UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20212022
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number: 000-53223
MARIZYME, INCINC..
(Exact name of registrant as specified in its charter)
Nevada | 82-5464863 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
555 Heritage Drive, Suite 205, Jupiter, Florida33458
555 Heritage Drive, Suite 205, Jupiter, Florida33458 |
(Address of principal executive offices) (Zip Code) |
(925)400-3123
(Registrant’s telephone number)
(925)400-3123 |
(Registrant’s telephone number) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
☐ | Large accelerated filer | ☐ | Accelerated filer |
☒ | Non-accelerated filer | ☒ | Smaller reporting company |
Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Not applicable. |
As of November 22, 2021,14, 2022, the registrant had shares of common stock ($0.001 par value) outstanding.
MARIZYME, INC.
FORM 10-Q
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARIZYME, INC.
Condensed Consolidated Balance Sheets
September 30, 2021 | December 31, 2020 | September 30, 2022 | December 31, 2021 | |||||||||||||
(Unaudited) | (unaudited) | |||||||||||||||
ASSETS: | ||||||||||||||||
Current | ||||||||||||||||
Cash | $ | 16,673 | $ | 2,902,762 | $ | 1,182,248 | $ | 4,072,339 | ||||||||
Accounts receivable | 96,291 | 40,585 | 54,225 | 8,650 | ||||||||||||
Prepaid expense | 35,000 | 106,390 | ||||||||||||||
Other receivables | 14,134 | 41,307 | ||||||||||||||
Prepaid expenses | 839,818 | 257,169 | ||||||||||||||
Inventory | 15,390 | 56,340 | 251,187 | 22,353 | ||||||||||||
Total current assets | 163,354 | 3,106,077 | 2,341,612 | 4,401,818 | ||||||||||||
Non-current | ||||||||||||||||
Property, plant and equipment, net | 1,273 | 7,122 | 12,613 | 12,817 | ||||||||||||
Operating lease right-of-use assets, net | 1,163,159 | 1,317,830 | 1,576,445 | 1,158,776 | ||||||||||||
Intangible assets, net | 46,385,121 | 42,278,211 | 52,235,313 | 52,866,192 | ||||||||||||
Prepaid royalties, non-current | 340,969 | 344,321 | 339,091 | 339,091 | ||||||||||||
Deposits | 30,000 | 30,000 | 30,000 | 30,000 | ||||||||||||
Goodwill | 5,416,000 | - | 7,190,656 | 7,190,656 | ||||||||||||
Total non-current assets | 53,336,522 | 43,977,484 | 61,384,118 | 61,597,532 | ||||||||||||
Total assets | $ | 53,499,876 | $ | 47,083,561 | $ | 63,725,730 | $ | 65,999,350 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
Current | ||||||||||||||||
Accounts payable and accrued expenses | $ | 1,396,945 | $ | 478,103 | $ | 848,345 | $ | 1,596,147 | ||||||||
Note payable | 213,563 | 127,798 | ||||||||||||||
Due to related parties | 638,530 | - | 123,266 | 1,132,634 | ||||||||||||
Operating lease obligations | 260,106 | 243,292 | 420,913 | 277,142 | ||||||||||||
Total current liabilities | 2,295,581 | 721,395 | 1,606,087 | 3,133,721 | ||||||||||||
Non-current | ||||||||||||||||
Operating lease obligations, net of current potion | 941,732 | 1,074,538 | ||||||||||||||
Convertible notes, net of debt discount | 179,457 | - | ||||||||||||||
Operating lease obligations, net of current portion | 1,155,532 | 881,634 | ||||||||||||||
Note payable, net of current portion | - | 469,252 | ||||||||||||||
Convertible notes | 1,648,795 | 26,065 | ||||||||||||||
Derivative liabilities | 391,648 | - | 4,923,725 | 2,485,346 | ||||||||||||
Contingent liabilities | 9,454,000 | - | 13,444,000 | 11,313,000 | ||||||||||||
Total non-current liabilities | 10,966,837 | 1,074,538 | 21,172,052 | 15,175,297 | ||||||||||||
Total liabilities | 13,262,418 | 1,795,933 | 22,778,139 | 18,309,018 | ||||||||||||
Commitments and contingencies (Note 12) | - | - | ||||||||||||||
Commitments and contingencies (Note 10) | - | - | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $ | par value, shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2020- | - | ||||||||||||||
Common stock, par value $ | , shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 202035,928 | 35,928 | ||||||||||||||
Preferred stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2022 and December 31, 2021 | - | - | ||||||||||||||
Common stock, par value $ , shares authorized, issued and outstanding shares - and at September 30, 2022 and December 31, 2021, respectively | 40,828 | 40,528 | ||||||||||||||
Additional paid-in capital | 82,509,957 | 82,077,334 | 103,331,833 | 95,473,367 | ||||||||||||
Accumulated deficit | (42,308,427 | ) | (36,825,634 | ) | (62,425,070 | ) | (47,823,563 | ) | ||||||||
Total stockholders’ equity | 40,237,458 | 45,287,628 | 40,947,591 | 47,690,332 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 53,499,876 | $ | 47,083,561 | $ | 63,725,730 | $ | 65,999,350 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
MARIZYME, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
September 30, | September 30, | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Revenue | $ | 37,215 | $ | 124,985 | $ | 271,952 | $ | 124,985 | $ | 76,012 | $ | 37,215 | $ | 137,821 | $ | 271,952 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Direct costs of revenue | 18,356 | 25,714 | 168,419 | 25,714 | ||||||||||||||||||||||||||||
Professional fees (includes related party amounts of $90,000, $90,000, $270,000, and $90,000, respectively) | 556,254 | 170,753 | 1,808,093 | 494,295 | ||||||||||||||||||||||||||||
Direct cost of revenue | 15,503 | 18,356 | 26,528 | 168,419 | ||||||||||||||||||||||||||||
Professional fees (includes related party amounts of $155,000 $90,000, $422,000, and $270,000 respectively) | 303,574 | 460,378 | 1,721,479 | 1,445,004 | ||||||||||||||||||||||||||||
Salary expenses | 617,826 | 433,318 | 2,478,357 | 433,318 | 330,221 | 517,192 | 2,147,967 | 2,084,430 | ||||||||||||||||||||||||
Research and development | 708,220 | 241,748 | 3,297,986 | 877,936 | ||||||||||||||||||||||||||||
Stock-based compensation | 64,074 | 1,107,085 | 626,449 | 1,674,200 | 271,517 | 64,074 | 1,664,191 | 626,449 | ||||||||||||||||||||||||
Depreciation and amortization | 210,361 | 1,425 | 631,083 | 5,849 | ||||||||||||||||||||||||||||
Other general and administrative expenses | 536,483 | 453,158 | 1,071,017 | 468,782 | 469,656 | 489,820 | 1,478,726 | 944,248 | ||||||||||||||||||||||||
Total operating expenses | 1,792,993 | 2,190,028 | 6,152,335 | 3,096,309 | 2,309,052 | 1,792,993 | 10,967,960 | 6,152,335 | ||||||||||||||||||||||||
Total operating loss | (1,755,778 | ) | (2,065,043 | ) | (5,880,383 | ) | (2,971,324 | ) | $ | (2,233,040 | ) | $ | (1,755,778 | ) | $ | (10,830,139 | ) | $ | (5,880,383 | ) | ||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Interest and accretion expenses | (70,221 | ) | - | (74,410 | ) | - | (810,598 | ) | (70,221 | ) | (1,640,368 | ) | (74,410 | ) | ||||||||||||||||||
Change in fair value of contingent liabilities | 194,000 | - | 472,000 | - | 1,491,000 | 194,000 | (2,131,000 | ) | 472,000 | |||||||||||||||||||||||
Total other income | 123,779 | - | 397,590 | - | ||||||||||||||||||||||||||||
Total other income (expense) | 680,402 | 123,779 | (3,771,368 | ) | 397,590 | |||||||||||||||||||||||||||
Net loss | $ | (1,631,999 | ) | $ | (2,065,043 | ) | $ | (5,482,793 | ) | $ | (2,971,324 | ) | $ | (1,552,638 | ) | $ | (1,631,999 | ) | $ | (14,601,507 | ) | $ | (5,482,793 | ) | ||||||||
Net loss per share – basic and diluted | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.15 | ) | $ | (0.13 | ) | ||||||||||||||||||||
Loss per share – basic and diluted | $ | (0.04 | ) | $ | (0.05 | ) | $ | (0.36 | ) | $ | (0.15 | ) | ||||||||||||||||||||
Weighted average number of shares of common stock outstanding – basic and diluted | 35,928,188 | 29,288,226 | 35,928,188 | 23,161,329 | 40,828,188 | 35,928,188 | 40,762,254 | 35,928,188 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
MARIZYME, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, December 31, 2020 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | - | $ | (36,825,634 | ) | $ | 45,287,628 | |||||||||
Sale of common stock | ||||||||||||||||||||
Sale of common stock, shares | ||||||||||||||||||||
Issuance of common stock for acquisition | ||||||||||||||||||||
Issuance of common stock for acquisition, shares | ||||||||||||||||||||
Issuance of warrants for acquisition | ||||||||||||||||||||
Issuance of warrants for services | ||||||||||||||||||||
Common shares issued in lieu of AP | ||||||||||||||||||||
Common shares issued in lieu of AP , shares | ||||||||||||||||||||
Exercise of options | ||||||||||||||||||||
Exercise of options, shares | ||||||||||||||||||||
Common stock issued for services | ||||||||||||||||||||
Common stock issued for services, shares | ||||||||||||||||||||
Stock-based compensation | - | - | 334,385 | - | 334,385 | |||||||||||||||
Issuance of common stock for services | ||||||||||||||||||||
Issuance of common stock for services, shares | ||||||||||||||||||||
Warrants issued | ||||||||||||||||||||
Net loss | - | - | - | - | (2,211,866 | ) | (2,211,866 | ) | ||||||||||||
Balance, March 31, 2021 | 35,928,188 | 35,928 | 82,411,719 | - | (39,037,500 | ) | 43,410,147 | |||||||||||||
