NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting
principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information not misleading.
In the opinion of management, the consolidated
balance sheet as of December 31, 2022 which has been derived from audited financial statements and these unaudited condensed consolidated
financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented.
The results for the period ended March 31, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2023 or for any future period.
NOTE
2 - ORGANIZATION AND BUSINESS BACKGROUND
Cosmos
Group Holdings Inc. (the “Company” or “COSG”) was incorporated in the state of Nevada on August 14, 1987.
The
Company currently offers financial and money lending services in Hong Kong and operates an online platform for the sale and distribution
of arts and collectibles around the world, through the use of blockchain technologies and minting token.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), 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 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 | % |
| |
| |
| |
| |
| | |
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$1 each | |
| 100 | % |
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), 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 impairment loss on loan receivables, 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, 2023.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
Loans
receivables are carried at unpaid principal balances, less the allowance for loan losses and charge-offs. The loans receivables portfolio
consists of real estate mortgage loans, commercial and personal loans.
Loans
are placed on nonaccrual status when they are past due 180 days or more as to contractual obligations or when other circumstances indicate
that collection is not probable. When a loan is placed on nonaccrual status, any interest accrued but not received is reversed against
interest income. Payments received on a nonaccrual loan are either applied to protective advances, the outstanding principal balance
or recorded as interest income, depending on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual
status when principal and interest payments have been brought current and the loan has performed in accordance with its contractual terms
for a reasonable period (generally six months).
If
the Company determines that a loan is impaired, the Company next determines the amount of the impairment. The amount of impairment on
collateral dependent loans is charged off within the given fiscal quarter. Generally, the amount of the loan and negative escrow in excess
of the appraised value less estimated selling costs, for the fair value of collateral valuation method, is charged off. For all other
loans, impairment is measured as described below in Allowance for Loan Losses.
● | Allowance for loan losses (“ALL”) |
The
adequacy of the Company’s ALL is determined, in accordance with ASC Topic 450-20 Loss Contingencies includes management’s
review of the Company’s loan portfolio, including the identification and review of individual problem situations that may affect
a borrower’s ability to repay. In addition, management reviews the overall portfolio quality through an analysis of delinquency
and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect
the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in
the size and composition of the loan portfolio.
The
ALL reflects management’s evaluation of the loans presenting identified loss potential, as well as the risk inherent in various
components of the portfolio. There is significant judgment applied in estimating the ALL. These assumptions and estimates are susceptible
to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components
could necessitate an increase in the ALL even though there may not be a decline in credit quality or an increase in potential problem
loans.
Property
and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated
on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking
into account their estimated residual values:
| |
Expected useful life |
Computer and office equipment | |
5 years |
Expenditure
for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Depreciation expense for the three months ended March 31, 2023 and
2022 totaled $1,319 and $1,986, respectively.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
The
Company accounts for its intangible assets in accordance with ASC 350. Intangible assets represented the acquired technology software,
licensed technology know-how, trademark and trade names for its internal use to facilitate and support its platform operation. They are
stated at the purchase cost and are amortized based on their economic benefit expected to be realized.
● | 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, 2023 AND
2022
(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, 2023 and 2022, the Company originated loans generally ranging
from $644 to $579,000, with terms ranging from 1 week to 120 months. The Company mainly derives a portion of its revenue from loan which
is specifically excluded from the scope of this standard, that is, interest on loan receivable is accrued monthly and credited to income
as earned.
Arts
and Collectibles Technology Business
The
Company currently operates its online platform in the sale and distribution of arts and collectibles, with the use of blockchain technologies
and minting tokens. The item of arts and collectibles is individually monetized as non-interchangeable unit of data stored on a blockchain,
which is a form of digital ledger that can be sold, in the form of a minting token on the online platform. The Company 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 collectible which is sold in crypto asset transaction is the only performance obligation under the
fixed-fee arrangements. The corresponding fees received upon each sale transaction is recognized as revenue, 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 comprises of a single performance obligation to provide a platform facilitating the transfer of its DOTs. The
Company considers its performance obligation satisfied, and recognizes revenue, at the point in time the transaction is processed.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(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.
