Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions.

We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Presentation of Information

As used in this prospectus, the terms "we," "us" "our" "Cosmos", "Cosmo Health" and the "Company" mean Cosmos Health Inc. unless the context requires otherwise. The following discussion and analysis should be read in conjunction with our audited (and unaudited) financial statements and the related notes that appear elsewhere in this prospectus. All dollar amounts in this registration statement refer to U.S. dollars unless otherwise indicated.

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Overview

Summary

We are diversified, vertically integrated global healthcare group, owner of proprietary pharmaceutical and nutraceutical brands, generics, manufacturer and distributor of healthcare products, engaged in research & development of innovative medicines and repurposing drugs as well as operator of a telehealth platform. The Company, through its subsidiaries, is operating within the pharmaceutical industry and in order to compete successfully in the healthcare industry, must demonstrate that its products offer medical benefits as well as cost advantages. Currently, most of the products that the Company is trading, compete with other products already on the market in the same therapeutic category, and are subject to potential competition from new products that competitors may introduce in the future.

Revenue sources

Full Line Wholesaler

As a full line pharmaceutical wholesaler, we distribute a comprehensive range of pharmaceutical products, including prescription medications, over-the-counter (OTC) drugs, medical devices, food supplements, nutraceuticals, cosmetics and other healthcare products, to various businesses within the healthcare sector such as retail pharmacies, hospitals, private clinics and other wholesale pharmaceutical distributors.

Branded Pharmaceuticals & Generics

We are engaged in the production, promotion, distribution and sale of licensed branded generics and OTC products throughout Europe by our subsidiaries in Greece and UK. Our capital efficient business model is based on infrastructure, efficiency and scale. We believe that there is a significant growth on opportunities through product additions and geographic expansion.

Healthcare Distribution

We conduct direct distribution and sales of pharmaceuticals, medical devices, branded generics and OTC products. Our automated and GDP licensed distribution facilities ensure all medications reach their destination daily on an efficient and secure way. Our network exceeds over 1,500 pharmacies in Greece. We have created an upgraded and high-end distribution center in Greece due to our Robotic systems and integrated automations ("ROWA" robotics).

Nutraceutical

We have created and developed our own proprietary branded nutraceutical products, named "Sky Premium Life®" which was launched in 2018 and "Mediterranation®" which was launched in 2022. Utilizing unique formulations, and specialized extraction processes which follow strict pharmaceutical standards, our proprietary lines of nutraceuticals aim for excellence. We have a full portfolio of fast-moving and specialty formulas with more than 160 product codes including vitamins, minerals and other herbal extracts. Our nutraceutical products are manufactured exclusively by Doc Pharma. We focus on nutraceutical products because we foresee it as a market with high growth opportunities due to its large market size and margin contribution as the demand for nutraceutical products is increasing globally.

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General Risks

Supply chain disruption is a growing concern for the European pharmaceutical industry as it increasingly looks to cut costs by relying on 'emerging markets', where standards can be lower in terms of compliance, ethics and health and safety. Our business depends on the timely supply of materials, services and related products to meet the demands of our customers, which depends in part on the timely delivery of materials and services from suppliers and contract manufacturers. Significant or sudden increases in demand for our products, as well as worldwide demand for the raw materials and services we require to manufacture and sell our products, may result in a shortage of such materials or may cause shipment delays due to transportation interruptions or capacity constraints. Such shortages or delays could adversely impact our suppliers' ability to meet our demand requirements. Difficulties in obtaining sufficient and timely supply of materials or services can have an adverse impact on our manufacturing operations and our ability to meet customer demand.

We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver products, increased costs or customer order cancellations as a result of:

	·	the failure or inability to accurately forecast demand and obtain sufficient quantities of quality raw materials on a cost-effective basis;
	·	volatility in the availability and cost of materials or services, including rising prices due to inflation;
	·	difficulties or delays in obtaining required import or export approvals;
	·	shipment delays due to transportation interruptions or capacity constraints, such as reduced availability of air or ground transport or port closures;
	·	information technology or infrastructure failures, including those of a third-party supplier or service provider; and
	·	natural disasters or other events beyond our control (such as earthquakes, utility interruptions, tsunamis, hurricanes, typhoons, floods, storms or extreme weather conditions, fires, regional economic downturns, regional or global health epidemics, geopolitical turmoil, increased trade restrictions between the U.S. and China and other countries, social unrest, political instability, terrorism, or acts of war) in locations where we or our customers or suppliers have manufacturing or other operations.

Hikes in the price of medicine and their impact on the sustainability of the healthcare systems are garnering more and more attention. European regulators are willing to play their part in safeguarding continued access to safe and effective medicines. Regulators can speed up the approval of branded pharmaceuticals and biosimilars to boost competition and drive down prices.

Cuts in healthcare spending have been frequently occurring since the financial crises of the late of 2000's. Europe's slow recovery has been uneven, with austerity and economic uncertainty, especially in the EU's poorer member states, such as Greece.

Results of Operations

Year ended December 31, 2025 versus December 31, 2024

For the year ended December 31, 2025, the Company had a net loss of $19,144,998 on revenue of $65,271,815, versus a net loss of $16,183,018 on revenue of $54,426,402, for the year ended December 31, 2024.

Revenue

For the twelve-month period ended December 31, 2025, the Company's total revenue increased by 19.9%, reaching $65,271,815, compared to $54,426,402 for the prior year period ended December 31, 2024. This growth was primarily driven by the following factors:

	·	Wholesale Revenue Growth: The revenue increase was largely attributable to our subsidiary Cosmofarm S.A., which experienced higher sales following the expansion into new distribution channels added during 2024 and 2025, contributing to an approximately 15% increase in wholesale revenues. This growth was further supported by higher demand and an expanded customer base during the period.
	·	Pharmaceutical Manufacturing Expansion: Our pharmaceutical manufacturing subsidiary, CANA S.A., nearly doubled its revenues, growing from approximately $865,000 to approximately $1.7 million in 2025, as the Company continued to realize returns on its investment in the manufacturing facility since the acquisition on June 30, 2023.
	·	UK Subsidiary Growth: Our UK subsidiary, Decahedron Ltd., significantly increased its revenues from approximately $815,000 to approximately $2.6 million in 2025, primarily driven by expanded Amazon sales of branded nutraceutical products as well as the sale of certain pharmaceutical products into the Greek market.

