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.
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, the consolidated balance sheet as of December 31, 2021 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended March 31, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2022 or for any future period.
NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND
Cosmos Group Holdings Inc. (the “Company” or “COSG”) was incorporated in the state of Nevada on August 14, 1987.
The Company currently offers financial and money lending services in Hong Kong and operates online platform for the sale and distribution of arts and collectibles around the world, with the use of blockchain technologies and minting token.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), 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 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$1 each | | 100% |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
The Company and its subsidiaries are hereinafter referred to as (the “Company”).
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.
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 March 31, 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, if the fair market value at any point during the reporting period is lower than the carrying value an impairment loss equal to the difference will be recognized in the consolidated statement of operations. If the fair market value at any point during the reporting period 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 or disposal of the assets.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
The Company’s cryptocurrencies are deemed to have an indefinite useful life, therefore amounts are not amortized, but rather are assessed for impairment.
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 periods ended March 31, 2022 and 2021 totaled $1,986 and $7,065, respectively.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), 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.
We allocate goodwill to reporting units 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 March 31, 2022, no impairment of goodwill has been identified.
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.
· | 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 MONTHS ENDED MARCH 31, 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 three months ended March 31, 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
Commencing from October 1, 2021, the Company launched 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 involves 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 to the customers.
The minted item of the individual art or collectibles which are 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, is recognized 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 customer 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 is comprised 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 in time the transaction is processed.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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.
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 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.
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.
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 periods ended March 31, 2022 and 2021.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
· | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.
The reporting currency of the Company is United States Dollar (“US$”) 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:-
| | March 31, 2022 | | | March 31, 2021 | |
Period/ year-end HKD:US$ exchange rate | | | 0.1277 | | | | 0.1286 | |
Annualized average HKD:US$ exchange rate | | | 0.1281 | | | | 0.1289 | |
| | March 31, 2022 | | | March 31, 2021 | |
Period/ year-end SGD:US$ exchange rate | | | 0.7387 | | | | 0.7433 | |
Annualized average SGD:US$ exchange rate | | | 0.7396 | | | | 0.7507 | |
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 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 the noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss.
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 MONTHS ENDED MARCH 31, 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 March 31, 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 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.
· | Fair value of financial instruments |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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 MONTHS ENDED MARCH 31, 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. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), (“ASU 2021-04”). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU became effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s financial statements or disclosures.
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 $88,828,230 and working capital deficit of $59,879,362 at March 31, 2022. In addition, with respect to the ongoing and evolving coronavirus (COVID-19) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, the outbreak has caused substantial disruption in international economies and global trades and if repercussions of the outbreak are prolonged, could have a significant adverse impact on the Company’s business.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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.
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the Asian region. National, regional and local governments took a variety of actions to contain the spread of COVID-19, including office and store closures, quarantining suspected COVID-19 patients, and capacity limitations. These developments have significantly impacted the results of operations, financial condition and cash flows of the Company included in this reporting. The impact included the difficulties of working remotely from home including slow Internet connection, the inability of our accounting and financial officers to collaborate as effectively as they would otherwise have in an office environment and issues arising from mandatory state quarantines.
While it is not possible at this time to estimate with sufficient certainty the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by federal, state, local and foreign governments could disrupt the operation of the Company’s business. The COVID-19 outbreak and mitigation measures have also had and may continue to have an adverse impact on global and domestic economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. These measures are continuing. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
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 $554,098 of goodwill, as below:
Acquired assets: | | | |
Property and equipment | | $ | 2,599 | |
Cash and cash equivalents | | | 33,404 | |
Deposit, prepayment and other receivables | | | 11,247 | |
Amounts due from related parties | | | 21,832 | |
| | | 69,082 | |
Less: Assumed liabilities | | | | |
Accrued liabilities and other payables | | | (4,253 | ) |
| | | (4,253 | ) |
Fair value of net assets acquired | | | 64,829 | |
Noncontrolling interest | | | (12,966 | ) |
Foreign translation adjustment | | | 6,279 | |
Goodwill recorded | | | 554,098 | |
Consideration allocated, payable by the Company’s common stock | | $ | 612,240 | |
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.