● | Uncertain tax positions |
The Company did not take any uncertain tax positions and had no adjustments
to its income tax liabilities or benefits pursuant to the ASC Topic 740 provisions of Section 740-10-25 for the three months ended March
31, 2023 and 2022.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(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, 2023 | | |
March 31, 2022 | |
Period-end HKD:US$ exchange rate | |
| 0.1274 | | |
| 0.1277 | |
Period average HKD:US$ exchange rate | |
| 0.1276 | | |
| 0.1281 | |
| |
March 31, 2023 | | |
March 31, 2022 | |
Period-end SGD:US$ exchange rate | |
| 0.7521 | | |
| 0.7387 | |
Period average SGD:US$ exchange rate | |
| 0.7501 | | |
| 0.7396 | |
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.
● | Noncontrolling interest |
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, 2023 AND
2022
(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, 2023, 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.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
● | Fair value of financial instruments |
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”)
to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes
a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.
To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting
Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value
into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined
by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
Level 1 |
Quoted market prices available
in active markets for identical assets or liabilities as of the reporting date. |
|
|
Level 2 |
Pricing inputs other than
quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
Level 3 |
Pricing inputs that are
generally observable inputs and not corroborated by market data. |
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than
one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of
the instrument.
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
2023 AND 2022
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
The
carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, loan and fee receivable,
prepayments and other receivables, amounts due from related parties, accrued liabilities and other payables, loans payable, amounts due
to related parties approximate their fair values because of the short maturity of these instruments.
● | Recent accounting pronouncements |
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard
setting bodies and adopted by the Company as of the specified effective date. The Company has reviewed all recently issued, but not yet
effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material
impact on its financial condition or the results of its operations.
NOTE
4 - GOING CONCERN UNCERTAINTIES
The
accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has suffered from an accumulated deficit of $130,723,542
and working capital of $11,392,082 at March 31, 2023. 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.
NOTE
5 - 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, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Interest income | |
$ | 1,555,976 | | |
$ | 1,666,141 | |
ACT income | |
| | | |
| | |
- Sale of arts and collectibles products | |
| 598,647 | | |
| 1,208,146 | |
- Transaction fee income and others | |
| - | | |
| 1,306,660 | |
| |
| 598,647 | | |
| 2,514,806 | |
| |
| | | |
| | |
| |
$ | 2,154,623 | | |
$ | 4,180,947 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE
6 - 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. |
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, 2023 | |
| |
Lending Segment | | |
ACT Segment | | |
Total | |
Revenue from external customers: | |
| | |
| | |
| |
Interest income | |
$ | 1,555,976 | | |
$ | - | | |
$ | 1,555,976 | |
Arts and collectibles technology income | |
| - | | |
| 598,647 | | |
| 598,647 | |
Total revenue, net | |
| 1,555,976 | | |
| 598,647 | | |
| 2,154,623 | |
| |
| | | |
| | | |
| | |
Cost of revenue: | |
| | | |
| | | |
| | |
Interest expense | |
| (58,927 | ) | |
| - | | |
| (58,927 | ) |
Arts and collectibles technology expense | |
| - | | |
| (315,399 | ) | |
| (315,399 | ) |
Total cost of revenue | |
| (58,927 | ) | |
| (315,399 | ) | |
| (374,326 | ) |
| |
| | | |
| | | |
| | |
Gross profit | |
| 1,497,049 | | |
| 283,248 | | |
| 1,780,297 | |
| |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | |
Sales and marketing | |
| (25,543 | ) | |
| (4,982 | ) | |
| (30,525 | ) |
Corporate development | |
| - | | |