The combination of these factors contributed to the overall revenue growth for the period. Our future revenue growth will continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of generic drugs available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers, price increases and price deflation, general economic conditions in the member states of the European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third-party reimbursement rates to our customers, and changes in government rules and regulations.

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Cost of Goods Sold

For the year ended December 31, 2025, our cost of goods sold ("COGS") was $57,376,240, representing a 14.5% increase compared to $50,115,079 for the prior fiscal year ended December 31, 2024.

While COGS increased in absolute terms, it grew at a slower pace than revenue (14.5% vs. 19.9%), reflecting a favourable shift in our revenue mix. Specifically, our higher-margin business lines - pharmaceutical manufacturing through CANA S.A. and own-branded nutraceutical sales through Decahedron Ltd. (UK) and SkyPharm S.A. (Greece) - grew at a faster rate than our wholesale operations during the period. This mix shift contributed to meaningful gross margin expansion, with gross margin improving to 12.1% for the year ended December 31, 2025, compared to 7.9% for the year ended December 31, 2024.

Our wholesale subsidiary, Cosmofarm S.A., continues to represent approximately 90% of total revenues and COGS. While wholesale operations are characterized by lower gross margins relative to our manufacturing and own-branded segments, the strong volume growth at Cosmofarm S.A. remains a critical driver of overall revenue scale. As our manufacturing and own-branded nutraceutical segments continue to grow as a proportion of total revenues, we expect this favourable mix shift to continue to positively impact our consolidated gross margins over time.

Gross Profit

For the year ended December 31, 2025, our gross profit was $7,895,575, representing an increase of $3,584,252, or 83.1%, compared to $4,311,323 for the prior fiscal year ended December 31, 2024.

The significant improvement in gross profit was primarily attributable to revenue growing at a faster pace than COGS (19.9% vs. 14.5%), driven by a favourable shift in our revenue mix toward higher-margin business lines. Our pharmaceutical manufacturing subsidiary, CANA S.A., and our own-branded nutraceutical operations conducted through Decahedron Ltd. (UK) and Skypharm S.A. (Greece), grew disproportionately faster than our wholesale segment during the period, contributing to meaningful margin expansion. As a result, gross margin improved to 12.1% for the year ended December 31, 2025, compared to 7.9% for the year ended December 31, 2024.

Operating Expenses

For the year ended December 31, 2025, total operating expenses were $24,599,179, compared to $19,856,153 for the prior fiscal year ended December 31, 2024, representing an increase of $4,743,026, or 23.9%. The change in operating expenses was primarily attributable to the following factors:

General and Administrative Expenses

General and administrative expenses increased by $3,885,923, or 33.1%, to $15,619,160 for the year ended December 31, 2025, compared to $11,733,237 for the prior year. The increase was primarily driven by the following:

	·	Provisions for doubtful accounts and expected credit losses totalled $5,882,393 in 2025, comprising the following:
		o	A full allowance of $3,949,085 recorded against the outstanding loan receivable due from Doc Pharma S.A., a related party, reflecting approximately 18 months of non-payment and management's assessment that collectability was uncertain as of year-end (see Note 9 - Related Party Transactions).
		o	A provision of $1,400,020 recorded against advances made in connection with the Montreal land and building acquisition, representing the portion of the total advances of $2,000,020 for which no repayment had been received as of the filing date. As the Company continues to pursue collection of the full outstanding balance, the advance has been classified as a provision for credit losses.
		o	The remaining provision of $533,288 relates to allowances established against accounts receivable and prepaid balances where collection or realization was assessed as uncertain.
	·	Stock-based compensation increased to $2,312,241 from $1,689,712 in the prior year, reflecting higher equity grants to employees and consultants.
	·	Management bonuses increased to approximately $2.0 million from approximately $615,000 in the prior year, reflecting performance-based compensation awarded to senior management.
	·	Investor relations expenses increased to approximately $688,000 from approximately $183,000 in the prior year, reflecting the Company's increased efforts in capital markets outreach and shareholder communications.

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Salaries and Wages

Salaries and wages increased by $1,084,842, or 19.1%, to $6,778,278 for the year ended December 31, 2025, compared to $5,693,436 for the prior year. The increase was primarily driven by our pharmaceutical manufacturing subsidiary, CANA S.A., which continued to expand its workforce during the period - hiring both production personnel to strengthen manufacturing capacity and management personnel to support the subsidiary's ongoing growth phase.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $204,729, or 57.7%, to $150,240 for the year ended December 31, 2025, compared to $354,969 for the prior year. The decline reflects a strategic reduction in promotional investment related to the Company's own-branded nutraceutical products during the period.

Research and Development Costs

Research and development costs remained relatively stable at $519,363 for the year ended December 31, 2025, compared to $533,293 for the prior year, a decrease of $13,930, or 2.6%, as no new R&D agreements were entered into during 2025.

Depreciation and Amortization

Depreciation and amortization expense was $1,369,353 for the year ended December 31, 2025, compared to $1,249,238 for the prior year, an increase of $120,115, or 9.6%, remaining broadly consistent with the prior year level.

Impairment Charges

For the year ended December 31, 2025, the Company recorded total impairment charges of $162,785, compared to $291,980 for the prior year. The current year charges related to the following:

	·	Cosmofarm S.A. e-commerce platform ($90,450): The Company fully impaired the carrying value of an e-shop operated by its wholesale subsidiary, Cosmofarm S.A., which had not generated profits and was deemed no longer recoverable.
	·	Pharmaceutical licenses ($72,335): The Company recorded an impairment charge on certain pharmaceutical licenses that have not yet been commercially launched and for which no near-term revenue generation is anticipated.