Stock-based compensation | - | - | 194,657 | - | 194,657 | |||||||||||||||
Adjustment of warrants value in connection with finalizing the business combination | - | - | (732,300 | ) | - | (732,300 | ) | |||||||||||||
Net loss | - | - | - | - | (1,638,928 | ) | (1,638,928 | ) | ||||||||||||
Balance, June 30, 2021 | 35,928,188 | 35,928 | 81,874,076 | - | (40,676,428 | ) | 41,233,576 | |||||||||||||
Stock-based compensation | - | - | 64,074 | - | 64,074 | |||||||||||||||
Warrants issued in connection with convertible notes | - | - | 571,807 | - | 571,807 | |||||||||||||||
Net loss | - | - | - | - | (1,631,999 | ) | (1,631,999 | ) | ||||||||||||
Balance, September 30, 2021 | 35,928,188 | $ | 35,928 | $ | 82,509,957 | - | $ | (42,308,427 | ) | $ | 40,237,458 |
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2020 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | $ | (36,825,634 | ) | $ | 45,287,628 | ||||||||||
Stock-based compensation expense | - | - | 334,385 | - | 334,385 | |||||||||||||||
Net loss - restated | - | - | - | (2,211,866 | ) | (2,211,866 | ) | |||||||||||||
Balance, March 31, 2021 (unaudited) | 35,928,188 | 35,928 | 82,411,719 | (39,037,500 | ) | 43,410,147 | ||||||||||||||
Stock-based compensation expense | - | - | 194,657 | - | 194,657 | |||||||||||||||
Adjustment of warrants value in connection with finalizing the business combination | - | - | (732,300 | ) | - | (732,300 | ) | |||||||||||||
Net loss - restated | - | - | - | (1,638,928 | ) | (1,638,928 | ) | |||||||||||||
Balance, June 30, 2021 (unaudited) | 35,928,188 | 35,928 | 81,874,076 | (40,676,428 | ) | 41,233,576 | ||||||||||||||
Stock-based compensation expense | - | - | 64,074 | - | 64,074 | |||||||||||||||
Warrants issued in connection with convertible notes | - | - | 571,807 | - | 571,807 | |||||||||||||||
Net loss | - | - | - | (1,631,999 | ) | (1,631,999 | ) | |||||||||||||
Balance, September 30, 2021(unaudited) | 35,928,188 | $ | 35,928 | $ | 82,509,957 | $ | (42,308,427 | ) | $ | 40,237,458 |
Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2021 | 40,528,188 | $ | 40,528 | $ | 95,473,367 | $ | (47,823,563 | ) | $ | 47,690,332 | ||||||||||
Stock-based compensation expense | - | - | 716,432 | - | 716,432 | |||||||||||||||
Issuance of warrants | - | - | 2,969,916 | - | 2,969,916 | |||||||||||||||
Exercise of warrants | 300,000 | 300 | 2,700 | - | 3,000 | |||||||||||||||
Net loss | - | - | - | (6,124,885 | ) | (6,124,885 | ) | |||||||||||||
Balance, March 31, 2022 (unaudited) | 40,828,188 | $ | 40,828 | 99,162,415 | (53,948,448 | ) | 45,254,795 | |||||||||||||
Stock-based compensation expense | - | - | 676,242 | - | 676,242 | |||||||||||||||
Issuance of warrants | - | - | 2,341,659 | - | 2,341,659 | |||||||||||||||
Net loss | - | - | - | (6,923,984 | ) | (6,923,984 | ) | |||||||||||||
Balance, June 30, 2022 (unaudited) | 40,828,188 | 40,828 | 102,180,316 | (60,872,432 | ) | 41,348,712 | ||||||||||||||
Beginning balance, value | 40,828,188 | $ | 40,828 | $ | 102,180,316 | $ | (60,872,432 | ) | $ | 41,348,712 | ||||||||||
Stock-based compensation expense | - | - | 271,517 | - | 271,517 | |||||||||||||||
Issuance of warrants | - | - | 880,000 | - | 880,000 | |||||||||||||||
Net loss | - | - | - | (1,552,638 | ) | (1,552,638 | ) | |||||||||||||
Balance, September 30, 2022 (unaudited) | 40,828,188 | $ | 40,828 | $ | 103,331,833 | $ | (62,425,070 | ) | $ | 40,947,591 | ||||||||||
Ending balance, value | 40,828,188 | $ | 40,828 | $ | 103,331,833 | $ | (62,425,070 | ) | $ | 40,947,591 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
MARIZYME, INC.
Condensed Consolidated Statements of Stockholders’ EquityCash Flows
(Unaudited)
Additional Paid-in | Treasury | Accumulated | ||||||||||||||||||||||
Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
Balance, December 31, 2019 | 19,858,939 | $ | 19,859 | $ | 59,319,594 | $ | (16,000 | ) | $ | (30,980,581 | ) | $ | 28,342,872 | |||||||||||
Common stock issued for services | 125,000 | 125 | 124,875 | - | - | 125,000 | ||||||||||||||||||
Stock-based compensation | - | - | 221,058 | - | - | 221,058 | ||||||||||||||||||
Net loss | - | - | - | - | (471,370 | ) | (471,370 | ) | ||||||||||||||||
Balance, March 31, 2020 | 19,983,939 | 19,984 | 59,665,527 | (16,000 | ) | (31,451,951 | ) | 28,217,560 | ||||||||||||||||
Common shares issued in lieu of AP | 195,000 | 195 | 184,665 | - | - | 184,860 | ||||||||||||||||||
Exercise of options | 5,000 | 5 | 5,045 | - | 5,050 | |||||||||||||||||||
Stock-based compensation | - | - | 221,057 | - | - | 221,057 | ||||||||||||||||||
Net loss | - | - | - | - | (434,911 | ) | (434,911 | ) | ||||||||||||||||
Balance, June 30, 2020 | 20,183,939 | 20,184 | 60,076,294 | (16,000 | ) | (31,886,862 | ) | 28,193,616 | ||||||||||||||||
Sale of common stock | 5,600,192 | 5,600 | 6,269,464 | - | - | 6,275,064 | ||||||||||||||||||
Issuance of common stock for acquisition | 10,000,000 | 10,000 | 12,490,000 | - | - | 12,500,000 | ||||||||||||||||||
Issuance of warrants for acquisition | - | - | 1,932,300 | - | - | 1,932,300 | ||||||||||||||||||
Issuance of warrants for services | - | - | 253,749 | - | - | 253,749 | ||||||||||||||||||
Stock-based compensation | - | - | 802,926 | - | - | 802,926 | ||||||||||||||||||
Issuance of common stock for services | 50,000 | 50 | 62,450 | - | - | 62,500 | ||||||||||||||||||
Exercise of options for common stock | 54,057 | 54 | 59,399 | - | - | 59,453 | ||||||||||||||||||
Net loss | - | - | - | - | (2,065,043 | ) | (2,065,043 | ) | ||||||||||||||||
Balance, September 30, 2020 | 35,888,188 | $ | 35,888 | $ | 81,946,582 | $ | (16,000 | ) | $ | (33,951,905 | ) | $ | 48,014,565 |
2022 | 2021 | |||||||
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (14,601,507 | ) | $ | (5,482,793 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 631,083 | (76,013 | ) | |||||
Stock-based compensation | 1,664,191 | 593,116 | ||||||
Stock-based compensation - restricted common stock | - | 33,333 | ||||||
Interest and accretion on convertible notes and notes payable | 1,637,951 | 74,410 | ||||||
Issuance of warrants for services | 1,850,533 | - | ||||||
Change in fair value of contingent liabilities | 2,131,000 | (472,000 | ) | |||||
Change in operating assets and liabilities: | ||||||||
Accounts and other receivables | (18,402 | ) | (55,706 | ) | ||||
Prepaid expenses | (582,649 | ) | 38,057 | |||||
Inventory | (228,834 | ) | 40,950 | |||||
Accounts payable and accrued expenses | (740,034 | ) | 721,078 | |||||
Due to related parties | (1,009,368 | ) | 272,530 | |||||
Net cash used in operating activities | (9,266,036 | ) | (4,313,038 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from promissory notes, net of issuance cost | 6,500,743 | 1,060,949 | ||||||
Proceeds from promissory notes, due to related parties | - | 366,000 | ||||||
Repayment of notes payable | (127,798 | ) | - | |||||
Proceeds from exercise of warrants | 3,000 | - | ||||||
Net cash provided by financing activities | 6,375,945 | 1,426,949 | ||||||
Net change in cash | (2,890,091 | ) | (2,886,089 | ) | ||||
Cash at beginning of period | 4,072,339 | 2,902,762 | ||||||
Cash at end of period | $ | 1,182,248 | $ | 16,673 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Derivative liabilities and debt discount issued in connection with convertible notes | $ | 2,438,379 | $ | 391,648 | ||||
Warrants and debt discount issued in connection with convertible notes | $ | 4,341,042 | $ | 571,807 | ||||
Settlement of notes payable with convertible notes | $ | 278,678 | $ | - | ||||
Contingent liabilities | $ | - | $ | 9,926,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
MARIZYME, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,482,793 | ) | $ | (2,971,324 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation and amortization | (76,013 | ) | 342,583 | |||||
Stock-based compensation | 593,116 | 1,420,451 | ||||||
Stock-based compensation - restricted common stock | 33,333 | - | ||||||
Interest and accretion | 74,410 | - | ||||||
Issuance of warrants for services | - | 253,749 | ||||||
Change in fair value of contingent liabilities | (472,000 | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (55,706 | ) | (93,010 | ) | ||||
Prepaid expense | 38,057 | (62,487 | ) | |||||
Inventory | 40,950 | 21,500 | ||||||
Accounts payable and accrued expenses | 721,078 | 140,233 | ||||||
Due to related parties | 272,530 | - | ||||||
Net cash used in operating activities | (4,313,038 | ) | (948,305 | ) | ||||
Cash flows used in investing activities: | ||||||||
Purchase of intangible assets | - | (130,333 | ) | |||||
Net cash used in investing activities | - | (130,333 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from promissory notes due to related parties | 366,000 | - | ||||||
Proceeds from convertible notes, net of issuance cost | 1,060,949 | - | ||||||
Shares issued for cash, net of offering costs | - | 6,275,064 | ||||||
Net cash provided by financing activities | 1,426,949 | 6,275,064 | ||||||