| (57,345 | ) | |
| (57,345 | ) |
Technology and development | |
| - | | |
| (10,703 | ) | |
| (10,703 | ) |
General and administrative | |
| (2,953,591 | ) | |
| (948,837 | ) | |
| (3,902,428 | ) |
Total operating expenses | |
| (2,979,134 | ) | |
| (1,021,867 | ) | |
| (4,001,001 | ) |
| |
| | | |
| | | |
| | |
Loss from operations | |
| (1,482,085 | ) | |
| (738,619 | ) | |
| (2,220,704 | ) |
| |
| | | |
| | | |
| | |
Other income (loss): | |
| | | |
| | | |
| | |
Interest income | |
| 1,066 | | |
| 40 | | |
| 1,106 | |
Convertible notes interest expense | |
| - | | |
| (1,544 | ) | |
| (1,544 | ) |
Imputed interest expense | |
| (237,118 | ) | |
| - | | |
| (237,118 | ) |
Loan interest expense | |
| - | | |
| (19,138 | ) | |
| (19,138 | ) |
Sundry income | |
| 31,142 | | |
| - | | |
| 31,142 | |
Total other loss, net | |
| (204,910 | ) | |
| (20,642 | ) | |
| (225,552 | ) |
| |
| | | |
| | | |
| | |
Segment loss | |
$ | (1,686,995 | ) | |
$ | (759,261 | ) | |
$ | (2,446,256 | ) |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
| |
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 | |
| - | | |
| (1,8988,606 | ) | |
| (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 income, net | |
| (213,139 | ) | |
| (3,196 | ) | |
| (216,335 | ) |
| |
| | | |
| | | |
| | |
Segment income (loss) | |
$ | 389,891 | | |
$ | (62,573,880 | ) | |
$ | (62,183,989 | ) |
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, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Hong Kong | |
$ | 1,555,976 | | |
| 1,666,141 | |
Around the world | |
| 598,647 | | |
| 2,514,806 | |
| |
| | | |
| | |
| |
| 2,154,623 | | |
| 4,180,947 | |
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
NOTE
7 - LOAN RECEIVABLES, NET
The
Company’s loan portfolio was as follows:
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Personal loans | |
$ | 17,352,856 | | |
$ | 17,352,856 | |
Commercial loans | |
| 1,186,339 | | |
| 1,186,339 | |
Mortgage loans | |
| 1,294,601 | | |
| 1,294,601 | |
Total loans | |
| 19,833,796 | | |
| 19,833,796 | |
Less: Allowance for loan losses | |
| (205,772 | ) | |
| (781,202 | ) |
Loans receivables, net | |
$ | 19,628,024 | | |
$ | 19,052,594 | |
| |
| | | |
| | |
Reclassifying as: | |
| | | |
| | |
Current portion | |
$ | 16,544,515 | | |
$ | 19,052,594 | |
Non-current portion | |
| 3,083,509 | | |
| - | |
| |
| | | |
| | |
Total loans receivables | |
$ | 19,628,024 | | |
$ | 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, 2023 and 2022.
All
loans are made to either business or individual customers in Hong Kong for a period of 1 week to 120 months.
Allowance
for loan losses is estimated on an annual basis based on an assessment of specific evidence indicating doubtful collection, historical
experience, loan balance aging and prevailing economic conditions.
Interest
on loan receivable is accrued and credited to income as earned. The Company determines a loan’s past due status by the number of
days that have elapsed since a borrower has failed to make a contractual loan payment. Accrual of interest is generally discontinued
when either (i) reasonable doubt exists as to the full, timely collection of interest or principal or (ii) when a loan becomes past due
by more than 180 days (The further extension of loan past due status is subject to management final approval and on case-by-case basis).
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
NOTE 8 - INTANGIBLE ASSETS, NET
A summary of intangible assets as of March 31,
2023 and December 31, 2022 is as follows:
| |
Estimated useful life | |
March 31, 2023 | | |
December 31, 2022 | |
At cost: | |
| |
| | |
| |
Acquired technology software | |
5 years | |
$ | 17,344,690 | | |
$ | 17,344,690 | |
Licensed technology knowhow | |
4 years | |
| - | | |
| - | |
Trademarks and trade name | |
10 years | |
| 39,270 | | |
| 39,270 | |
Less: accumulated amortization | |
| |
| (4,921,114 | ) | |
| (4,052,889 | ) |
Foreign translation adjustment | |
| |
| 8,400 | | |
| 8,356 | |
| |
| |
$ | 12,471,246 | | |
$ | 13,339,427 | |
As of March 31, 2023, the estimated annual amortization
expense for intangible assets for each of the succeeding five years and thereafter is as follows
Period ending March 31: | |
| |
2024 | |
$ | 3,473,700 | |
2025 | |
| 3,473,700 | |
2026 | |
| 3,473,700 | |
2027 | |
| 2,028,310 | |
2028 | |
| 4,764 | |
Thereafter | |
| 17,072 | |
| |
$ | 12,471,246 | |
Amortization of intangible assets for the three
months ended March 31, 2023 and 2022 totaled $868,258 and $993,257, respectively.
