outstanding common stock were exchanged for one share. 

Results of Operations

We reported a net loss of $456,985 and $49,680 for the six months ended June 30, 2018, and2017, respectively. As of June 30, 2018, our current assets and current liabilities were $10,833,864 and $11,583,796, respectively. We had current assets of $370,248 and current liabilities of $545,386 as of December 31, 2017. Our auditors have prepared our financial statements for the years ended December 31, 2017 and 2016 assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Management believes that the continuing financial support from the existing shareholders and external financing will provide the additional cash to meet our obligations as they become due. Our 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.

Comparison of the three months ended June 30, 2018 and June 30, 2017

The following table sets forth certain operational data for the three months ended June 30, 2018, compared to the three months ended June 30, 2017:

Revenue . We generated revenues of $225,147 and $187,664 for the three months ended June 30, 2018 and 2017, respectively. The increase in revenue is attributable to the development of our O2O vehicle sales and leasing operations. In light of the dismissal of Ms. Peng and termination of the Car Rental Collaboration Agreement, we expect revenue from O2O Vehicle Purchasing and Leasing Platform and revenue overall to significantly decrease in the near future.

During the three months ended June 30, 2018 and 2017, the following customers accounted for 10% or more of our total net revenues:

All of our major customers are located in Hong Kong.

Cost of Revenue . Cost of revenue for the three months ended June 30, 2018, was $222,951, and as a percentage of net revenue, approximately 99%. Cost of revenue for the same period ended June 30, 2017, was $125,393. Cost of revenue as a percentage of net revenue for the three months ended June 30, 2017 was approximately 67%. Revenue derived from our O2O vehicle purchasing, leasing and maintenance platform have a higher cost of revenue. The increase in our cost of revenue for the three months ended June 30, 2018, is primarily attributable to the increased revenue associated with our O2O vehicle purchasing, leasing and maintenance platform.

Gross Profit . We achieved a gross profit of $2,196 and $62,271 for the three months ended June 30, 2018, and 2017, respectively. The decrease in gross profit is primarily attributable to the car business is slow down and membership development expenses increase.

General and Administrative Expenses (“G&A”) . We incurred G&A expenses of $307,396 and $80,623 for the three months ended June 30, 2018, and 2017, respectively. The increase in G&A is primarily attributable to our increased business volume as well as professional, administrative and other fees associated with being a reporting act company.

G&A as a percentage of net revenue was approximately 137% and 43% for the three months ended June 30, 2018 and 2017, respectively. The increase in G&A is attributable to our increased business activities, including the establishment and operation of our O2O Vehicle Purchasing and Leasing Platform. We previously had expected our G&A to increase in the foreseeable future as we expanded our business operations, including an anticipated increase in employees. However, we are uncertain as to the effect on our G&A in light of the uncertain future of our O2O Vehicle Purchasing and Leasing Platform and our need to develop an alternative business plan.

Other Expenses, net . We incurred net other expenses of $547 for the three months ended June 30, 2018, as compared to $560 for the three months ended June 30, 2017. Our net other expenses for the three months ended June 30, 2018 and 2017 consisted primarily of interest expenses associated with our bank facility in Foshan.

Income Tax Expense . Our income tax expenses for the three months ended June 30, 2018 and 2017 were $0 and $53, respectively. The decrease in income tax expenses was primarily attributable to the larger net loss that we incurred as a result of greater operating expenses.

Net Loss . During the three months ended June 30, 2018, we incurred a net loss of $305,747, as compared to $18,965 for the same period ended June 30, 2017. The increase in net loss is primarily attributable to costs associated with establishing and operating our O2O Vehicle Purchasing and Leasing Platform and increased general and administrative expenses resulting from being a reporting act company.

Comparison of the six months ended June 30, 2018 and June 30, 2017

The following table sets forth certain operational data for the six months ended June 30, 2018, compared to the six months ended June 30, 2017:

Revenue . We generated revenues of $358,873 and $279,382 for the six months ended June 30, 2018 and 2017, respectively. The increase in revenue is attributable to the development of our O2O vehicle sales and leasing operations. In light of the dismissal of Ms. Peng and termination of the Car Rental Collaboration Agreement, we expect revenue from O2O Vehicle Purchasing and Leasing Platform and revenue overall to significantly decrease in the near future.