Loss from Operations

As a result of the foregoing, our loss from operations for the year ended December 31, 2025 was $16,703,604, representing an increase of $1,158,774, or 7.5%, compared to a loss from operations of $15,544,830 for the year ended December 31, 2024.

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Other Income (expense), net

For the year ended December 31, 2025, the Company recorded other expense, net of $233,443, compared to other income, net of $86,737 for the year ended December 31, 2024.

The current year expense of $233,443 primarily relates to prior period expense adjustments recorded by our subsidiaries Cosmofarm S.A. and SkyPharm S.A. The prior year other income of $86,737 was primarily attributable to the reversal of a previously recorded adjustment related to cumulative discounted sales to Medihelm S.A., the exclusive distributor of the Company's proprietary line of nutraceutical products, which management determined was no longer required given the significant allowance already recorded and the limited level of new sales activity with Medihelm during that period.

Interest Income & Expenses

For the year ended December 31, 2025, interest expense totalled $1,899,872, representing an increase of $887,558, or 87.7%, compared to $1,012,314 for the prior year ended December 31, 2024. The increase was primarily driven by new debt facilities entered into during 2025, specifically: (i) a bond loan facility with CrediaBank S.A. (formerly Attica Bank S.A., renamed following its merger with Pancreta Bank in 2025) entered into by our wholesale subsidiary, Cosmofarm S.A.; and (ii) the convertible note facilities entered into by Cosmos Health Inc. at the parent company level. For further details on the convertible notes, refer to Note 12 - Convertible Debt in the accompanying consolidated financial statements.

Interest income for the year ended December 31, 2025 was $396,413, remaining relatively stable compared to $406,449 for the prior year ended December 31, 2024, a decrease of $10,036, or 2.5%. The modest decline reflects the ordinary repayment of existing loan receivable balances during the period, with no new loan agreements entered into, and consequently a slight reduction in outstanding balances generating interest income.

Gain on Extinguishment of Debt

For the year ended December 31, 2025, the Company recognized a gain on extinguishment of debt of $68,610, with no comparable amount in the prior year. The gain arose from the debt exchange of the outstanding balance owed under the Promissory Note related to the acquisition of Cloudscreen, an AI-powered drug repurposing platform acquired on January 23, 2024. During 2025, the Company repaid $22,421 of the outstanding balance and converted the remaining balance of $293,400 into shares of common stock pursuant to a debt exchange agreement. The gain represents the difference between the carrying value of the extinguished debt and the fair value of the shares issued in settlement, reflecting the conversion price of $0.65 per share agreed under the exchange agreement compared to the market price of $0.498 per share on the date of the exchange.

Non-Cash Interest Expense

For the year ended December 31, 2025, the Company recorded non-cash interest expense of $722,763, with no comparable amount in the prior year. This amount represents the amortization of debt discounts recorded in connection with the convertible note facilities entered into by the Company during 2025, including the debt discount attributable to the bifurcated derivative liability recognized at issuance. This is a non-cash charge with no impact on the Company's operating cash flows.

Change in Fair Value of Derivative Liability

For the year ended December 31, 2025, the Company recorded a gain on the change in fair value of its derivative liability of $1,525,020, with no comparable amount in the prior year. The derivative liability relates to embedded derivatives identified within the convertible note agreement entered into with ATW Partners in August 2025. The gain reflects the favourable mark-to-market remeasurement of these embedded derivatives as of December 31, 2025. Given that the full-year gain of $1,525,020 compares to a gain of $311,778 recorded through September 30, 2025, the favourable movement accelerated significantly in the fourth quarter of 2025, primarily reflecting changes in the Company's stock price and other valuation inputs used in the fair value measurement.

Gain/(Loss) on Digital Assets

For the year ended December 31, 2025, the Company recorded a net loss on digital assets of $588,916, with no comparable amount in the prior year. During 2025, the Company invested approximately $2,000,000 in digital assets, primarily Ethereum (ETH). The loss reflects the net change in fair value of the Company's digital asset holdings during the period. This item is non-cash in nature to the extent it relates to unrealized fair value movements, and is presented separately given the growing significance of the Company's digital asset strategy.

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Change in Fair Value of Convertible Notes

For the year ended December 31, 2025, the Company recorded a loss on the change in fair value of its convertible notes of $1,347,658, with no comparable amount in the prior year. The Company elected the fair value option for its convertible notes issued during 2025, and accordingly remeasures these instruments at fair value at each reporting date with changes recognized in the consolidated statements of operations. The loss reflects the mark-to-market remeasurement of the convertible instruments issued in the second and third quarters of 2025 through the December 31, 2025 measurement date. Given that the loss through September 30, 2025 was $2,317,631, the full-year loss of $1,347,658 reflects a favourable reversal in the fourth quarter of 2025, primarily driven by changes in the Company's stock price and other inputs used in the valuation model.

Unrealized Foreign Currency Losses & Deemed Dividends

For the year ended December 31, 2025, the Company recorded a total comprehensive loss of $16,678,564, compared to a total comprehensive loss of $24,093,129 for the year ended December 31, 2024. The improvement was primarily attributable to the following factors:

	·	Foreign Currency Translation Adjustment: For the year ended December 31, 2025, the Company recorded an unrealized foreign currency translation gain of $2,466,434, compared to an unrealized foreign currency translation loss of $1,715,087 for the year ended December 31, 2024. This favorable swing of $4,181,521 was primarily driven by the strengthening of both the Euro and British Pound against the US Dollar during 2025. The EUR/USD closing rate strengthened to 1.1736 as of December 31, 2025 from 1.0351 as of December 31, 2024, representing an appreciation of approximately 13.1%. Similarly, the GBP/USD closing rate strengthened to 1.3447 as of December 31, 2025 from 1.2521 as of December 31, 2024, representing an appreciation of approximately 7.4%. These currency movements resulted in favorable translation adjustments on the net assets of the Company's Greek and UK subsidiaries, as well as on intercompany loan balances denominated in Euros and British Pounds. For the detailed foreign exchange rates used to translate these balances, please refer to Note 2 - Summary of Significant Accounting Policies under the section "Foreign Currency Translation and Other Comprehensive Income/(Loss)."
	·	Deemed Dividends: No deemed dividends were recorded for the year ended December 31, 2025, compared to deemed dividends of $6,195,024 recorded for the year ended December 31, 2024, which were primarily associated with the Warrant Inducement Letter dated September 26, 2024. For further details, please refer to Note 17 - Stock Options and Warrants.
	·	Net Loss: The net loss increased from $16,183,018 in 2024 to $19,144,998 in 2025, representing an increase of $2,961,980, which partially offset the improvements noted above.