NOTE 9 - 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 $1,319,073 and $1,823,536 as of March 31, 2023 and December 31,
2022, respectively.
Interest related to the loan payables was $19,138 and $0 for the three
months ended March 31, 2023 and 2022, respectively.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
NOTE 10 - 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 $24,679,775 and $23,931,078 as of March 31, 2023 and December 31, 2022, respectively.
During
the three months ended March 31, 2023, the Company recorded and imputed additional non-cash interest of $237,118 at the market rate of
5% per annum on these interest-free related party loans, under ASC 835-30 “Imputation of Interest”.
NOTE 11 - 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, 2023, right-of-use assets were
$105,466 and lease liabilities were $109,058.
For the three months ended March 31, 2023 and
2022, the Company charged to operations lease as expenses of $34,887 and $10,343, respectively.
The
maturity of the Company’s lease obligations is presented below:
Period Ending March 31, | |
| |
2024 | |
$ | 106,518 | |
2025 | |
| 5,606 | |
| |
| | |
Total | |
| 112,124 | |
Less: interest | |
$ | 3,066 | |
Present value of lease liabilities – current liability | |
| 103,487 | |
Present value of lease liabilities – non-current liability | |
$ | 5,571 | |
NOTE 12 - CONVERTIBLES
NOTE PAYABLES
Securities purchase
agreement and related convertible note
Chan Hin Yip Note
On August 2, 2022, the
Company entered into a Sale and Purchase Agreement (“SPA”) with CHAN Hin Yip, pursuant to which the Company agreed to purchase
approximately 58 collectible items from Mr. Chan for a purchase price of HKD1,305,000 (approximately USD $167,308) (the “Purchase
Price”), through its subsidiaries holds approximately 80% of the issued and outstanding securities of Grand Gallery Limited (“GGL”),
and Mr. Chan is a director and 5% equity owner of GGL.
On August 2, 2022, the
Company and Mr. Chan entered into a Note Purchase Agreement (“Chan Hin Yip Note”) pursuant to which the Company agreed to
pay the Purchase Price via a promissory note that will be converted into shares of the Company’s common stock at a conversion price
equal to 90% of the volume weighted average closing price of the Company’s common stock for the ten days immediately prior to February
2, 2023. The Chan Hin Yip Note bears interest at 1% per annum and is due on February 2, 2023.
1800 Diagonal Note
On August 26, 2022, the
Company and 1800 Diagonal Lending LLC (“1800 Diagonal”) entered into a Securities Purchase Agreement, whereby the Company
issued a promissory note to 1800 Diagonal (“1800 Diagonal Note”) in the original principal amount of $89,250. The 1800 Diagonal
Note is convertible into shares of the common stock of the Company one hundred eighty (180) days following the date of funding at a price
equal to 65% of the average of two (2) lowest trading price of the Company’s common stock for the twenty (20) trading days prior
to conversion. The Company has the option to prepay the 1800 Diagonal Note by paying an amount equal to the then outstanding amount multiplied
by premium percentage during the first one hundred eighty (180) days. The 1800 Diagonal Note bears interest at 8% per annum and is due
on August 26, 2023.
As of March 31, 2023
and December 31, 2022, the Company did not prepay the convertible note payables and accrued convertible notes interest expense
of $979.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
NOTE 13 - 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
As of March 31, 2023 and December 31, 2022, the
Company had a total of 457,000,915 shares and 454,398,143 shares of its common stock issued and outstanding, respectively.
Common stock to be issued
As of March 31, 2023, the Company had 800,000,000
shares of its common stock to be issued to Dr. Lee, a director of the Company, in connection with the acquisition of Massive Treasure.