During the six months ended June 30, 2018 and 2017, the following customers accounted for 10% or more of our total net revenues:

All of our major customers are located in Hong Kong.

Cost of Revenue . Cost of revenue for the six months ended June 30, 2018, was $342,281, and as a percentage of net revenue, approximately 95%. Cost of revenue for the same period ended June 30, 2017, was $200,980. Cost of revenue as a percentage of net revenue for the six months ended June 30, 2017 was approximately 72%. Revenue derived from our O2O vehicle purchasing, leasing and maintenance platform have a higher cost of revenue. The increase in our cost of revenue for the six months ended June 30, 2018, is primarily attributable to the increased revenue associated with our O2O vehicle purchasing, leasing and maintenance platform.

Gross Profit . We achieved a gross profit of $16,592 and $78,402 for the six months ended June 30, 2018, and 2017, respectively. The decrease in gross profit is primarily attributable to decrease business volume in Foshan.

General and Administrative Expenses (“G&A”) . We incurred G&A expenses of $472,568 and $126,837 for the six months ended June 30, 2018, and 2017, respectively. The increase in G&A is primarily attributable to our increased business volume as well as professional, administrative and other fees associated with being a reporting act company.

G&A as a percentage of net revenue was approximately 132% and 45% for the six months ended June 30, 2018 and 2017, respectively. The increase in G&A is attributable to our increased business activities, including the establishment and operation of our O2O Vehicle Purchasing and Leasing Platform. We previously had expected our G&A to increase in the foreseeable future as we expanded our business operations, including an anticipated increase in employees. However, we are uncertain as to the effect on our G&A in light of the uncertain future of our O2O Vehicle Purchasing and Leasing Platform and our need to develop an alternative business plan.

Other Expenses, net. We incurred net other expenses of $1,009 for the six months ended June 30, 2018, as compared to $983 for the six months ended June 30, 2017. Our net other expenses for the six months ended June 30, 2018 and 2017 consisted primarily of interest expenses associated with establishing and operating our Membership Platform and increased general and administrative expenses resulting from being a reporting act company.

Liquidity and Capital Resources

As of June 30, 2018, we had cash and cash equivalents of $28,341, restricted cash of $1,546,421, account receivable of $ 2,263, purchase deposits of $8,849,350 and deposits and prepayments of $407,489. As of December 31, 2017, we had cash and cash equivalents of $99,583, purchase deposits of $194,852 and deposits and prepayments of $75,813.

As a general matter, we expect our G&A to increase in the foreseeable future as we expand our business operations, including an anticipated increase in employees.

We had previously expected to incur significantly greater expenses in the near future in connection with the implementation of our business plan. We had also expected our general and administrative expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being reporting act company, including directors’ and officers’ insurance and increased professional fees. However, in light of the uncertain future of our O2O Vehicle Purchasing and Leasing Platform and our need to develop an alternative business plan, we are uncertain as to whether greater expenses will be incurred in the near future.

We have never paid dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock in the foreseeable future.

Going Concern Uncertainties

Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital may include the sale of equity securities, which include common stock sold in private transactions, capital leases and short-term and long-term debts. While we believe that we will obtain external financing and the existing shareholders will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support operations for at least the next 12 months.

Net Cash Used In Operating Activities.

For the six months ended June 30, 2018, net cash used in operating activities was $210,001, which consisted primarily of a net loss of $456,985, an increase in purchase deposits of $8,654,498, and an increase in deposits and prepayments of $331,676 offset by an increase in customer deposits of $8,471,920, an increase in accounts payables and accrued liabilities of $729,266 and depreciation of property, plant and equipment of $34,235.

For the six months ended June 30, 2017, net cash used in operating activities was $34,192, which consisted primarily of a net loss of $49,418 and a decrease in accounts payables and accrued liabilities of $34,186, offset by decrease in accounts receivable of $39,495, and depreciation of property, plant and equipment of $9,917.

We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.

Net Cash Used In Investing Activities.

For the six months ended June 30, 2018, net cash used in investing activities was $149,324 and consisted of purchases of property, plant and equipment.

For the six months ended June 30, 2017, net cash used in or provided by investing activities was $0.

Net Cash Provided By Financing Activities.