Net (decrease)/ increase in cash | (2,886,089 | ) | 5,196,426 | |||||
Cash at beginning of period | 2,902,762 | 90 | ||||||
Cash at end of period | $ | 16,673 | $ | 5,196,516 | ||||
Non-cash investing and financing activities: | ||||||||
Derivative liabilities | $ | 391,648 | $ | - | ||||
Contingent liabilities | $ | 9,926,000 | $ | - | ||||
Warrants issued in connection with convertible notes | $ | 571,807 | - | |||||
Issuance of common stock in lieu of payables | $ | - | $ | 261,453 | ||||
Issuance of common stock in connection with business combination | $ | - | $ | 12,500,000 | ||||
Issuance of warrants in connection with business combination | $ | - | $ | 1,932,300 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MARIZYME, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 1 – DESCRIPTION OF BUSINESS
Maryzime,Marizyme, Inc. (the “Company” or “Marizyme”) is a Nevada corporation originally incorporated on March 20, 2007, under the name SWAV Enterprises, Ltd. On September 6, 2010, the Company name was changed to GBS Enterprises Inc. and from 2010 to September 2018 the Company was in the software products and advisory services business for email and instant messaging applications. The Company divested that business between December 2016 and September 2018 and focused on the acquisition of life science technologies.
On March 21, 2018, the Company’s name was changed to Marizyme, Inc., to reflect the new life sciences focus. Marizyme’s common stock is currently quoted on the OTC Markets’ QB tier under the symbol “MRZM”.
NOTE 2 – GOING CONCERN
The Company’s unaudited condensed consolidated financial statements are prepared using principalsaccounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The Company, since its inception, has incurred recurring operating losses and negative cash flows from operations and has an accumulated deficit of $42,308,427 62,425,070at September 30, 2021.2022 (December 31, 2021 - $47,823,563). Additionally, the Company has negative working capital of $2,132,227$735,525 (December 31, 2021 - $1,268,097) and $16,673$1,182,248 (December 31, 2021 - $4,072,339) of cash on hand.hand, which may not be sufficient to fund operations for the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Under the going concern assumption, an entity is ordinarily viewed as continuing its business for the foreseeable future with neither the intention or necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to the laws and regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to continue to successfully develop its intangible assets, receive an approvala clearance from the U.S. FederalFood and Drug Administration (the “FDA”) to extend the selling of the products into the U.S. market which will allow the Company to attain profitable operations.
During the next twelve months, the Company’s foreseeable cash requirements will relate to continuous operations of its business, maintaining its good standing and making the required filing with the Securities and Exchange Commission (the “SEC”), and the payment of expenses associated with its product development. The Company may experience a cash shortfall and be required to raise additional capital. Management intends to raise additional funds by way of a private or public offering.offerings. While the Company believes in the viability of its strategy to continue to develop and expand its products and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 -– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of the Company and its wholly owned subsidiaries,subsidiaries: My Health Logic Inc (“My Health Logic” or “MHL”), Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”), (collectively – “Somah”), and Marizyme Sciences, Inc. (“Marizyme Sciences”). All intercompany transactions have been eliminated on consolidation.
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The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted accounting principles in the U.S.United States of America (“U.S. GAAP”). The unaudited condensed consolidated financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021March 31, 2022 (the “2020“2021 Form 10-K”). The condensed consolidated balance sheet as of December 31, 20202021 was derived from audited consolidated financial statements included in the 20202021 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company’s significant accounting policies are described in Note 31 to those consolidated financial statements.
Interim results may not be indicative of the results that may be expected for the full year.year or any future periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement ofto fairly present the results of operations, financial condition, cash flows and stockholders’ equity for the periods presented.indicated. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.
Deferred Offering Cost
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process capital stock financings as deferred offering costs until such financings are consummated. After consummation of the financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations. The Company had no deferred offering costs as of December 31, 2021. As of September 30, 2022, the Company had recorded deferred offering costs of $271,240 reported as a prepaid expense on the accompanying balance sheets.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the allocation of the purchase price in a business combination to the underlying assets and liabilities, recoverability of long-term assets including intangible assets and goodwill, amortization expense, valuation of warrants, stock-based compensation, derivative liabilities, contingent liabilities and deferred tax valuations.
Fair Value Measurements
The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
● | Level 1 – Quoted prices for identical assets or liabilities in active markets. | |
● | Level 2 – Quoted prices for identical or similar assets and liabilities in markets that are not active; or other model-derived valuations whose inputs are directly or indirectly observable or whose significant value drivers are observable. | |
● | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable and for which assumptions are used based on management estimates. |
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well asand considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain cashaccounts and cash equivalents, accounts receivable,other receivables, accounts payable and accrued expenses, notes payable, and amounts due to related parties approximate fair value due to the short-term nature of these instruments.
The fair value of lease obligations is determined using discounted cash flows based on the expected amounts and timing of the cash flows discounted using a market rate of interest adjusted for appropriate credit risk.
The contingent liabilities assumed on the acquisition of Somah (Note 4)in 2020 consist of present values of royalty payments, performance warrants and pediatric voucher warrants, future rare pediatric voucher sales, and liquidation preference. Management measured these contingencies in accordance with Level 3 of the fair value hierarchy.
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i. | The performance warrants and pediatric vouchers warrants liabilities were valued using a Monte Carlo simulation model utilizing the following weighted average assumptions: risk free rate of 1.19%, expected volatility of 69.62%, expected dividend of $0, and expected life of | |
ii. | The present value of royalty payments was measured using the scenario-based methodology. In assessing the value attributed to the royalty payments, the estimated future cash flows were discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the revenue from net sales of the product. The cash flows derived from the Company’s fifteen-year strategic plan are based on managements’ expectations of market growth, industry reports and trends, and past performances. These projections are inherently uncertain due to the evolving impact of the COVID-19 pandemic. The discounted cash flow model included projections surrounding revenue, discount rates, and growth rates. The discount rates used to calculate the present value of royalty payments reflect specific risks of the Company and market conditions and the mid-range was estimated at 20.6%. For the three and nine months ended September 30, | |
iii. | Rare pediatric voucher sales liability was valued based on the scenario-based methodology where the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset – | |
iv. | The present value of liquidation preference liability, included in the contingent consideration, was determined using the Black-Scholes option pricing method and represents the fair value of the maximum payment amount according to the |
The derivative liabilities consistedconsist of optional and automatic conversion features and the share redemption feature attached to the convertible notes, issued pursuant to the Unit Purchase Agreement (Note 9)7).
The Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
Marizyme measures the following financial instruments at fair value on a recurring basis. As atof September 30, 2022, and December 31, 2021, the fair values of these financial instruments were as follows:
SCHEDULE OF FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair Value Hierarchy | Fair Value Hierarchy | |||||||||||||||||||||||||||
September 30, 2021 | Level 1 | Level 2 | Level 3 | December 31, 2020 | ||||||||||||||||||||||||
September 30, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Derivative liabilities | $ | - | $ | - | $ | 391,648 | $ | - | $ | - | $ | - | $ | 4,923,725 | ||||||||||||||
Contingent liabilities | - | - | 9,454,000 | - | - | - | 13,444,000 | |||||||||||||||||||||
Total | $ | - | $ | - | $ | 9,845,648 | $ | - | $ | - | $ | - | $ | 18,367,725 |
Fair Value Hierarchy | ||||||||||||
December 31, 2021 | Level 1 | Level 2 | Level 3 | |||||||||
Liabilities | ||||||||||||
Derivative liabilities | $ | - | $ | - | $ | 2,485,346 | ||||||
Contingent liabilities | - | - | 11,313,000 | |||||||||
Total | $ | - | $ | - | $ | 13,798,346 |
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The following table provides a rollforwardroll forward of all liabilities measured at fair value using Level 3 significant unobservable inputs:
RECONCILIATION OF LIABILITIES AT FAIR VALUE
September 30, 2021 | Contingent Liabilities | |||
Balance at December 31, 2020 | - | |||
Derivative liabilities | $ | 391,648 | ||
Initial valuation of contingent liabilities in connection with the Somah acquisition1 | 9,926,000 | |||
Change in fair value of contingent liabilities | (472,000 | ) | ||
Balance at September 30, 2021 | $ | 9,845,648 |
Derivative and Contingent Liabilities | ||||
Balance at December 31, 2021 | $ | 13,798,346 | ||
Change in fair value of contingent liabilities | 2,131,000 | |||
Derivative liabilities issued pursuant to Unit Purchase Agreement | 2,438,379 | |||
Balance at September 30, 2022 | $ | 18,367,725 |
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits, for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of Duragraft, and costs related to manufacturing Duragraft for clinical trials. The Company has entered into various research and development contracts with various organizations. Payments of these activities are based on the terms of the individual agreements which matches to the pattern of costs incurred. Payments made in advance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be required in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
Stock-based compensation expense for employees and Goodwilldirectors is recognized in the Condensed Consolidated Statements of Operations based on estimated amounts, including the grant date fair value and the expected service period. For stock options, the Company estimates the grant date fair value using a Black-Scholes valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. The Company estimate the expected future volatility based on the stock’s historical price volatility. The stock’s future volatility may differ from the estimated volatility at the grant date. For restricted stock unit (“RSU”) equity awards, the Company estimates the grant date fair value using it’s closing stock price on the date of grant. The Company recognizes the effect of forfeitures in compensation expense when the forfeitures occur. The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. The Company recognizes the value of the awards over the awards’ requisite service or performance periods. The requisite service period is generally the time over which share-based awards vest.
Comparative Information
Intangible assets are recorded at cost less accumulated amortizationTo conform with the current period’s financial statement presentation, the Company reclassified certain professional fees, salaries, rent and accumulated impairment losses. Intangible assets acquired as a resultrepairs and maintenance expenses related to research and development activities for the three and nine months ended September 30, 2021, into the research and development expenses line item on the Condensed Consolidated Statements of an acquisition or in a business combination are measured at fair value atOperations. Such reclassifications were not considered material and did not have any effect on the acquisition date.Company’s net loss for the three- and nine- month periods ended September 30, 2021.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the estimated useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis.NOTE 4 – ACQUISITION
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net assets acquired. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses.
In-Process Research and Development
The Company evaluates whether acquired intangible assets are a business under applicable accounting standards. Additionally, the Company evaluates whether the acquired assets have a future alternative use. Intangible assets that do not have future alternative use are considered acquired in-process research and development. When the acquired in-process research and development assets are not part of a business combination, the value of the consideration paid is expensed on the acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value. NaN impairment losses have been recorded through September 30, 2021.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as 1 operating segment.
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of unvested common stock, options and warrants. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities (warrants, stock options, and common shares subject to repurchase) would be antidilutive.
Recently Adopted Accounting StandardsMy Health Logic Inc.
There are no recently adopted accounting standards and recent accounting standards not yet adopted thatOn November 1, 2021, Marizyme entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to which the Company believes will havewould acquire all of the issued and outstanding common shares of My Health Logic, a material impact onwholly owned subsidiary of HLII, in exchange for common shares of Marizyme (the “Marizyme Shares”).
Marizyme is dedicated to the Company’s unaudited condensed consolidated financial statements.acceleration, development and commercialization of medical technologies that promote patient health, therefore a strategic decision was made to acquire My Health Logic, which has provided Marizyme with access to MHL’s lab-on-chip technology platform and its patient-centric, digital point-of-care diagnostic device, MATLOC 1; and allowed for further growth and development of Marizyme’s portfolio of medical products.
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Recently Issued Accounting Pronouncements
The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board or other standard setting bodies on the Company’s financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There were no new material accounting standards issued in the nine months ended September 30, 2021, that impacted the Company.
COVID-19
Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and physical distancing, have caused material disruptions to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.
Marizyme continues to maintain business continuity during the COVID-19 pandemic and takes its cues from the U.S. government and public health officials to keep employees and business partners safe and healthy. Although the financial results for three and nine months ended September 30, 2021 were not significantly impacted by COVID-19, Marizyme experienced decrease in sales due to a slow-down in the product manufacturing. During 2021, Marizyme’s business partners were focused on addressing specific manufacturing needs of the U.S. government in battling COVID-19 pandemic. Additionally, during 2021, demand for elective surgeries have decreased due to overloaded medical systems and potential risks related to patients’ recovery during the pandemic.
The Company cannot predict the impact of the progression of COVID-19 on future results or the Company’s ability to raise capital due to a variety of factors, including but not limited to the continued good health of Company employees, the ability of suppliers to continue to operate and deliver, the ability of the Company to maintain operations, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic.
NOTE 4 – ACQUISITIONS
DuraGraft®
On December 15, 2019,22, 2021, Marizyme received the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on March 31, 2020necessary regulatory, court and May 29, 2020, with Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC, companies duly organized under the laws of Delaware (collectively, “Somah” or “Seller”)stock exchange approval to acquire all of the assets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties.
On July 31, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement and the Agreement was finalized. Pursuant to the terms of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the EU. In Amendment No. 3, the Company agreed to assume certain payables of Somah related to clinical and medical expenses. It was agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties. As of September 30, 2021 and December 31, 2020, prepaid royalties were $340,969 and $344,321, respectively, and were recorded as a non-current asset.
Pursuant to the Agreement and in consideration of the outstanding capital stock of Somahlution, Inc., the Company agreed to issue to Somah:
On July 30, 2020, the Company completedcomplete the acquisition of Somah (the “Somah Transaction”). TheMHL resulting in a total of 4,600,000 Common Shares issued to HLII; 230,000 of these shares are being held and administered by Marizyme to be released to HLII, less any amounts claimed by Marizyme or its affiliates for any losses arising out of certain breaches as set out in the acquisition agreement. This resulted in HLII holding approximately 11.35% of Somah provides the Company with access to DuraGrafttotal number of issued and other related intangible assets, which upon approval by FDA, will further the Company’s continued growthoutstanding Marizyme Shares (based on Marizyme Shares issued and international-wide product rollout.outstanding immediately after closing).
In accordance with ASCAccounting Standards Codification (“ASC”) 805-10 the substance of a transaction constitutes a business combination as the business of SomahMy Health Logic Inc. meets the definition of a business under the standard. Accordingly, the transaction was accounted for in accordance with the acquisition method of accounting, and the assets acquired, and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date. The purchase price iswas based on management’s estimate of fair value of the common shares issued.
According to ASC 805 the acquirer has a year from the date of acquisition to recognize measurement period adjustments. While Marizyme does not expect the carrying amount, the fair value, and warrants issued as well as contingent consideration and liquidation preference given up. The final allocationthe estimated useful life of the purchase price consideration to theidentifiable assets acquired and liabilities assumed has been completedacquired, provided below, to change, the tax basis related to these intangible assets is not final and finalized.remains preliminary at September 30, 2022.
Details of the carrying amount and the fair value of identifiable assets and liabilities acquired and purchase consideration paid arewere as follows:
SCHEDULE OF PRELIMINARY ALLOCATION OF CONSIDERATION
Consideration | ||||||||
Consideration given up | ||||||||
Common shares | $ | 12,500,000 | $ | 7,774,000 | ||||
Warrants | 1,200,000 | |||||||
Contingent consideration1 | 9,926,000 | |||||||
Total consideration | $ | 23,626,000 | ||||||
Total consideration given up | $ | 7,774,000 | ||||||
Fair value of identifiable assets acquired, and liabilities assumed | ||||||||
Net working capital | $ | 30,908 | ||||||
Net working deficit | $ | (613,156 | ) | |||||
Property, plant, and equipment | 9,092 | 12,500 | ||||||
Intangible assets | 18,170,000 | 6,600,000 | ||||||
Goodwill | 5,416,000 | 1,774,656 | ||||||
Total identifiable assets | $ | 23,626,000 | $ | 7,774,000 |
As a result of the My Health Logic acquisition, the Company acquired its lab-on-chip technology platform, its patient-centric, digital point-of-care diagnostic device - MATLOC 1 as well as patents rights and trademarks relating to it. In addition, the Company acquired ownership rights to MATLOC patents issued in the European Union, Canada, and the United States.