The combination of the above factors, most notably the elimination of deemed dividends and the favorable foreign currency translation swing, drove the overall improvement in total comprehensive loss year-over-year. For a comprehensive understanding of the key accounting policies and assumptions underlying these changes, readers are encouraged to review the relevant Notes to the Financial Statements as indicated above.

Going Concern

The Company's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which contemplates the continuation of the Company as a going concern.

For the year ended December 31, 2025, the Company had revenue of $65,271,815, a net loss of $19,144,998, and net cash used in operations of $8,447,614. Additionally, as of December 31, 2025, the Company had cash and cash equivalents of $715,674 and restricted cash of $2,744,219, the latter designated for the purchase of digital assets (Ethereum) pursuant to the Convertible Note Agreement dated August 5, 2025. The Company had positive working capital of $116,412, an accumulated deficit of $133,167,273, and stockholders' equity of $18,424,629.

The Company's revenues are not able to sustain its operations, and concerns exist regarding the Company's ability to meet its obligations as they become due. The Company is subject to a number of risks similar to those of smaller commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other pharmaceutical and health care companies.

Management evaluated the above conditions which raise substantial doubt about the Company's ability to continue as a going concern to determine if it can meet its obligations for the subsequent 12 months from the date of this filing. Management considered its ability to access future capital, curtail expenses if needed, expand product lines, and acquire new products. Management's plans include expansion of brand name products to the market, expanding the current product portfolio, and evaluating acquisition targets to expand distribution. The exclusive distribution agreement signed for its Sky Premium Life products in the United Arab Emirates ("UAE") and the significant orders already received are expected to substantially strengthen its operating cash flow. Furthermore, the Company intends to vertically integrate its supply chain distribution network.

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With respect to capital markets activities, the Company has undertaken and intends to continue pursuing the following initiatives:

	·	ATM Sales Program: During the period from September 22 to December 31, 2025, the Company issued an aggregate of 5,997,256 shares of its common stock under its At-the-Market ("ATM") sales program, pursuant to the Company's Shelf Registration Statement on Form S-3 (File No. 333-267550), for gross proceeds of $5,417,396 and net proceeds of $5,254,875, after deducting underwriter commissions and other offering expenses. The Company intends to continue utilizing the ATM program as a source of ongoing equity capital as market conditions permit.
	·	ATW Convertible Note Facility: On August 5, 2025, the Company entered into a Securities Purchase Agreement for the issuance of up to $300 million of senior secured convertible promissory notes, with an initial closing of $8 million completed on August 6, 2025. The proceeds are primarily intended for digital asset acquisition and working capital. While the Company does not currently intend to draw additional tranches, it may pursue subsequent closings of up to $292 million available under this facility in the event additional capital needs arise, subject to the satisfaction of certain conditions.
	·	New Shelf Registration Statement: On November 7, 2025, the Company filed a new Registration Statement on Form S-3 (the "New S-3") with the Securities and Exchange Commission, pursuant to which the Company registered up to $200,000,000 of securities, including shares of common stock, preferred stock, warrants, units, and subscription rights, on a shelf basis. The New S-3 was filed as a replacement registration statement pursuant to Rule 415(a)(6) under the Securities Act, with respect to securities remaining unsold under the Prior Registration Statement (File No. 333-267550). The Company intends to utilize the New S-3 to raise additional equity capital as and when needed, subject to the registration statement becoming effective.

Management's plans also include postponing certain debt repayments through achieving favourable amendments to its debt facilities and making substantial efforts to secure additional debt financing. Additionally, the Company's management is considering postponing certain repayments to suppliers and creditors as necessary.

However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.

Considering the above, management is of the view that substantial doubt exists for the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

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Liquidity and Capital Resources

Working Capital

As of December 31, 2025, the Company had positive working capital of $116,412, compared to negative working capital of $296,193 as of December 31, 2024. The improvement in working capital was primarily attributable to the significant growth in current assets during 2025, particularly accounts receivable, inventory, restricted cash, and prepaid expenses, reflecting the expansion of the Company's wholesale and other business operations, as well as the proceeds received from the ATM equity program and the ATW convertible note facility. These increases were partially offset by higher current liabilities, including the classification of the convertible notes payable and the associated derivative liability as current obligations, and higher lines of credit and accrued expenses. The Company continues to closely manage its working capital to ensure adequate liquidity for operations and strategic investments.

Cash Flow from Operating Activities

As of December 31, 2025, the Company had cash and cash equivalents of $715,674, compared to $315,105 as of December 31, 2024, with restricted cash of $2,744,219 also held at year end, designated for digital asset acquisition pursuant to the ATW Convertible Note Agreement. For the year ended December 31, 2025, the Company used net cash of $8,447,614 in operating activities, compared to net cash used of $7,717,034 for the year ended December 31, 2024, representing an increase in cash outflows of $730,580.