As of December 31, 2022, the Company had 806,321,356
shares of its common stock to be issued, comprising of 800,000,000 shares outstanding to Dr. Lee, a 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.
Stock-based compensation
As of March 31, 2023, the Company issued 2,602,772
shares of its common stock to consultants who have provided services to the Company under the Coinllectibles
Inc. 2022 Stock Incentive Plan.
The stock-based compensation expenses for shares
granted consultants during the three months ended March 31, 2023 and 2022 were $168,852 and $0, respectively.
NOTE 14 - INCOME TAX
The
provision for income taxes consisted of the following:
| |
Three months ended March 31, | |
| |
2023 | | |
2022 | |
Current tax: | |
| | |
| |
- Local | |
$ | - | | |
$ | - | |
- Foreign | |
| 170,066 | | |
| 213,929 | |
| |
| | | |
| | |
Deferred tax | |
| | | |
| | |
- Local | |
| - | | |
| - | |
- Foreign | |
| - | | |
| - | |
| |
| | | |
| | |
Income tax expense | |
$ | 170,066 | | |
$ | 213,929 | |
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
The effective tax rate in the periods presented
is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company mainly
operates in Singapore and Hong Kong that is subject to taxes in the jurisdictions in which they operate, as follows:
United
States of America
COSG
is registered in the State of Nevada and is subject to the tax laws of United States of America. The U.S. Tax Cuts and Jobs Act (the
“Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by,
among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s policy is to
recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued
or paid interest or penalties which were not material to its results of operations for the periods presented. Deferred tax asset is not
provided for as the tax losses may not be able to carry forward after a change in substantial ownership of the Company.
For the three months ended March 31, 2023 and
2022, there were no operating income in US tax regime.
BVI
Under
the current BVI law, the Company is not subject to tax on income.
Republic
of Singapore
The Company’s subsidiaries are registered
in Republic of Singapore and are subject to the Singapore corporate income tax at a standard income tax rate of 17% on the assessable
income arising in Singapore during its tax year. The operation in Singapore incurred an operating loss due to certain charges within
the group and there is no provision for income tax for the three months ended March 31, 2023 and 2022.
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 operation in Hong Kong incurred an operating loss and
there is no provision for income tax for the three months ended March 31, 2023 and 2022.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
The following table sets forth the significant
components of the deferred tax assets and liabilities of the Company as of March 31, 2023 and December 31, 2022:
| |
March 31, 2023 | | |
December 31, 2022 | |
Deferred tax assets: | |
| | |
| |
Net operating loss carryforward, from | |
| | |
| |
US tax regime | |
$ | 5,716 | | |
$ | 102,932 | |
Singapore tax regime | |
| - | | |
| 15,324,07 | |
Hong Kong tax regime | |
| 270,407 | | |
| 13,019 | |
Less: valuation allowance | |
| (276,123 | ) | |
| (15,440,658 | ) |
Deferred tax assets, net | |
$ | - | | |
$ | - | |
As of March 31, 2023, the operations in the United
States of America incurred $549,969 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 $115,493 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, 2023, the operations in Singapore
incurred $99,244,42 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 $16,871,555 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, 2023, the operations in Hong Kong
incurred $1,830,595 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 $302,048 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 15 - 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, 2023,
the Company paid the management service fee of $0, to a company controlled by its director, Dr. Lee.
During the three months ended March 31, 2023, the Company paid the
director fee of $31,770 to Mr. Tan, a director of the Company, for his service to the Company’s subsidiary.
Apart from the transactions and balances detailed
elsewhere in these accompanying condensed consolidated financial statements, the Company has no other significant or material related
party transactions during the periods presented.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
NOTE 16 - CONCENTRATIONS OF RISK
The
Company is exposed to the following concentrations of risk:
For the three months ended March 31, 2023 and
2022, 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.
NOTE
17 - COMMITMENTS AND CONTINGENCIES
As
of March 31, 2023, the Company is committed to the below contractual arrangements.
COSMOS
GROUP HOLDINGS INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
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, 2023, the remaining balance for Equity Purchase from the
Investor was $30,000,000.
NOTE 18 - 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, 2023, up through the date the Company issued the unaudited condensed consolidated financial statements.