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 March 31, | |
| | 2022 | | | 2021 | |
| | | | | | |
Interest income | | $ | 1,666,141 | | | $ | 1,601,622 | |
ACT income: | | | | | | | | |
- Sale of arts and collectibles products | | | 1,208,146 | | | | - | |
- Transaction fee income and others | | | 1,306,660 | | | | - | |
| | | 2,514,806 | | | | - | |
| | | | | | | | |
| | $ | 4,180,947 | | | $ | 1,601,622 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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 March 31, 2022 | |
| | Lending Segment | | | ACT Segment | | | Total | |
Revenue from external customers: | | | | | | | | | |
Interest income | | $ | 1,666,141 | | | $ | - | | | $ | 1,666,141 | |
Arts and collectibles technology income | | | - | | | | 2,514,806 | | | | 2,514,806 | |
Total revenue, net | | | 1,666,141 | | | | 2,514,806 | | | | 4,180,947 | |
| | | | | | | | | | | | |
Cost of revenue: | | | | | | | | | | | | |
Interest expense | | | (46,906 | ) | | | - | | | | (46,906 | ) |
Arts and collectibles technology expense | | | - | | | | (665,759 | ) | | | (665,759 | ) |
Total cost of revenue | | | (46,906 | ) | | | (665,759 | ) | | | (712,665 | ) |
| | | | | | | | | | | | |
Gross profit | | | 1,619,235 | | | | 1,849,047 | | | | 3,468,282 | |
| | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | |
Sales and marketing | | | (6,684 | ) | | | (19,357,972 | ) | | | (19,364,656 | ) |
Corporate development | | | - | | | | (18,988,606 | ) | | | (18,988,606 | ) |
Technology and development | | | - | | | | (24,353,672 | ) | | | (24,353,672 | ) |
General and administrative | | | (1,009,521 | ) | | | (1,719,481 | ) | | | (2,729,002 | ) |
Total operating expenses | | | (1,016,205 | ) | | | (64,419,731 | ) | | | (65,435,936 | ) |
| | | | | | | | | | | | |
Income (loss) from operations | | | 603,030 | | | | (62,570,684 | ) | | | (61,967,654 | ) |
| | | | | | | | | | | | |
Other income (loss): | | | | | | | | | | | | |
Interest income | | | 36 | | | | 3 | | | | 39 | |
Impairment loss on digital assets | | | - | | | | (3,199 | ) | | | (3,199 | ) |
Imputed interest expense | | | (237,114 | ) | | | - | | | | (237,114 | ) |
Sundry income | | | 23,939 | | | | - | | | | 23,939 | |
Total other loss, net | | | (213,139 | ) | | | (3,196 | ) | | | (216,335 | ) |
| | | | | | | | | | | | |
Segment income (loss) | | $ | 389,891 | | | $ | (62,573,880 | ) | | $ | (62,183,989 | ) |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| | Three months ended March 31, 2021 |
| | Lending Segment | | | ACT Segment | | | Total | |
Revenue from external customers: | | | | | | | | | | | | |
Interest income | | $ | 1,601,622 | | | $ | - | | | $ | 1,601,622 | |
Arts and collectibles technology income | | | - | | | | - | | | | - | |
Total revenue, net | | | 1,601,622 | | | | - | | | | 1,601,622 | |
| | | | | | | | | | | | |
Cost of revenue: | | | | | | | | | | | | |
Interest expense | | | (503,947 | ) | | | - | | | | (503,947 | ) |
Arts and collectibles technology expense | | | - | | | | - | | | | - | |
Total cost of revenue | | | (503,947 | ) | | | - | | | | (503,947 | ) |
| | | | | | | | | | | | |
Gross profit | | | 1,097,675 | | | | - | | | | 1,097,675 | |
| | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | |
Sales and marketing | | | (29,263 | ) | | | - | | | | (29,263 | ) |
General and administrative | | | (855,739 | ) | | | - | | | | (855,739 | ) |
Total operating expenses | | | (885,002 | ) | | | - | | | | (885,002 | ) |
| | | | | | | | | | | | |
Income from operations | | | 212,673 | | | | - | | | | 212,673 | |
| | | | | | | | | | | | |
Other income: | | | | | | | | | | | | |
Interest income | | | 16 | | | | - | | | | 16 | |
Sundry income | | | 2,282 | | | | - | | | | 2,282 | |
Total other income, net | | | 2,298 | | | | - | | | | 2,298 | |
| | | | | | | | | | | | |
Segment income | | $ | 214,971 | | | $ | - | | | $ | 214,971 | |
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 March 31, | |
| | 2022 | | | 2021 | |
| | | | | | |
Hong Kong | | $ | 1,666,141 | | | $ | 1,601,622 | |
Around the world | | | 2,514,806 | | | | - | |
| | | | | | | | |
| | $ | 4,180,947 | | | $ | 1,601,622 | |
NOTE 8 - LOAN RECEIVABLES, NET
The Company’s loan portfolio was as follows:
| | March 31, 2022 | | December 31, 2021 | |
| | | | | |
Personal loans | $ | 17,913,525 | | $ | 17,352,856 | |
Commercial loans | | 1,545,024 | | | 1,186,339 | |
Mortgage loans | | 2,219,997 | | | 1,294,601 | |
Total loans | | 21,678,546 | | | 19,833,796 | |
Less: Allowance for loan losses | | (1,338,606 | ) | | (781,202 | ) |
Loans receivables, net | $ | 20,339,940 | | $ | 19,052,594 | |
| | | | | | |
Reclassifying as: | | | | | | |
Current portion | $ | 20,339,940 | | $ | 19,052,594 | |
Non-current portion | | - | | | - | |
| | | | | | |
Total loans receivables | $ | 20,339,940 | | $ | 19,052,594 | |
The interest rates on loans issued were ranged from 13% to 59% (2021: from 13% to 59%) per annum for the three months ended March 31, 2022 and 2021.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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).