The increase in net cash used in operating activities was primarily driven by the following factors:

	·	Net loss: The Company recorded a net loss of $19,144,998 for the year ended December 31, 2025, compared to a net loss of $16,183,018 for the prior year. The increase in net loss year-over-year was the primary driver of operating cash outflows.
	·	Higher interest expense: Interest expense increased to $1,899,872 in 2025 from $1,012,314 in 2024, reflecting the new debt facilities entered into during 2025, including the CrediaBank bond loan at the Cosmofarm S.A. level and the 2025 convertible notes. Additionally, non-cash interest expense of $722,763 relating to the amortization of debt discounts on the convertible instruments was recorded in 2025 with no prior year equivalent.
	·	Higher salaries and wages: Salaries and wages increased to $6,778,278 from $5,693,436 in the prior year, primarily driven by continued headcount expansion at CANA S.A. to support its growing manufacturing operations.
	·	Working capital movements: Accounts receivable increased significantly, reflecting the strong revenue growth at Cosmofarm S.A. and other subsidiaries, resulting in a cash outflow of $4,939,952 from trade receivables and $1,169,856 from related party receivables. These outflows were partially offset by an increase in accounts payable and accrued expenses of $2,041,168 and related party payables of $2,426,867, reflecting the corresponding growth in the Company's purchasing activity.
	·	Non-cash items: Several significant non-cash adjustments partially offset the operating cash outflows, including depreciation and amortization of $1,369,353, stock-based compensation of $2,312,241, bad debt expense of $5,882,393, impairment charges of $162,785, and the change in fair value of convertible notes of $1,347,658.

The Company anticipates that as its operational investments in manufacturing capacity, distribution channels, and own-branded products mature, they will contribute to improved operating profitability and positive operating cash flows in future periods.

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Cash Flow from Investing Activities

For the year ended December 31, 2025, the Company used $2,014,855 in net cash for investing activities, compared to $798,269 in the prior year. The higher outflow in 2025 was primarily driven by the purchase of $2,000,000 in digital assets, specifically Ethereum (ETH), pursuant to the ATW Convertible Note Agreement dated August 5, 2025, under which the Company deployed a portion of the initial $8 million tranche proceeds into ETH as part of its digital asset strategy.

These outflows were partially offset by $137,963 in proceeds received from repayments of outstanding loans receivable. Capital expenditures during 2025 were modest, consisting of $55,675 in property and equipment purchases and $97,143 in intangible asset acquisitions, compared to the prior year which included approximately $849,168 in nutraceutical license acquisitions and $418,075 in machinery and equipment purchases, primarily related to CANA S.A.'s manufacturing facility expansion. The Company's investment strategy continues to focus on expanding its business through organic growth, selective acquisitions of licenses and technology, and its digital asset program.

Cash Flow from Financing Activities

For the year ended December 31, 2025, the Company generated $14,056,091 in net cash from financing activities, compared to $5,046,684 for the year ended December 31, 2024, representing an increase of $9,009,407. The higher financing inflows in 2025 were primarily driven by the following:

	·	Convertible Notes: The Company received aggregate gross proceeds of $9,839,347 from the issuance of senior secured convertible promissory notes during the year ended December 31, 2025. This amount includes proceeds from multiple convertible financing arrangements. Among these, the Company entered into a Securities Purchase Agreement with ATW Partners on August 5, 2025, providing for the issuance of up to $300 million of senior secured convertible promissory notes, of which an initial tranche of $8,000,000 was funded on August 6, 2025. The remaining proceeds relate to additional convertible note issuances completed during the year under separate arrangements. This represents a new financing source compared to the prior year, during which no comparable convertible note financings were in place. For further details, refer to Note 12 - Convertible Debt.
	·	ATM Equity Program: During the period from September 22 to December 31, 2025, the Company issued 5,997,256 shares of common stock under its ATM sales program for gross proceeds of $5,417,396 and net proceeds of $5,254,875, after deducting underwriter commissions and other offering expenses. The Company intends to continue utilizing the ATM program as an ongoing source of equity capital.
	·	CrediaBank Bond Loan: Cosmofarm S.A., the Company's wholesale subsidiary, entered into a new bond loan facility with CrediaBank S.A. (formerly Attica Bank S.A.) during 2025, contributing to proceeds from notes payable of $1,316,435 during the year.
	·	Lines of Credit: The Company had net proceeds from lines of credit of $1,211,938 (gross proceeds of $27,909,048 less repayments of $26,697,110), reflecting the revolving nature of Cosmofarm S.A.'s working capital credit facilities.
	·	Debt repayments: The Company repaid $1,882,080 of outstanding notes payable during the year, compared to $1,092,121 in the prior year, reflecting the continued payments of existing debt obligations.
	·	Financing fees: The Company incurred $1,830,470 in financing fees during 2025, compared to $391,575 in the prior year, primarily related to the issuance costs associated with the ATM underwriter's fees and the convertible note facilities.

In contrast, the prior year financing activities of $5,046,684 were primarily driven by $4,240,977 in proceeds from the exercise of warrants pursuant to the Warrant Inducement Agreement entered into in September 2024, modest ATM proceeds, and net proceeds from lines of credit and notes payable, partially offset by debt repayments and financing fees.

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Liquidity Outlook

The Company's financing activities in 2025 have enabled it to access additional funds through debt and equity financing, which will support its ongoing investments and operational growth. The Company continues to manage its liquidity position carefully and is committed to maintaining sufficient resources to support its strategic objectives, including expanding its operations through both organic growth and selective acquisitions.

Management is confident that the Company's current liquidity position, along with its ongoing financing and investment strategies, will enable it to meet its financial obligations and continue its growth trajectory in the coming periods.

Debt Obligations

June 23, 2020 Debt Agreement

On June 23, 2020, the Company's subsidiary, Cosmofarm, entered into an agreement with the National Bank of Greece S.A. (the "Bank") to borrow a maximum of €500,000 ($611,500). The note has a maturity date of 60 months from the date of the first disbursement, which includes a grace period of nine months. The total amount of the initial proceeds was received in three equal monthly installments. The note is interest bearing from the date of receipt and is payable every three months at an interest rate of 3.06% plus 3-month Euribor (2.06% as of December 31, 2025). The outstanding balance was €0 ($0) and €88,235 ($91,332) as of December 31, 2025 and 2024, respectively, of which $0 and $91,332 was classified as "Notes payable - long-term portion" respectively, on the accompanying consolidated balance sheets. During the year ended December 31, 2025, the Company repaid €88,235 ($103,553) of the principal balance.

November 19, 2020 Debt Agreement

On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($611,500). The note matures on November 18, 2025 and bears an annual interest rate, based on a 360-day year, of 3% plus 0.6% plus 6-month Euribor when Euribor is positive (2.12% as of December 31, 2025). The principal is to be repaid in 18 quarterly installments of €27,778 ($30,333). During the year ended December 31, 2025, the Company repaid €111,111 ($130,400) of the principal and as of December 31, 2025, the Company had accrued interest of €3,387 ($3,975) related to this note and an outstanding principal balance of €0 ($0) and €111,111 ($115,011) as of December 31, 2025 and December 31 2024, respectively.

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July 30, 2021 Debt Agreement

On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($578,850). The note matures on August 5, 2026 and bears an annual interest rate that applies to 60% of the principal of the note that is based on a 365-day year, of 5.84% plus 3-month Euribor when Euribor is positive (2.06% as of December 31, 2025). Pursuant to the terms of the agreement, there is a nine-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 18 quarterly installments of €27,778 commencing three months from the end of the grace period During the year ended December 31, 2025, the Company repaid €105,747 ($109,459) of the principal. As of December 31, 2025, the Company had accrued interest of €20,038 ($23,517), principal of €90,345 ($106,029), of which $0 is classified as "Notes payable - long term portion" on the accompanying consolidated balance sheets. As of December 31, 2024, the Company had accrued interest of €15,778 ($16,332), principal of €206,343 ($213,585). During the year ended December 31, 2025, the Company repaid €115,998 ($136,135) of the principal.

June 9, 2022 Debt Agreement

On June 9, 2022, the Company entered into an agreement with a third-party lender in the principal amount of €320,000 ($335,008). The note matures on June 16, 2027 and bears an annual interest rate of 2.64% plus an additional rate of 0.60%, plus the 3-month Euribor (2.06% as of December 31, 2025). Pursuant to the agreement, there is a 12-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 17 equal quarterly installments of €18,824. During the year ended December 31, 2025, the Company repaid €80,000 ($93,888) of the principal. As of December 31, 2025 the Company had accrued interest of €4,262 ($5,002) and an outstanding balance of €100,000 ($117,360) of which $23,472 is classified as "Notes payable - long term portion" on the accompanying consolidated balance sheets. As of December 31, 2024 the outstanding balance was €180,000 ($186,318).

July 14, 2023 Debt Agreement

On July 14, 2023, the Company entered into an agreement with a third-party lender in the principal amount of €1,000,000 ($1,123,700). The note matures on July 31, 2028, and bears an annual interest rate of 4.1% plus the 3-month Euribor (2.06% as of December 31, 2025). Pursuant to the agreement, there is a nine-month grace period for interest and principal repayment. The principal is to be repaid in 18 equal quarterly installments of €55,556 commencing on May 2, 2024. During the year ended December 31, 2025, the Company repaid €217,267 ($254,984) of the principal. As of December 31, 2025, the Company has accrued interest of €19,879 ($23,330) and an outstanding balance of €597,483 ($701,206) of which $446,405 is classified as "Notes payable - long term portion" on the accompanying consolidated balance sheets. As of December 31, 2024 the outstanding balance was €814,750 ($843,348).

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Cloudscreen

On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI)-powered platform, pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves identifying new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of the Company's common stock with a fair value of $319,200 and $317,880 to be settled in cash pursuant to the Promissory Note signed on October 10, 2023.

During the year ended December 31, 2025, the Company repaid $22,421 of the outstanding balance. The remaining balance of $293,400 was converted into shares of the Company's common stock pursuant to a debt exchange agreement. The number of shares issued was determined using a contractually agreed conversion price of $0.65 per share, while the market price of the Company's common stock on the date of the exchange was $0.498 per share. As a result of this conversion, the Company recognized a gain on extinguishment of debt of $68,610, representing the difference between the carrying value of the extinguished obligation and the fair value of the shares issued in settlement. As of December 31, 2025, the Company had no remaining outstanding balance related to this obligation, compared to an outstanding balance of $279,348 as of December 31, 2024.

July 29, 2024 Debt Agreement

On July 29, 2024 the Company entered into an agreement with a third-party lender in the principal amount of €400,000 ($432,760). The note matures on July 31, 2029 and bears an annual interest rate of 2.58% plus the 3-month Euribor (2.06% as of December 31, 2025). Pursuant to the agreement, there is a six-month grace period for principal and interest repayment. The principal is to be repaid in 18 equal quarterly installments of €22,222 commencing on April 30, 2025. During the year ended December 31, 2025, the Company repaid principal of €44,444 ($52,160). As of December 31, 2025, and December 31, 2024, the Company had an outstanding balance of €355,556 ($417,080) and €400,000 ($414,040) of which $312,960 is classified as "Notes payable - long term portion" on the accompanying consolidated balance sheets.

December 20, 2024 Debt Agreement

On December 20, 2024 the Company entered into an agreement with a third-party lender in the principal amount of €400,000 ($414,040). The note matures on December 20, 2027 and bears an annual interest rate of 2.5% plus an additional rate of 0.60% plus the 3-month Euribor (2.06% as of December 31, 2025). Pursuant to the agreement, there is a six-month grace period for principal repayment. The principal is to be repaid in 6 equal semiannual installments of €66,667 commencing on June 20, 2025. During the 12 months ended December 2025, the Company repaid principal of €133,333($156,480). As of December 31, 2025, and December 31, 2024, the Company an outstanding balance of €266,667 ($312,960) and €400,000 ($414,040), of which $156,480 is classified as "Notes payable - long term portion" on the accompanying consolidated balance sheets.