For the six months ended June 30, 2018, net cash provided by financing activities was $1,789,008 consisting primarily of bank borrowings of $1,495,000, advances from Koon Wing, CHEUNG, our Chief Executive Officer, of $225,721, advances from a related company of $78,287, offset by repayments on a finance lease of $10,000.

For the six months ended June 30, 2017, net cash generated from financing activities was $44,980 consisting primarily of proceeds from issue of common stock of $200,000, offset by repayments on a finance lease of $10,000, repayment to related party of $108,831 and repayment to Koon Wing, CHEUNG, our Chief Executive Officer, of $36,189.

Off-Balance Sheet Arrangements

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Off-Balance Sheet Arrangements

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management's subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following accounting policies are critical in the preparation of our financial statements.

The condensed consolidated financial statements include the financial statements of COSG and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer's financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. At the end of fiscal year, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of June 30, 2018, there was no allowance for doubtful accounts.

Property, plant 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:

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 June 30, 2018 and 2017 were $14,100 and $4,928, as part of cost of revenue, respectively.

Depreciation expense for the six months ended June 30, 2018 and 2017 were $34,235 and $9,917, as part of cost of revenue, respectively.

In accordance with the provisions of ASC Topic 360, “ Impairment or Disposal of Long-Lived Assets ”, all long-lived assets such as property, plant and equipment held and used 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. There has been no impairment charge for the six months ended June 30, 2018.

ASC Topic 606, “ Revenue from Contracts with Customers ” 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.

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company derives its revenues from the rendering of transportation services and recognizes in full upon completion of delivery to the receiver’s location. 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:

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes ” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three and six months ended June 30, 2018 and 2017, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2018, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts the majority of its businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by a foreign tax authority.

Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of ASC Topic 835-30, “Imputation of Interest” .

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 statement of operations.

The reporting currency of the Company is the United States Dollar ("US$"). The Company's subsidiaries in Hong Kong and the PRC maintain their books and records in their local currency, Hong Kong Dollars ("HK$") and Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the 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 subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

Translation of amounts from its reporting currencies into US$ has been made at the following exchange rates for the respective year:

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

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 financial statements. For the period ended June 30, 2018, the Company operates in two reportable operating segments in the Hong Kong and the PRC. The Company anticipated the new segment in car trading business in the PRC during the first quarter of this fiscal year. 

The carrying value of the Company’s financial instruments (excluding short-term bank borrowing and finance lease): cash and cash equivalents, accounts and retention receivable, prepayments and other receivables, accounts payable, income tax payable, amount due to a related party, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of short-term bank borrowings and note payable approximate the carrying amount.

The Company also follows the guidance of the ASC Topic 820-10, “ Fair Value Measurements and Disclosures ” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either finance or an operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods therein. The Company will adopt ASC 842 effective January 1, 2019. The Company is currently in the process of evaluating the impact of the guidance on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company early adopted the ASU 2016-18 on January 1, 2017.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to provide additional guidance with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company early adopted the ASU 2016-18 on January 1, 2017.

Effective January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The most significant impact to our consolidated financial statements relates to the recognition and measurement of equity investments at fair value with changes recognized in Net income. The amendment also updates certain presentation and disclosure requirements. The adoption of ASU 2016-01 did not have a material impact on the consolidated financial statements. The adoption of ASU 2016-01 is expected to increase volatility in net income as changes in the fair value of available-for-sale equity investments and changes in observable prices of equity investments without readily determinable fair values will be recorded in net income.

Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. This guidance supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company updated its accounting policy for the new standard based on a detailed review of its business and contracts. Based on the new guidance, the Company continues to recognize revenue at a point in time for the majority of its contracts with customers, which is generally when products are either shipped or delivered. Therefore, the adoption of ASC 606 did not have a material impact on the consolidated financial statements.

In July 2018, the FASB issued ASU 2018-07, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting as an amendment and update expanding the scope of Topic 718. The amendment specifies that Topic 718 now applies to all share-based payment transactions, even non-employee awards, in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Under the new guidance, awards to nonemployees are measured on the grant date, rather than on the earlier of the performance commitment date or the date at which the nonemployee’s performance is complete. Also, the awards would be measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. In addition, entities may use the expected term to measure nonemployee awards or elect to use the contractual term as the expected term, on an award-by-award basis. The new guidance is effective for the Company in annual periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of this new guidance.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.