The intangible assets acquired include:
● | ||
● | ||
● | Biotechnology intangible | |
As part of the acquisition, Marizyme assumed an aggregate of $468,137 in notes payable, the notes were unsecured, bore interest at a rate of 9% per annum with no maturity date. For the three and nine months ended September 30, 2022, Marizyme recognized $4,538 and $15,124 of interest expense on the notes payable, respectively (September 30, 2021 - $Nil and $Nil, respectively). The Company settled an aggregate of $278,678 of these notes payable as part of Unit Purchase Agreement issuances during the nine months ended September 30, 2022 (Note 7). As of September 30, 2022, balance of the remaining note payable was $213,563 (December 31, 2021 - $469,252).
Goodwill is attributed to the workforce and profitability of the acquired business and is not deductible for tax purposes. A residual method methodology was used to estimate the fair market value goodwill. A pre-tax discount rate based on weighted average cost of capital of 33.837.5% was used in the fair value assumptions for the assembled workforce acquired.
Pro-forma revenue, net income,income/(loss), and earnings per share are not presented for this acquisition as they are not material.
NOTE 5 – LEASES
On December 11, 2020, the Company entered into a 5.5 - year lease agreement for approximately 10,300 square feet of administrative office and laboratories space, which commenced in December 2020 at a monthly rent of approximately $10,81710,800, increasing by 2.5% annually beginning in the second year of the lease until the end of the term. Additionally, pursuant to the agreement, the Company willwould pay approximately $12,000 per month in operating expenses.
Effective April 1, 2022, the Company amended its lease agreement for administrative office and laboratories to add additional 3,053 square feet of space. The monthly cost of total expended lease space is approximately $15,260 increasing to $15,641 in 2023 and will continue to increase by 2.5% annually thereafter until the end of the term. The monthly operating expenses for total expanded premises have increased from approximately $12,000 to $17,500 per month. The term of the lease remains unchanged. As atof September 30, 2021,2022, the remaining lease term was 4.673.83 years.years. The lease had been classified as an operating lease.
The assets and liabilities from the lease were recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the discount rate of 3.95%, which is the average commercial interest available at the time.
The total rent expense for the three and nine months ended September 30, 2022 was $103,291 and $324,544, respectively (September 30, 2021 and 2020 was approximately- $77,357 and $Nil168,769, respectively. The total rent expense for the nine months ended September 30, 2021 and 2020 was approximately $168,769 and $Nil, respectively.respectively).
The following table summarizes supplemental balance sheet information related to the operating lease as of September 30, 20212022, and December 31, 2020.2021:
SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITYLIABILITIES
September 30, 2021 | December 31, 2020 | September 30, 2022 | December 31, 2021 | |||||||||||||
Right-of-use asset | $ | 1,163,159 | $ | 1,317,830 | ||||||||||||
Right-of-use assets | $ | 1,576,445 | $ | 1,158,776 | ||||||||||||
Operating lease liabilities, current | $ | 260,106 | $ | 243,292 | $ | 420,913 | $ | 277,142 | ||||||||
Operating lease liabilities, non-current | 941,732 | 1,074,538 | 1,155,532 | 881,634 | ||||||||||||
Total operating lease liabilities | $ | 1,201,838 | $ | 1,317,830 | $ | 1,576,445 | $ | 1,158,776 |
As atof September 30, 2021,2022, the maturities of the lease liabilities for the periods endedending December 31 wereare as follows:
SCHEDULE OF MATURITIES OF THE LEASE LIABILITIES
2021 | $ | 52,249 | |||
2022 | 277,142 | ||||
2023 | 277,142 | ||||
2024 | 277,142 | ||||
2025 | 277,142 | ||||
Thereafter | 130,950 | ||||
Total lease payments | 1,291,767 | ||||
Total lease payments | 1,291,767 | ||||
Less: present value discount | (89,929 | ) | |||
Total | $ | 1,201,838 |
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, summarized by major category, stated at cost, less accumulated depreciation at September 30, 2021 and December 31, 2020 consisted of the following:
SCHEDULE OF PROPERTY PLANT & EQUIPMENT
September 30, 2021 | December 31, 2020 | |||||||
Furniture and equipment | $ | 701 | $ | 701 | ||||
Computer related | 7,220 | 7,220 | ||||||
Machinery and equipment | 1,171 | 1,171 | ||||||
Total | $ | 9,092 | $ | 9,092 | ||||
Less: accumulated amortization | (7,819 | ) | (1,970 | ) | ||||
Property, plant and equipment, net | $ | 1,273 | $ | 7,122 |
Depreciation expense for the three months ended September 30, 2021 and 2020 was $1,425 and $1,313, respectively, and for the nine months ended September 30, 2021 and 2020 was $5,849 and $1,313, respectively.
2022 | $ | 103,291 | ||
2023 | 423,495 | |||
2024 | 434,082 | |||
2025 | 444,934 | |||
2026 | 266,034 | |||
Total lease payments | 1,671,836 | |||
Less: Present value discount | (95,391 | ) | ||
Total | $ | 1,576,445 |
NOTE 76 – INTANGIBLE ASSETS
Krillase
As part of the asset acquisition of ACB Holding AB, Reg. No. 559119-5762, completed on September 12, 2018, Marizyme acquired all rights, titles, and interest in the Krillase technology, a group of intangible assets worth $28,600,000. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in wound debridement, wouldwound healing, dental care and thrombosis. The useful lives of the intangible assets are based on the life of the patent and related technology. The patents and related technology for Krillase have not been amortized since the acquisition, as they have not yet been put into operations. The Company expects to put Krillase into operations and establish the first stream of revenue from the sale of the product in 2023.
The Company anticipates Krillase being placed into service in 2023. The Company has evaluated this asset for impairment and has determined that due to COVID-19 delaying the next steps for roll out of this technology, along with the associated value of the research and development, the status of the clinical trials, and other pertinent proprietary technology, there is no impairment required.
DuraGraft
As part of Somah acquisition (Note 4),in 2020, Marizyme purchased $18,170,000 of intangible assets related to the DuraGraft® technology.
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SUMMARY
My Health Logic
As part of My Health Logic acquisition (see Note 4), Marizyme purchased MHL’s lab-on-chip technology platform and its patient-centric, digital point-of-care diagnostic device, MATLOC, fair valued at an aggregate amount of $6,600,000.
SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE
September 30, 2021 | December 31, 2020 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||
Krillase intangible assets | $ | 28,600,000 | $ | - | $ | 28,600,000 | $ | 28,600,000 | $ | - | $ | 28,600,000 | $ | 28,600,000 | $ | - | $ | 28,600,000 | $ | 28,600,000 | $ | - | $ | 28,600,000 | ||||||||||||||||||||||||
Patents in process | 122,745 | - | 122,745 | 122,745 | - | 122,745 | ||||||||||||||||||||||||||||||||||||||||||
DuraGraft patent | 5,256,000 | (471,691 | ) | 4,784,309 | 14,147,729 | (589,489 | ) | 13,558,240 | 5,256,000 | (875,999 | ) | 4,380,001 | 5,256,000 | (572,768 | ) | 4,683,232 | ||||||||||||||||||||||||||||||||
Distributor relationship | 308,000 | (35,933 | ) | 272,067 | - | - | - | |||||||||||||||||||||||||||||||||||||||||
IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Patents in process | 122,745 | - | 122,745 | 119,971 | - | 119,971 | ||||||||||||||||||||||||||||||||||||||||||
Duragraft - Distributor relationship | 308,000 | (66,733 | ) | 241,267 | 308,000 | (43,633 | ) | 264,367 | ||||||||||||||||||||||||||||||||||||||||
Duragraft IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | 12,606,000 | - | 12,606,000 | ||||||||||||||||||||||||||||||||||||||||||
My Health Logic - Trade name | 450,000 | (24,911 | ) | 425,089 | 450,000 | (804 | ) | 449,196 | ||||||||||||||||||||||||||||||||||||||||
My Health Logic - Biotechnology | 4,600,000 | (209,706 | ) | 4,390,294 | 4,600,000 | (6,765 | ) | 4,593,235 | ||||||||||||||||||||||||||||||||||||||||
My Health Logic - Software | 1,550,000 | (80,083 | ) | 1,469,917 | 1,550,000 | (2,583 | ) | 1,547,417 | ||||||||||||||||||||||||||||||||||||||||
Total intangibles | $ | 46,892,745 | $ | (507,624 | ) | $ | 46,385,121 | $ | 42,867,700 | $ | (589,489 | ) | $ | 42,278,211 | $ | 53,492,745 | $ | (1,257,432 | ) | $ | 52,235,313 | $ | 53,492,745 | $ | (626,553 | ) | $ | 52,866,192 |
SCHEDULE OF GOODWILL
Goodwill | DuraGraft | My Health Logic | Total | |||||||||
Balance, December 31, 2020 | $ | - | $ | - | $ | - | ||||||
Additions on acquisitions | 5,416,000 | 1,774,656 | 7,190,656 | |||||||||
Impairment | - | - | ||||||||||
Balance, December 31, 2021 and September 30, 2022 | $ | 5,416,000 | $ | 1,774,656 | $ | 7,190,656 |
The following changes to the Company’s intangible assets had taken place in the periods indicated:
SCHEDULE OF INTANGIBLE ASSETS
Balance, December 31, 2019 | $ | 28,613,000 | ||
Acquired in asset purchase agreement | 14,147,729 | |||
Additions | 106,971 | |||
Amortization expense | (589,489 | ) | ||
Balance, December 31, 2020 | 42,278,211 | |||
Acquired in Somah Transaction1 | 4,022,271 | |||
Additions | 2,775 | |||
Amortization expense1 | 81,864 | |||
Balance, September 30, 2021 | $ | 46,385,121 |
The Company has recorded amortization expense of $108,777 and $326,331 for the three and nine months ended September 30, 2021, respectively and $341,270 for the three and nine months ended September 30, 2020.