January 27, 2025 Debt Agreement

On January 27, 2025, the Company entered into a bond loan agreement with Attica Bank, providing for maximum borrowings of up to €2,200,000 ($2,357,120). Under the terms of the facility, the Company received initial proceeds of €700,000 ($881,520), which were classified as Notes Payable in the Company's consolidated financial statements. The remaining borrowing capacity of €1,500,000 ($1,619,400) is available to the Company on a revolving basis, subject to the provision of qualifying checks receivable as security for each drawing. These subsequent drawdowns are classified as Lines of Credit due to their secured and contingent nature. The facility bears interest at a floating rate of 2.95% plus the applicable 6-month Euribor (2.12% as of December 31, 2025). The Note Payable portion of the facility is to be repaid in 10 equal semiannual installments of €70,000 commencing on July 27, 2026. During the year ended December 31, 2025, the Company repaid principal of €70,000 ($82,152). As of December 31, 2025 the Company has accrued interest of €28,702 ($33,685) and an outstanding balance of €630,000 ($739,368), of which $575,064 (€490,000), is classified as "Notes payable - long term portion" on the accompanying consolidated balance sheets.as of December 31, 2025. The loan is further secured by a preliminary mortgage of €2,640,000 ($3,098,304) registered on Company's owned warehouse facilities.

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May 29, 2025 Debt agreement

On May 29, 2025, the Company entered into a business loan agreement (the "Note") with a third-party lender in the principal amount of $525,000. The Note carried debt issuance fees of $25,000, which are being amortized over the life of the loan. The loan is short-term in nature, as it was scheduled to be fully repaid by December 15, 2025, through weekly installments. The Note bears fixed total interest of $231,000, which is being accrued evenly over the term of the loan and is payable together with the principal installments. During the year ended December 31, 2025, the Company made aggregate principal and interest repayments totaling $756,000. As of December, 31, 2025 the Company had an outstanding balance of $0.

Trade Facility Agreements

On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the "SkyPharm Facility") with Synthesis Structured Commodity Trade Finance Limited (the "Lender") as amended on November 16, 2017 and May 16, 2018.

On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($5,629,555) and related accrued interest of €453,094 ($524,094) would be split into two principal balances of Euro €2,000,000 ($2,316,000), (the "EURO Loan") and USD $4,000,000 (the "USD Loan"). Interest on both the EURO Loan and USD Loan commenced on October 1, 2018, at 6% per annum plus one-month Euribor (3.869% as of December 31, 2024), and 6% plus one-month LIBOR (5.47% as of date of December 31, 2024), respectively.

On December 30, 2020, the Company transferred the EURO Loan to a new third-party lender. The terms remained the same except interest accrues at 5.5% per annum plus one-month Euribor 3.869% as of December 31, 2024. The principal was scheduled to be repaid in a total of five quarterly installments beginning October 31, 2021 of €50,000 ($54,600) each with a final repayment of €1,800,000 ($1,965,600) payable on October 31, 2022.

On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to January 10, 2023, and payments under the USD Loan. During June 2022, the Company agreed with the Lender to postpone the repayment of an installment of $500,000 due on June 30, 2022 (based on the modification agreement signed on March 3, 2022) until January 2023. During September 2022, the Company entered into an agreement with the Lender to postpone the repayment of the outstanding balance on the USD Loan of $3,950,000, plus unpaid accrued interest until January 2023. The Company capitalized fees paid upon modification of €200,000 ($221,060) that are being amortized over the life of the loan. The Company incurred non-cash interest expense of $216,182 during the year ended December 31, 2022, concerning the above capitalized fees.

During the year ended December 31, 2022, the Company repaid €175,000 ($191,100) of the EURO Loan and $2,593,363 of the USD Loan such that as of December 31, 2022, the Company had principal balances of €1,775,000 ($1,898,895) and $1,406,637 under the agreements, respectively. As of December 31, 2022, the Company had accrued $309,365 in interest expense related to these agreements.

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On December 21, 2022, the USD Loan was assigned to GIB Fund Solutions ICAV (the "Fund"). On January 31, 2023, the Company paid $1,100,000 to the Fund under a full and final settlement agreement for the USD Loan, recording a gain on extinguishment of debt of $306,637 relating to the waiver of the unpaid balance. Additionally, the Company repaid €50,000 ($50,310) of the EURO Loan during the year ended December 31, 2024.

On December 22, 2022 SkyPharm signed an agreement for the extension of the payments and an increase in interest rate due under the EURO loan that was extended to be repaid with a balloon payment now due on October 31, 2025. This extension was agreed upon in writing on December 22, 2022, with a retroactive modification date to October 31, 2022 (the original maturity date).

As of December 31, 2024, the Company had an outstanding principal balance of €1,350,000 ($1,397,385) all of which $1,327,440 was classified as "Notes payable - long term portion" on the consolidated balance sheets.

The Company repaid €300,000 ($352,080) of the EURO Loan during the 12 months ended December 31, 2025. As of December 31, 2025, the Company had an outstanding principal balance of €1,050,000 ($1,232,280), all of which is classified as "Notes payable" on the consolidated balance sheets. For the year ended December 31, 2025, the Company had accrued $113,962, in interest expense related to these agreements.

COVID-19 Government Loans

May 12, 2020 Loan

On May 12, 2020, the Company's subsidiary, SkyPharm, was granted loan from the Greek government and, on May 22, 2020, received the amount of €300,000 ($366,900). The loan would be repaid in 40 equal monthly installments beginning on July 29, 2022. As a condition to the loan, the Company was required to retain the same number of employees until October 31, 2020. As of December 31, 2025, the principal balance was €87,500 ($102,690). During the year ended December 31, 2025, the Company repaid €15,625 ($18,338) of the principal balance. The outstanding balance as of December 31, 2024 was €103,125 ($106,745).

June 24, 2020 Debt Agreement

On June 24, 2020, the Company's subsidiary, Decahedron, received a loan £50,000 ($68,310) from the UK government. The loan has a ten-year maturity and bears interest at a rate of 2.5% per annum beginning 12 months after the initial disbursement, which was on July 10, 2020. The Company may prepay this loan without penalty at any time. As of December 31, 2025, the principal balance was £34,330 ($46,164). As of December 31, 2024, the principal balance was £38,144 ($47,761).