NOTE 9 – DIGITAL ASSETS
During the three months ended March 31, 2022 and 2021, the changes in carrying value of digital assets are summarized as follows:
| | March 31, 2022 | | | March 31, 2021 | |
| | | | | | |
Balance at January 1 | | $ | 35,451 | | | $ | - | |
| | | | | | | | |
Received as revenue | | | 2,514,806 | | | | - | |
Paid as expense | | | (2,542,912 | ) | | | - | |
Impairment loss | | | (3,199 | ) | | | - | |
Balance at March 31 | | $ | 4,146 | | | $ | - | |
The following is the breakdown of cryptocurrencies held as digital assets:
| | March 31, 2022 | | | December 31, 2021 | |
| | | | | | |
USDT | | $ | 576 | | | $ | 25,576 | |
BUSD | | | 606 | | | | - | |
OKT | | | 18 | | | | 34 | |
ETH | | | 1,652 | | | | 5,658 | |
BNB | | | 1,006 | | | | 1,612 | |
COTK | | | 288 | | | | 2,571 | |
| | $ | 4,146 | | | $ | 35,451 | |
As of March 31, 2022 and December 31, 2021, the fair value of the digital assets held by the Company was $4,146 and $35,451, respectively.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 10 - INTANGIBLE ASSETS, NET
A summary of intangible assets as of March 31, 2022 and December 31, 2021 is as follows:
| | Estimated useful life | | March 31, 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 | | | 41,148 | | | | 39,270 | |
Less: accumulated amortization | | | | | (1,822,825 | ) | | | (829,575 | ) |
Foreign translation adjustment | | | | | (152 | ) | | | 4 | |
| | | | $ | 17,562,861 | | | $ | 18,554,389 | |
As of March 31, 2022, the estimated annual amortization expense for intangible assets for each of the succeeding five years and thereafter is as follows
Period ending March 31: | | | |
2023 | | $ | 3,973,050 | |
2024 | | | 3,973,050 | |
2025 | | | 3,973,050 | |
2026 | | | 3,598,050 | |
2027 | | | 2,027,659 | |
Thereafter | | | 18,002 | |
| | $ | 17,562,861 | |
Amortization of intangible assets for the three months ended March 31, 2022 and 2021 totaled $993,249 and $0, respectively.
NOTE 11 - ACCRUED CONSULTING AND SERVICE FEE
For the three months ended March 31, 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 consulting and service fees totaled $62,367,500 and agreed to be settled in lieu of the common stock of the Company.
NOTE 12 - 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 $911,240 and $489,836 as of March 31, 2022 and December 31, 2021, respectively.
Interest related to the loan payables was $46,906 and $503,947 for the three months ended March 31, 2022 and 2021, respectively.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 13 - 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 $20,105,289 and $20,954,836 as of March 31, 2022 and December 31, 2021, respectively.
During the period ended March 31, 2022, the Company recorded and imputed additional non-cash interest of $237,114 at the market rate of 5% per annum on these interest-free related party loans, under ASC 835-30 “Imputation of Interest”.
NOTE 14 - 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 March 31, 2022, right-of-use assets were $295,491 and lease liabilities were $305,791.
For the three months ended March 31, 2022 and 2021, the Company charged to operations lease as expenses of $10,343 and $12,683, respectively.
The maturity of the Company’s lease obligations is presented below:
Period Ending March 31, | | | |
2023 | | $ | 193,957 | |
2024 | | | 107,305 | |
2025 | | | 15,884 | |
| | | | |
Total | | | 317,146 | |
Less: interest | | $ | (11,355 | ) |
Present value of lease liabilities – current liability | | | 234,596 | |
Present value of lease liabilities – non-current liability | | $ | 71,195 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 15 - 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.
As of March 31, 2022 and December 31, 2021, the Company had a total of 358,320,541 shares and 358,067,481 shares of its common stock issued and outstanding, respectively.
Common stock to be issued
As of March 31, 2022 and December 31, 2021, the Company had 806,321,356 and 806,321,356 shares of its common stock to be issued respectively, comprising of 800,000,000 shares outstanding to Dr. Lee, a 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 17 consultants for their services rendered to the Company for the year ended December 31, 2021.