Balance, December 31, 2020 | $ | 42,278,211 | ||
Acquired in Somah Transaction | 4,022,271 | |||
Acquired in My Health Logic Transaction | 6,600,000 | |||
Additions | 2,775 | |||
Amortization expense | (37,065 | ) | ||
Balance, December 31, 2021 | $ | 52,866,192 | ||
Amortization expense | (630,879 | ) | ||
Balance, September 30, 2022 | $ | 52,235,313 |
Future amortizations for DuraGraft relatedDuragraft and My Health Logic intangible assets for the next five years will be $435,108 841,172for each year from 20212023 through 20262027 and $2,880,836 6,700,706for 20272028 and thereafter. Amortization related to the Krillase product and in process research and development will be determined upon the Company achieving commercialization.
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses, summarized by major category, as of September 30, 2021 and December 31, 2020 consists of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
September 30, 2021 | December 31, 2020 | |||||||
Trade accounts payable | $ | 1,117,517 | $ | 325,830 | ||||
Accrued expenses | 180,846 | 21,555 | ||||||
Accrued compensation expenses | 98,582 | 130,718 | ||||||
Total accounts payable and accrued expenses | $ | 1,396,945 | $ | 478,103 |
NOTE 97 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS
May 2021 Unit Purchase Agreement
On May 27, 2021, the CompanyMarizyme entered into a Unit Purchase Agreement (“Unit Purchase Agreement”) to sell up to units (the ‘Units’) at a price per Unit of $ . Each Unit is comprised of (i) a convertible promissory note (the “Convertible Note”) convertible into common stock of the Company, at a price per share of $2.50, (ii) a warrant to purchase one share of common stock of the Company (the ‘Class A Warrant’); and (iii) a second warrant to purchase common stock of the Company (the “Class B Warrant”).
In May 2021, the Company issued and sold 74,945, consisting of Convertible Notes of $74,945, Class A Warrants for the purchase of 29,978 shares of common stock and Class B Warrants for the purchase of 29,978 shares of common stock. The Company incurred related issuance costs of $6,745. which will be amortized over the term of the Notes. Units at a price of $ per Unit for gross proceeds of $
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In July 2021, the Company issued and sold 1,100,000. The Units included the Convertible Notes for $1,100,000, Class A Warrants for 440,000 shares of common stock and Class B Warrants for 440,000 shares of common stock. The Company incurred related issuance costs of $99,000. Units under the Unit Purchase Program for gross proceeds of $
September 2021 Amended Unit Purchase Agreement
On September 29, 2021, due to a lower common stock price, the Company, with the consent of all Unit holders, amended the May 2021 Unit Agreements. By rescinding their investment, the Unit holders agreed to amend the Unit Purchase Agreement resulted in the following significant changes to the offering:
(i) | Decreased the offering price under the Unit Purchase Agreement from $ | |
(ii) | Decreased the conversion price from $2.50 per share to $2.25 per share for all current Unit holders and all future investors | |
(iii) | Cancelled all Class A Warrants and Class B Warrants and replaced them with Class C Warrants. |
December 2021 Unit Purchase Agreement
On December 21, 2021, the Company entered into a Unit Purchase Agreement (the “December UPA”) to sell up to Each Unit is comprised of (i) a convertible promissory note convertible into common stock of the Company at an initial conversion price of $1.75 and, (ii) a warrant to purchase two shares of Common Stock at an initial purchase price of $2.25 per share (the new Class C Warrant). Under this December UPA, the Company issued and sold Units at a per unit purchase price of $ , for gross proceeds of $6,000,000. Coinciding with this December UPA, the Company also entered into an Exchange Agreement with the existing Unit holders (the December 2021 Exchange Agreements, as further described below). Units at a price per unit of $ .
December 2021 Exchange Agreements
On December 21, 2021, in conjunction with a $6.0 million investment, the Company and the existing Unit holders agreed to exchange the original securities (“Old Securities”) held by the current investors/unit holders for New Securities, consisting of (i) a New Note in the principal amount equal to the original principal amount of the Original Note, plus all accrued interest through the day prior to December 21, 2021, and (ii) a New Warrant (new Class C Warrants) in exchange for the original Class C Warrants. The Exchange of the Original Securities for the New Securities included the following significant changes:
(i) | Decreased the offering price under the Unit Purchase Agreement from $ per Unit to $ per Unit. Outstanding principal and accrued interest were used to purchase Units at the new per unit price. | |
(ii) | Extended the maturity date of the notes to December 21, 2023 for all existing notes. | |
(iii) | Decreased the conversion price from $2.25 per share to $1.75 per share for the New Units. | |
(iv) | Original Class C Warrants were exchanged for New Class C warrants with an exercise price of $2.25 per share (unchanged) and a five-year life measured from the date of the Exchange Agreement. The decrease in the Unit price also resulted in additional number of New Class C Warrants being issued in exchange for the Original Class C Warrants due to the 200% warrant coverage provided for in the Unit Purchase Agreement. |
The Company determined that the modificationsterms of Unit Purchase Agreementthe New Securities were not significant enough to be considered substantial, thereforesubstantially different from the valuesOriginal Securities, and, as such the exchange of original instruments issued were not adjusted. the Original Securities for the New Securities was accounted for as an extinguishment of debt on December 21, 2021, and the New Securities accounted for as a new debt issuance.
As a result of this substantial modification, the total of 469,978621,087 Units previously issued were replaced with an aggregate of 522,198832,022 pro-rata Units.
During the nine months ended September 30, 2022, the Company issued additional 7,315,138. Of the total Units issued: (i) Units were issued to settle notes payable assumed on acquisition of My Health Logic (see Note 4), (ii) Units were issued to settle accounts payable, and (iii) Units were issued in exchange for services rendered to the Company in the nine months ended September 30, 2022. units under the New Securities agreement for the gross proceeds of $
The Company determined that the optional and automatic conversion feature and the share redemption feature attached to the convertible notes meet the definition of derivative liabilities and that the detachable warrants issued do not meet the definition of a liability and therefore will be accounted for as an equity instrument.
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The initial $571,807fair value of the warrants issued in the nine months ended September 30, 2022, of $4,341,042 (December 31, 2021 - $4,299,649) and $391,648the fair value of derivative liabilities of $2,438,379issued (December 31, 2021 - $2,485,346) have been recorded as debt discount and are being amortized to interest and accretion expense using the effective interest method over the term of the Convertible Notes.
SCHEDULE OF CONVERTIBLE NOTES
September 30, 2021 | December 31, 2020 | |||||||
Convertible notes issued | $ | 1,174,945 | $ | - | ||||
Issuance costs | (105,745 | ) | - | |||||
Debt discount | (964,153 | ) | - | |||||
Debt accretion | 74,410 | - | ||||||
Convertible notes, net of debt discount | $ | 179,457 | $ | - |
During the three and nine months ended September 30, 2021,2022, the Company recognized interest and accretion expense of $70,221 805,849and $74,4101,622,730, respectively (September 30, 20202021 - $Nil 70,221and $Nil74,410), respectively) in the condensed consolidated statements of operations.
For the months ended September 30, 2022 and December 31, 2021, the Company had the following convertible notes, net of debt discount outstanding:
SCHEDULE OF CONVERTIBLE NOTES
Convertible Notes, Net of Debt Discount | ||||
Balance, December 31, 2021 | $ | 26,065 | ||
Convertible notes issued - new securities | 7,315,138 | |||
Issuance costs | (535,717 | ) | ||
Debt discount | (6,779,421 | ) | ||
Debt accretion | 1,622,730 | |||
Balance, September 30, 2022 | $ | 1,648,795 |
SCHEDULE OF CONVERTIBLE NOTES NET OF DEBT DISCOUNT
September 30, 2022 | December 31, 2021 | |||||||
Convertible notes - total principal | $ | 14,771,177 | $ | 7,482,104 | ||||
Unamortized issuance costs and discount | (13,122,382 | ) | (7,456,039 | ) | ||||
Convertible notes, net of debt discount | $ | 1,648,795 | $ | 26,065 |
Convertible Notes Terms
The Convertible Notes mature in 24 months from the initial closing date and accrue 10%10% of simple interest per annum on the outstanding principal amount.amount. The Convertible Notes principal and accrued interest can be converted at any time at the option of the holder at a conversion price of $1.75 per share (previously $2.25 per share (before the modification -September 2021 Amendment and originally $2.50 per share)the May Unit Purchase Agreement). In the event the Company consummates, while the Convertible Note is outstanding, an equity financing with a gross aggregate amount of securities sold of not less than $10,000,000 (“Qualified Financing”), then all outstanding principal, together with all unpaid accrued interest under the Convertible Notes, shall automatically convert into shares of the equity financing at the lesser of (i) 75% of the cash price per share paid in the financing and the conversion price of $2.251.75 per unit. The Convertible Notes are secured by a first priority security interest in all assets of the Company.
New Class C Warrants Terms
Class A
● | ||
Class B
Class C
Exercise price is the lower of (i) $2.25 per share, or (ii) the Automatic Conversion Price (the lesser of (i) 75% of the cash price per share paid by the other purchasers of next round securities in the Qualified Financing and (ii) the Conversion Price ($2.25, subject to Customary Antidilution Adjustments). | ||
● | Exercisable for a period of 5 years from issuance. | |
● | Warrant Coverage: 200%. |
NOTE 108 – STOCKHOLDERS’ EQUITY
a) Preferred stock
The Company is authorized to issue a total number of 2021,2022, and December 31, 2020,2021, there were shares of preferred stock issued or outstanding. shares of “blank check” preferred stock with a par value of $ . As of September 30,
b) Common stock
The Company is authorized to issue a total number of shares of common stock with a par value of $
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On August 1, 2022, the Board of Directors (the “Board”) of Marizyme approved a reverse stock split of the Company’s authorized and outstanding common stock at a ratio of 1-for-4. On August 3, 2022, the Company effected the reverse stock split by filing a Certificate of Change with the Secretary of State of the State of Nevada. As a result, the total number of shares of common stock held by each stockholder was converted automatically into the number of whole shares of common stock equal to the number of issued and outstanding shares of common stock held by such stockholder immediately prior to the reverse stock split, divided by four, subject to rounding of fractional shares. The Company expects that the reverse stock split will be reflected in the trading price of the common stock after the Financial Industry Regulatory Authority, Inc. (“FINRA”) completes its processing of the reverse stock split, which is expected to be the date on which the common stock is listed on the Nasdaq Capital Market tier operated by Nasdaq in the event that the Company’s listing application to Nasdaq is approved.
As a result of the reverse stock split, there are approximately shares of common stock outstanding, not including the shares of common stock included in the units that the Company expects to issue in this public offering or upon any exercise of the Over-Allotment Option or of any warrants included in the units issued to investors or of the representative’s warrant. No fractional shares have been or will be issued, and no cash or other consideration has been or will be paid. Instead, the Company issued one whole share of the post-reverse stock split common stock to any stockholder who otherwise would have received a fractional share as a result of the reverse stock split. The Company’s existing shareholders’ percentage ownership interests in the Company remains the same following the reverse stock split (subject to rounding of fractional shares).
As of September 30, 20212022, and December 31, 2020,2021, there were and 40,528,188 shares of common stock issued and outstanding. The company did not issue any common stock duringoutstanding, respectively. During the three and nine months ended September 30, 2021.2022, the Company issued shares of common stock for exercise of warrants.
c) Options
On January 13,May 18, 2021, the Company’s Board of Directors approved the Marizyme’sMarizyme, Inc. Amended and Restated 2021 Stock Incentive Plan (“SIP”). The SIP incorporates stock options issued prior to January 13,May 18, 2021. The SIP authorized options for issuance. As of September 30, 2021,2022, there remains options available for issuance.
During the nine months ended September 30, 2021,2022, the companyCompany granted (December 31, 20202021 – ) share purchase options to directors officers, employees, and consultants of the Company. The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option valuation model were as follows:
2021 | 2020 | |||||||
Risk-free interest rate | 0.69 | % | 0.93 | % | ||||
Volatility | 232.69 | % | 241.88 | % | ||||
Exercise price | $ | 1.25 | $ | 1.37 | ||||
Dividend yield | 0 | % | 0 | % | ||||
Forfeiture rate | 0 | % | 0 | % | ||||
Expected life (years) |
The Company recognizes forfeitures as they occur.
SCHEDULE OF STOCK OPTION ACTIVITY
Number of Options | Weighted Average Exercise Price | Weighted Average Contractual Life | Total Intrinsic Value | Number of Options | Weighted Average Exercise Price | Weighted Average Contractual Life | Total Intrinsic Value | |||||||||||||||||||||||||
Outstanding at December 31, 2019 | 2,715,000 | $ | 1.50 | $ | N/A | 1 | ||||||||||||||||||||||||||
Granted | 1,340,000 | 1.25 | ||||||||||||||||||||||||||||||
Exercised | (254,057 | ) | 1.02 | |||||||||||||||||||||||||||||
Outstanding at December 31, 2020 | 3,800,943 | $ | 1.36 | $ | 123,600 | 3,800,943 | $ | 1.36 | ||||||||||||||||||||||||
Granted | 732,500 | 1.25 | 1,532,500 | 1.51 | ||||||||||||||||||||||||||||
Forfeited | (760,626 | ) | 1.25 | (1,682,500 | ) | 1.36 | ||||||||||||||||||||||||||
Outstanding at September 30, 2021 | 3,772,817 | $ | 1.37 | $ | 97,850 | |||||||||||||||||||||||||||
Exercisable at September 30, 2021 | 3,074,476 | $ | 1.39 | $ | 97,850 | |||||||||||||||||||||||||||
Outstanding at December 31, 2021 | 3,650,943 | $ | 1.24 | $ | 1,951,117 | |||||||||||||||||||||||||||
Granted | 400,000 | 2.20 | - | |||||||||||||||||||||||||||||
Expired | (62,502 | ) | 1.25 | - | ||||||||||||||||||||||||||||
Forfeited | (62,498 | ) | 1.25 | - | ||||||||||||||||||||||||||||
Outstanding at September 30, 2022 | 3,925,943 | 1.33 | 2,344,489 | |||||||||||||||||||||||||||||
Exercisable at September 30, 2022 | 3,050,664 | $ | 1.17 | $ | 2,256,558 |
SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE
Exercise Price | Number of Options Outstanding | Number of Options Exercisable | Weighted Average Remaining Contractual Years | Intrinsic Value | ||||||||||||||
$ | 1.01 | 1,985,943 | 1,985,943 | $ | 1,767,489 | |||||||||||||
1.25 | 540,000 | 524,721 | 351,000 | |||||||||||||||
1.37 | 200,000 | 200,000 | 106,000 | |||||||||||||||
1.75 | 800,000 | 280,000 | 120,000 | |||||||||||||||
2.20 | 400,000 | 60,000 | - | |||||||||||||||
$ | 1.33 | 3,925,943 | 3,050,664 | $ | 2,344,489 |
d) Restricted Share Units
As of September 30, 2022, the Company determined that the following performance condition attached to the restricted share awards granted in the fiscal 2021 were more likely than not to have been achieved:
● | The Company will raise financing for the gross proceeds that equal or exceed $5,000,000, and | |
● | The Company will complete valuation reports for acquisition of Somah and My Health Logic. |
Therefore, compensation cost of $295,750 for the restricted share awards was recognized in stock-based compensation for the nine months ended September 30, 2022 (September 30, 2021 - $Nil).
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e) Warrants
The warrant activity for the periods presented is as follows:As of September 30, 2022 and December 31, 2021, there were 20,969,751 and 12,144,838 warrants outstanding, respectively.