As of December 31, 2025, the Company was in compliance with all financial and non-financial covenants under its outstanding debt agreements, including but not limited to all notes payable, credit facilities, and other borrowing arrangements. There were no events of default, nor any conditions or events that, with the passage of time or the giving of notice, would reasonably be expected to constitute an event of default, with respect to any of the Company's debt obligations as of such date.

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Related Party Indebtedness

Grigorios Siokas

From time to time, Grigorios Siokas loans the Company funds in the form of non-interest bearing, no-term loans.

During the 12-month period ended December 31, 2024, the Company had an outstanding principal balance under these loans of $13,257 in loans payable to Grigorios Siokas. As of December 31, 2025, the Company had an outstanding principal balance of $0 related to this payable. During the 12-month period ended December 31, 2025, there were no additional receipts regarding this loan.

Grigorios Siokas is the Company's CEO and a principal shareholder and is hence considered a related party to the Company.

Dimitrios Goulielmos

On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of December 31, 2024 and 2023, the Company had a principal balance of €10,200 ($11,971) and €10,200 ($10,558), respectively. The above balances are adjusted for the foreign currency rate as of the balance sheet date.

Significant Equipment

We do not intend to purchase any significant equipment for the next 12 months aside from a few pieces of IT equipment. Nevertheless, we will replace essential equipment for operations if it is required within the year.

Employees

In order to achieve our strategic objectives, we have, and will remain, focused on hiring and retaining a highly skilled management team that has extensive experience and specific skill sets relating to the sales, selection, development and commercialization of pharmaceutical products. We intend to continue our efforts to build and expand this team as we grow our business. We have plans to increase the number of our employees by adding more salespeople during the next 12 months.

Off Balance Sheet Arrangements

As of December 31, 2025, there were no off-balance sheet arrangements.

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Critical Accounting Policies and Estimates

In December 2001, the SEC requested that all registrants list their most "critical accounting polices" in the Management's Discussion and Analysis. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740 "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 25% in the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.

We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets.

We recognize the impact of an uncertain tax position in our financial statements if, in management's judgment, the position is not more-likely-then-not sustainable upon audit based on the position's technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. We operate and are subject to audit in multiple taxing jurisdictions.

We record interest and penalties related to income taxes as a component of interest and other expense, respectively.

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 "Accounting for Income Taxes" as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of the U.S. net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

The Company has net operating loss carry-forwards in our parent, Cosmos Health Inc., which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the United Kingdom and Greece. The income tax assets and liabilities are not able to be netted. We therefore reserve the income tax assets applicable to the United States but recognize the income tax liabilities in Greece and the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.

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Accounts Receivable and Allowance for Credit Losses

The Company follows ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326") to estimate the allowance for doubtful accounts. The Company is required to estimate credit losses on accounts receivable balances held at amortized cost. ASC 326 introduces a new methodology for measuring credit losses, replacing the previous incurred loss model with an expected credit loss model. The Company measures credit losses on accounts receivable using an expected credit loss model, which considers historical experience, current conditions, and reasonable and supportable forecasts. Credit losses are measured as the difference between the present value of contractual cash flows expected to be collected and the present value of expected cash flows discounted at the financial instrument's original effective interest rate. The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client's ability to pay. Bad debt expense is included in general and administrative expenses, if any.

Inventory

Our merchandise inventories are made up of finished goods, manufacturing products, raw materials and other products and are valued at the lower of cost or market using the weighted-average cost method. However, the net realizable value ("NRV") will always be higher than our inventory's cost, once most of our inventory is fast moving and the vast majority of our products is pharmaceuticals, which have standard selling prices that could not result to the NRV being higher than the average cost. Moreover, our efficient inventory management which has led to minimum obsolete and slow-moving inventory also indicates that the NRV is higher than its average cost. Thus, an NRV assessment would have no material, if any, to our inventory's cost. Average cost includes the direct purchase price, net of vendor allowances and cash discounts, of merchandise inventory. We record valuation reserves on an annual basis for merchandise damage, expired and defective returns and merchandise items with slow-moving or obsolescence exposure. These reserves are estimates of a reduction in value to reflect inventory valuation at the lower of cost or market. The reserve for merchandise returns is based upon the determination of the historical net realizable value of products sold from our returned goods inventory or returned to vendors for credit. Our reserve for merchandise returns includes amounts for returned product on-hand as well as for new merchandise on-hand that we estimate will ultimately become returned goods inventory after being sold based on historical return rates.

Below is an analysis per category of our inventories as of December 31, 2025 and 2024:

Product Categories		December 31, 2025				December 31, 2024
Pharmaceuticals			4,599,638				3,113,558
Parapharmaceuticals			1,133,686				987,214
Manufacturing products			4,254				40,588
Raw materials			235,785				226,500
Dairy products			38,359				21,320
Veterinary medicine			1,265				995
Other			142,003				297,565
Less provisions			(376,848	)			(332,375	)
Total			5,778,142				4,355,365

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Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments enhance the transparency and decision usefulness of income tax disclosures by requiring additional information about the effective tax rate reconciliation and income taxes paid by jurisdiction. The amendments are effective for public business entities for annual periods beginning after December 15, 2024. The Company adopted this guidance on January 1, 2025. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In March 2024, the Financial Accounting Standards Board issued ASU 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements. The amendments remove references to certain Concepts Statements and make other minor technical corrections to the Codification. The Company adopted this guidance during fiscal year 2025, and the adoption did not have a material impact on its consolidated financial statements.

In November 2024, the Financial Accounting Standards Board issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). The standard requires public entities to disclose additional information about specific expense categories presented in the income statement, including purchases of inventory, employee compensation, depreciation, and amortization. The amendments are effective for public business entities for annual periods beginning after December 15, 2026, and interim periods thereafter. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statement disclosures.

In September 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software ("ASU 2025-06"), which modernizes the accounting for internal-use software. ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. ASU 2025-06 will be effective for the Company in its first quarter of 2029, and early adoption is permitted. The Company is currently evaluating the timing and method of its adoption of ASU 2025-06.