NOTE 16 - INCOME TAX
The provision for income taxes consisted of the following:
| | Three months ended March 31, | |
| | 2022 | | | 2021 | |
Current tax: | | | | | | | | |
- Local | | $ | - | | | $ | - | |
- Foreign | | | 211,155 | | | | 6,056 | |
| | | | | | | | |
Deferred tax | | | | | | | | |
- Local | | | - | | | | - | |
- Foreign | | | - | | | | - | |
| | | | | | | | |
Income tax expense | | $ | 211,155 | | | $ | 6,056 | |
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:
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
United States of America
COSG is registered in the State of Delaware 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 periods ended March 31, 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 and there is no provision for income tax for the three months ended March 31, 2022 and 2021.
| | Three months ended March 31, | |
| | 2022 | | | 2021 | |
Loss before income taxes | | $ | (61,636,397 | ) | | $ | - | |
Statutory income tax rate | | | 17 | % | | 17 | % |
Income tax expense at statutory rate | | | (10,478,187 | ) | | | - | |
Net operating loss | | | 10,478,187 | | | | - | |
Income tax expense | | $ | - | | | $ | - | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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 three months ended March 31, 2022 and 2021 is as follows:
| | Three months ended March 31, | |
| | 2022 | | | 2021 | |
Income before income taxes | | $ | 490,775 | | | $ | 214,971 | |
Statutory income tax rate | | | 16.5 | % | | | 16.5 | % |
Income tax expense at statutory rate | | | 80,978 | | | | 35,470 | |
Tax effect of non-deductible items | | | 129,407 | | | | - | |
Tax effect of non-taxable items | | | (3,176 | ) | | | (29,414 | ) |
Net operating loss | | | 3,946 | | | | - | |
| | | | | | | | |
Income tax expense | | $ | 211,155 | | | $ | 6,056 | |
The following table sets forth the significant components of the deferred tax assets and liabilities of the Company as of March 31, 2022 and December 31, 2021:
| | March 31, 2022 | | | December 31, 2021 | |
Deferred tax assets: | | | | | | |
Net operating loss carryforward, from | | | | | | |
US tax regime | | $ | 81,056 | | | $ | 68,955 | |
Singapore tax regime | | | 13,632,064 | | | | 3,153,877 | |
Hong Kong tax regime | | | 24,132 | | | | 20,186 | |
Less: valuation allowance | | | (13,737,252 | ) | | | (3,243,018 | ) |
Deferred tax assets, net | | $ | - | | | $ | - | |
As of March 31, 2022, the operations in the United States of America incurred $385,980 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 $81,056 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 March 31, 2022, the operations in Singapore incurred $80,188,612 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 $13,632,064 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 17 - 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 March 31, 2022, the Company paid the management service fee of $1,000,000, to a company controlled by its director, Dr. Lee.
During the three months ended March 31, 2022, the Company paid the director fee of $30,000 to Mr. Tan, a director of the Company, for his service to the Company’s subsidiary.
Apart from the transactions and balances detailed elsewhere in these accompanying condensed consolidated financial statements, the Company has no other significant or material related party transactions during the periods presented.
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE 18 - CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
For the three months ended March 31, 2022 and 2021, there was no single customer whose revenue exceeded 10% of the revenue.
(b) | Economic and political risk |
The Company’s major operations are conducted in Singapore and Hong Kong. Accordingly, the political, economic, and legal environments in Singapore and Hong Kong, as well as the general state of Singapore and Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.
The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HKD converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
(d) | Market price risk of crypto (“digital”) assets |
The Company generated certain level of its revenue from the sale and distribution of licensed media token products on its platform by the means of crypto assets by the customers, while revenue from these products have not been significant to date, most of this revenue will also fluctuate based on the price of crypto assets. Accordingly, crypto asset price risk could adversely affect its operating results. In particular, the future profitability may depend upon the market price of BNB, ETH, as well as other crypto assets. Crypto asset prices, along with the operating results, have fluctuated significantly from quarter to quarter. There is no assurance that crypto asset prices will reflect historical trends. A decline in the market price of BTC, ETH and Other crypto assets could have a material and adverse effect on our earnings, the carrying value of the crypto assets, and the future cash flows. This may also affect the liquidity and the ability to meet our ongoing obligations. As of March 31, 2022, the Company recorded an impairment charge on the crypto assets held when crypto asset prices decrease below their carrying value of these crypto assets.
NOTE 19 - COMMITMENTS AND CONTINGENCIES
As of March 31, 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.
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 March 31,2022, the remaining balance for Equity Purchase from the Investor was $30,000,000.
NOTE 20 - 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 March 31, 2022, up through the date the Company issued the unaudited condensed consolidated financial statements. The Company had no material recognizable subsequent events: