Executive Summary / Key Takeaways

• Cosmos Group Holdings (COSG) is undergoing a dramatic strategic transformation, shifting focus from its historical lending and nascent arts & collectibles technology business towards a diversified healthcare group encompassing pharmaceuticals, nutraceuticals, manufacturing, and AI-driven R&D.
• The company's latest reported financials for Q1 2025 primarily reflect the prior arts & collectibles segment, showing minimal revenue ($19,281) and a net loss ($51,148) from continuing operations, highlighting the early stage of its current revenue streams and significant unprofitability.
• Key strategic initiatives in the new healthcare focus include expanding the Sky Premium Life nutraceutical brand, securing contract manufacturing deals (like the 5-year Pharmex agreement), entering distribution partnerships (UAE, Albania, Qatar for nutraceuticals; GCC for diagnostic kits), and pursuing AI-driven drug repurposing R&D with patent filings in oncology, neurology, and allergy.
• COSG faces severe liquidity challenges, evidenced by a substantial accumulated deficit ($200.81M) and working capital deficit ($41.26M) as of March 31, 2025, and relies heavily on external financing and shareholder support to continue operations, as noted by the auditor's going concern doubt.
• Significant risks include the ability to secure necessary funding, regulatory uncertainties related to its Hong Kong/Singapore operations and U.S. listing (HFCAA, PRC government influence), and the inherent challenges of executing a complex strategic pivot while in a precarious financial state.

A Transformation Underway

Cosmos Group Holdings Inc. (COSG), a Nevada-incorporated entity with operational roots primarily in Hong Kong and Singapore, is in the midst of a profound strategic pivot. Historically involved in disparate ventures, including a lending business that was recently divested, the company's latest financial reporting for the first quarter ended March 31, 2025, captures a snapshot of its continuing operations focused on the physical arts and collectibles business. Yet, recent corporate announcements paint a picture of a company rapidly reorienting itself towards a significantly different landscape: the global healthcare sector, leveraging technology in new ways.

This transformation positions COSG as a high-risk, potentially high-reward proposition. The Q1 2025 financials, while providing the most recent look at reported performance, largely reflect the legacy or transitional business activities and do not yet illustrate the impact of the ambitious new strategic direction. Understanding COSG requires looking beyond the current income statement to grasp the intended future trajectory and the significant hurdles that must be cleared.

Strategic Pivot and Technological Foundation

The core of COSG's evolving strategy lies in establishing itself as a diversified healthcare group. This involves multiple facets: developing proprietary pharmaceutical and nutraceutical brands, engaging in contract manufacturing, operating a telehealth platform, and critically, investing in innovative research and development, particularly leveraging artificial intelligence.

While the Q1 2025 report details the physical arts and collectibles business as the sole reportable segment, highlighting its use of blockchain technology and Digital Ownership Tokens (DOTs) for authentication, provenance, and ownership tracking – intended to provide assurance and legal recourse in the art market – the broader strategic narrative is now dominated by healthcare. The DOT technology, designed to include independent appraisals, 3D renderings, AI recognition files, and legal documents on the blockchain, represents a prior technological focus aimed at the arts market.

The new technological frontier for COSG appears to be AI-driven drug repurposing within its R&D division. Recent patent filings indicate efforts targeting significant global markets:

• Two patent applications cover advancements in treating glioma (an aggressive brain cancer) and hematologic malignancies (blood cancers like multiple myeloma), addressing a global market valued at over $25 billion.
• Another patent application focuses on a potential treatment for multiple sclerosis (MS), a disabling autoimmune disorder, also within the $25 billion+ global market.
• A further filing relates to allergic inflammation therapy, targeting a market valued at $23.5 billion.

These AI-driven initiatives aim to identify new therapeutic uses for existing drugs, potentially accelerating development timelines and reducing costs compared to traditional drug discovery. The stated goal is to develop cutting-edge therapeutic options. This technological approach, if successful, could provide COSG with a competitive edge by potentially accessing large, high-value markets with novel treatments derived through an efficient R&D process.

Supporting this healthcare pivot are operational developments and strategic partnerships. The company's Cana Laboratories subsidiary has undergone facility upgrades and secured a 5-year contract manufacturing agreement with Pharmex for 1.5 million bottles of an antiseptic drug. The Sky Premium Life nutraceutical brand is expanding its product range, adding 60 new SKUs to exceed 150 total, and is actively pursuing international distribution, securing initial orders in the UAE ($130,000 initial order sold out, followed by an 80,000-unit order), Albania ($300,000 initial annual order), and Qatar ($578,460 initial order). Distribution agreements for diagnostic kits, such as Avian Influenza Virus PCR kits with Virax Biolabs (VRAX) in Greece, Cyprus, and GCC countries, further diversify the healthcare focus. These initiatives aim to build revenue streams, establish market presence, and create a backlog of business, contributing to future cash flow visibility.

Financial Performance: A Glimpse of Transition

The financial results for the three months ended March 31, 2025, provide a limited view of COSG's current state, primarily reflecting the arts and collectibles segment. Revenue from continuing operations was $19,281, a significant increase from $0 in the same period of 2024, stemming entirely from consultancy service income related to the sale and distribution of arts and collectibles. The corresponding cost of revenue was $11,568, resulting in a gross profit of $7,713.

Operating expenses from continuing operations totaled $58,861, down from $143,722 in Q1 2024. This decrease was largely driven by a reduction in general and administrative expenses ($55,780 vs $143,522), partly due to the exclusion of expenses from discontinued operations in the current period. Technology and support expenses for the continuing operations were $3,081, related to web hosting services. The loss from continuing operations improved to $51,148 in Q1 2025, compared to a loss of $148,692 in Q1 2024.

It is crucial to note that the Q1 2024 results included a substantial loss from discontinued operations ($902,346), related to the divested lending business, which is absent in Q1 2025. The net loss for Q1 2025 was $51,148, a dramatic improvement from the $1.05 million net loss in Q1 2024, primarily attributable to the removal of the discontinued operations loss.

While the Q1 2025 results show nascent revenue in the arts segment and a reduced loss from continuing operations, they do not yet reflect the financial impact of the numerous healthcare-related initiatives announced recently. The scale of revenue and gross profit ($19,281 and $7,713, respectively) is minimal relative to the company's expense structure and accumulated deficit, underscoring the early stage of its current revenue-generating activities.

Liquidity and Capital Position: A Critical Challenge

COSG faces significant liquidity challenges. As of March 31, 2025, the company held cash and cash equivalents of only $23,503. It had a working capital deficit of $41.26 million and an accumulated deficit of $200.81 million. These figures highlight a precarious financial position.

The company's ability to continue as a going concern is explicitly stated as dependent upon improving profitability and securing continued financial support from stockholders or other external sources. Management believes such support and external financing are necessary to meet ongoing obligations and fund anticipated operating losses. The auditor has expressed substantial doubt about the company's ability to continue as a going concern.

Material cash requirements include contractual obligations totaling $41.10 million as of March 31, 2025. The vast majority of this ($39.05 million in promissory notes payable and $1.89 million in amounts due to related parties) is classified as current, due within one year. The promissory notes are expected to be settled via conversion into common stock, contingent upon the effectiveness of an increase in authorized shares approved in March 2024. However, the need to settle these obligations, whether through cash or equity, represents a significant near-term requirement.

Management anticipates incurring significantly greater expenses in the near future to develop its arts and collectibles technology business (though this seems less emphasized now) or enter strategic partnerships (aligned with the healthcare pivot). General and administrative expenses are also expected to rise due to expansion of staff and infrastructure related to being a reporting company. Consequently, net cash expended in 2025 is projected to be significantly higher than in 2024.

The company intends to fund its business through equity or debt financing and advances from related parties. The recent €2.2 million (approximately $2.29 million) secured bond loan from a European bank, secured by a subsidiary, provides some level of funding, intended to support growth and help achieve positive operating cash flow. However, the ability to secure additional necessary funding on favorable terms, or at all, remains a critical uncertainty.

Competitive Landscape

COSG's competitive positioning is complex due to its strategic pivot. In its historical/current reported segment of arts and collectibles technology, it competes with traditional art galleries, auction houses, and emerging platforms leveraging blockchain or digital technologies for art sales and authentication. Its unique value proposition in this space lies in the integrated services (AVC, CSE) and the use of DOTs to address provenance and ownership, aiming for a niche market focused on authenticity and digital verification. However, this market is relatively small compared to the healthcare sector, and competition exists from platforms offering fractional ownership, digital art marketplaces (NFTs), and established players with strong reputations for authentication.

In the healthcare sector, COSG is entering a vast and highly competitive arena dominated by large, established pharmaceutical companies, global nutraceutical brands, major contract manufacturers, and innovative biotech firms. Competitors range from multinational corporations with extensive R&D budgets, vast distribution networks, and significant manufacturing scale (like Pfizer (PFE), Novartis (NVS), Nestle Health Science, Lonza (LZAGY)) to smaller, specialized companies.

COSG's potential competitive advantages in healthcare stem from its specific strategic choices:

• AI-driven R&D: The AI drug repurposing approach could offer a faster, more cost-effective path to developing new therapies compared to traditional discovery methods, potentially creating a technological moat if successful in identifying commercially viable candidates.
• Niche Product Focus: The Sky Premium Life brand targets the premium nutraceutical market, seeking differentiation through quality and specific formulations.
• Contract Manufacturing: Cana Laboratories' capabilities allow COSG to generate revenue from manufacturing for third parties, leveraging infrastructure and potentially providing better cost control for its own products.
• Distribution Partnerships: Agreements like those in the UAE, Albania, Qatar, and GCC countries provide access to specific regional markets without requiring COSG to build extensive direct sales infrastructure immediately.

However, COSG faces significant competitive disadvantages:

• Scale and Resources: It is vastly smaller than major players in the pharmaceutical and healthcare industries, with limited financial resources for large-scale R&D, clinical trials, marketing, and global distribution compared to competitors.
• Track Record: As a relatively new entrant to this specific sector (especially in proprietary drug development), it lacks the established reputation, regulatory experience, and clinical success history of seasoned pharmaceutical companies.
• Market Penetration: Building market share against entrenched brands and manufacturers requires significant investment and time.

COSG's strategy appears to be one of focused innovation (AI R&D) and targeted market entry (niche nutraceuticals, regional distribution, contract manufacturing) to carve out a position. Success will depend on the efficacy and commercial viability of its AI-derived candidates, the market acceptance of its brands, and its ability to scale manufacturing and distribution effectively, all while competing with much larger, better-funded entities.

Risks and Uncertainties

Investing in COSG involves substantial risks, many of which are amplified by its current financial state and strategic pivot.

• Going Concern Risk: The most immediate risk is the company's ability to secure sufficient funding to continue operations. The accumulated deficit and working capital deficit, coupled with expected higher expenses, mean it requires significant capital infusions. Failure to obtain financing would severely jeopardize its future.
• Execution Risk: Successfully pivoting into the highly complex and regulated healthcare sector from a different business focus is inherently challenging. Developing and commercializing AI-derived drugs, scaling manufacturing, and building distribution networks require expertise and resources that COSG may struggle to acquire or manage effectively.
• Regulatory Risks (Hong Kong/PRC): As a U.S.-listed company with operations in Hong Kong, COSG is exposed to potential changes in PRC government policies regarding Hong Kong's autonomy, foreign investment, data security, and U.S. listings. Any adverse actions could materially impact operations, the holding company structure, and the value of its securities, potentially leading to delisting.
• Regulatory Risks (Healthcare): The pharmaceutical and healthcare industries are heavily regulated. Obtaining necessary approvals for products, complying with manufacturing standards, and navigating evolving healthcare laws globally present significant hurdles and costs.
• HFCAA Delisting Risk: Although the current auditor is not based in mainland China or Hong Kong, future changes in PCAOB inspection access or auditor location could still expose COSG to delisting risk under the Holding Foreign Companies Accountable Act, which has been accelerated to a two-year non-inspection period.
• Holding Company Structure: Dependence on cash flows from Hong Kong/Singapore subsidiaries, subject to local regulations and potential PRC currency controls, adds complexity and risk to funding the Nevada parent company.
• Competition: The healthcare markets COSG is entering are intensely competitive, potentially limiting pricing power and market share gains.
• Technology Risk: The success of AI-driven R&D is not guaranteed. Identifying viable drug candidates, conducting successful clinical trials, and obtaining regulatory approvals are lengthy, costly, and uncertain processes. The blockchain technology for arts/collectibles may not gain sufficient traction or face superior alternatives.
• Related Party Dependence: The significant amounts due to related parties highlight reliance on insider funding, which may not be sustainable or sufficient.

Outlook

Management's outlook, as stated in the Q1 2025 report, anticipates significantly higher expenses and cash burn in 2025 as the company invests in its business development and infrastructure. This aligns with the strategic pivot into healthcare, which necessitates investment in R&D, manufacturing capabilities, and market development. The stated intention to fund operations through equity, debt, and related party advances underscores the ongoing need for capital.

While the Q1 2025 financials show minimal revenue from the continuing arts business, the numerous recent announcements in the healthcare sector suggest management is actively pursuing new revenue streams and long-term growth opportunities. The success of these initiatives – securing further manufacturing contracts, expanding nutraceutical distribution, and advancing AI-driven drug candidates through development and regulatory processes – will be critical determinants of future financial performance and the ability to overcome the current going concern risks.

The outlook is one of aggressive strategic pursuit in a new, high-potential sector, juxtaposed against a backdrop of severe financial constraints and significant execution and regulatory risks. The coming quarters will be crucial in demonstrating whether the company can translate its strategic initiatives and technological ambitions into tangible, scalable revenue and move towards a more stable financial footing.

Conclusion

Cosmos Group Holdings is a company in the throes of a dramatic transformation. The Q1 2025 financials, while showing early revenue in the arts and collectibles segment and a reduced loss from continuing operations compared to the prior year, represent a legacy view as the company rapidly pivots towards a healthcare-centric model. This new direction, encompassing pharmaceuticals, nutraceuticals, manufacturing, and AI-driven R&D, offers potential exposure to large, high-value markets and leverages innovative technology.

However, the investment thesis is currently overshadowed by the company's critical financial state, marked by a substantial accumulated deficit and working capital deficit, and the explicit going concern warning. The ability to secure necessary funding is paramount and will dictate whether the ambitious strategic initiatives in healthcare can be adequately pursued. Furthermore, significant regulatory risks, particularly concerning its operational base in Hong Kong and U.S. listing status, add layers of uncertainty.

For investors, COSG represents a highly speculative opportunity tied to the successful execution of a complex pivot into a competitive and regulated industry, all while navigating severe financial constraints. The potential upside lies in the successful development and commercialization of its healthcare ventures and AI-driven R&D pipeline. The immediate focus for investors should be on the company's ability to secure financing, the progress of its key healthcare initiatives, and any developments related to the significant regulatory risks it faces.