Schedule of Options Outstanding and IssuedSCHEDULE OF WARRANTS OUTSTANDING
Number | Weighted Average Exercise Price | |||||||
December 30, 2019 | 113,637 | $ | 3.00 | |||||
Issued on Somah acquisition (Note 4) | 3,000,000 | 5.00 | ||||||
Issued | 280,014 | 1.38 | ||||||
December 30, 2020 | 3,393,651 | $ | 2.13 | |||||
Issued | 1,044,396 | 2.25 | ||||||
September 30, 2021 | 4,438,047 | $ | 2.16 |
Number | Weighted Average Price | |||||||
December 31, 2020 | 3,393,651 | $ | 4.63 | |||||
Issued pursuant to Unit Purchase Agreement | 8,521,187 | 2.25 | ||||||
Issued | 230,000 | 1.39 | ||||||
December 31, 2021 | 12,144,838 | $ | 2.90 | |||||
Issued pursuant to Unit Purchase Agreement | 8,360,152 | 2.25 | ||||||
Issued | 878,398 | 1.16 | ||||||
Exercised | (300,000 | ) | 0.01 | |||||
Expired | (113,637 | ) | 3.00 | |||||
September 30, 2022 | 20,969,751 | $ | 2.61 |
During the three and nine months ended September 30, 2021,2022, the Company issued the following:
On May 27, 2021,January 26 and February 14, 2022, in exchange for services of Mr. Richmond, the Company granted him warrants to purchase an aggregate shares of Marizyme’s common stock at an exercise price of $0.01 per share. The warrants issued had an average term of 5 years, vested immediately, and were fair valued at $568,677 and recorded in salary expense in the condensed consolidated statements of operations for the nine months ended September 30, 2022. On March 15, 2022, Mr. Richmond exercised warrants issued to him.
On June 26, 2022, the Company issued additional 347,039 warrants to Mr. Richmond and 231,359 warrants to Univest Securities, LLC to purchase an aggregate shares of Marizyme’s common stock at an exercise price of $1.75 per share. The warrants issued had an average term of 5 years, vested immediately, and were fair valued at $1,281,854, of which $769,113 was recorded in salary expense and $512,471 in professional fees in the condensed consolidated statements of operations for the nine months ended September 30, 2022.
In the nine months ended September 30, 2022, pursuant to the Unit Purchase Agreement (Note 9) the Company issued Class A Warrants for the purchasean aggregate of 29,9788,360,152 shares of common stock andadditional New Class B Warrants for the purchase of 29,978 shares of common stock. The Class AC warrants had a strikewith an exercise price of $3.132.25 per share and a term of five years. The Class B warrants had a strike price of $5.00 per share and a term of five years.
In July 2021 pursuant to the May Unit Purchase Agreement the Company issued Class A Warrants for 440,000 shares of common stock and Class B Warrants for 440,000 shares of common stock.
On September 29, 2021, pursuant to the modification to the Unit Purchase Agreement as described in Note 9, all Class A and Class B warrants were replaced with an aggregate of 1,044,396 pro-rata Class C warrants. The warrants have a strike price of 2.25 per share and a term of five years. The detachable warrants issued were accounted for as an equity instrument and were ascribed the fair market value of $571,807 using the residual fair value allocation method.
During the year end December 31, 2020, the Company issued the following:
On July 31, 2020, the Company completed the Somah Acquisition (Note 4) whereas shares of common stock and warrants were issued. The warrants have a strike price of $5.00 per share and a term of five years. The valuation of the warrants granted was completed in the six months ended June 30, 2021, and the fair market value was determined to be $ per share or $1,200,000.
On September 25, 2020, the Company issued two warrants for services. The warrants were to purchase for 168,008 and 112,006 shares with a strike price of $1.375 and a term of five years. The fair market value was determined to be $ per share or $152,249 and $101,500, respectively, or $253,749, collectively.
e)f) Stock-based compensation
During the three and nine monthmonths ended September 30, 2021,2022, the Company recorded $and $, respectively, in non-cash share-based compensation in the stock-based compensation line on the condensed consolidated statements of operations, respectively (September 30, 20202021 - $and $respectively). Additionally, the Company recognized $33,333of stock-based compensation on restricted common stock in the nine months ended September 30, 2021.
As of September 30, 2021, the Company had2022, there was $ of total unrecognized compensation cost related to non-vested stock-based compensation expense, whichawards. The unrecognized compensation cost is expected to be recognized over a weighted-averageweighted average period of years.
NOTE 119 – RELATED PARTY TRANSACTIONS
As at September 30, 2021,2022, the Company owed an aggregate of $638,530123,266 (December 31, 20202021 - $Nil1,132,634) to related parties of the Company. The majority of the balance was owed to Mr. Frank Maresca, a related party and shareholder of the Company, and comprised of the following:
The Company received consulting services from |
In the nine months ended September 30, 2022, the Company incurred and settled additional $133,797 in professional services rendered by related parties of the Company and settled $149,178 various expenses incurred by these parties in relation to their services rendered to the Company.
Additionally, as part of the Somah transactionacquisition in 2020, (Note 4), the Company recorded a prepaid royalty to the shareholders of Somahlution. The primary beneficial owner is Dr. Vithal Dhaduk, currently the Interim CEO, a director, and significant shareholder of the Company. As at September 30, 2021,2022, the companyCompany had $340,969339,091 in prepaid royalties (December 31, 20202021 - $344,321339,091) which had been classified as non-current in the condensed consolidationconsolidated balance sheets.
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NOTE 1210 – COMMITMENTS AND CONTINGENCIES
Legal Matters
The Interim CEOOn August 19, 2021, Dr. Neil Campbell, former President, Chief Executive Officer and director of Marizyme, Dr. Vithal D. Dhaduk, also,the Company, and Bruce Harmon, former Chief Financial Officer and Secretary of the Company, each filed a co-founder of Somahlution, LLCComplaint and Demand for Jury Trial against the Company and Insperity Peo Services, L.P., a Delaware limited partnership (“Dhaduk”), was the subject of a complaint filed in the United States District Court, Middle District of Pennsylvania, Civil Action No. 3:17 cv 02243 in December 2017 by Mukeshkkumar B. Patel (“Patel”Insperity”), a former business partnerjoint employer of Dhaduk, which complaint made claimsDr. Campbell and Mr. Harmon with the Company under a Client Service Agreement, dated November 30, 2020 (collectively, the “Campbell/Harmon Complaints”). Both Campbell/Harmon Complaints allege that the Company and Insperity violated Section 448.105 of breachthe Florida Private Whistleblower Act as a result of contract, promissory estoppelthe constructive terminations of Dr. Campbell and unjust enrichment regarding a MemorandumMr. Harmon after the occurrence of Understanding, dated July 16, 2015, between Patelviolations federal and Dhaduk (“MOU”). The MOU providedstate law, including federal securities law, at the Company that Dhaduk wouldexposed Dr. Campbell and Mr. Harmon to civil and criminal forms of liability and that the Company was not addressing to their satisfaction. Both Campbell/Harmon Complaints demand approximately $30,000 - $50,000 in back pay Patel $9,450,000and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costs and attorney’s fees, and such other relief as consideration for Patel’s agreement to, among other things, (i) exit certain legal entities that were purportedly jointly owned by certain affiliates of Dhaduk and Patel, including Somahlution LLC, and (ii) relinquish his ownership interests in such entities. On December 2, 2019, the court granted Patel’s motion for summary judgment on his breach of contract claim.
The complaint was settled between Dhaduk and Patel indeems equitable. In the nine months ended September 30, 2021,2022, both cases were dismissed with noprejudice and without any financial impact toon the Company.
Contingencies
a. | On July 13, 2019, the Company signed a consulting agreement, whereby the individual will receive: |
● | $30,000 per month through July 13, | |
● | Option to purchase | |
● | Royalties based on sales of Krillase assets, equal to 10% of net sales of the product. During the nine months ended September 30, |
b. | As part of the DuraGraft Acquisition, completed on July 31, 2020, |
Royalties on U.S. sales equal to:
● | 5% on the first $50,000,000 of net sales, | |
● | 4% on net sales of $50,000,001 up to $200,000,000, and | |
● | 2% on net sales over $200,000,000. |
Royalties on sales outside of the U.S.:
● | 6% on the first $50,000,000 of net sales, | |
● | 4% on net sales of $50,000,001 up to $200,000,000, and | |
● | 2% on net sales over $200,000,000. |
The royalties are in perpetuity. During the nine months ended September 30, 2022, the Company had not earned any revenues from Krillase and did not have any sales of the DuraGraft products in U.S., therefore no royalties have been accrued or paid in the period. Upon receiving FDA clearance for the Duragraft product, the Company will:
Risks and Uncertainties Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state in the United States. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact the Company’s business, operations and financial results. Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. As a result, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, including such authorities in Europe, which could result in delays of reviews and approvals. While there have been no specific notices of delay from federal or foreign government authorities, potential interruptions, delays, or changes to the operations of the FDA, or of any foreign authority with which the Company might interact, might impact the approval of any applications the Company plans and will need to file in the future. In addition, the Company is dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain manufacturers and suppliers. As a result, the Company has have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect its business and financial results. The spread of COVID-19 has also adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce the Company’s ability to access capital in the future, which could negatively affect its liquidity. If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, the Company’s business operations, including those of contract manufacturers, could be further delayed or interrupted. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect the Company’s ability to operate its business and result in additional costs. It is not possible to reliably measure or quantify the impact COVID-19 has had on the financial results of the Company. If the COVID-19 pandemic continues for an extended period, it may materially adversely impact business operations and, consequently, future financial results. NOTE
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion covers the three months and nine months ended September 30, 2022 and the subsequent period up to the date of issuance of this Quarterly Report on Form 10-Q. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31,
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended,
OVERVIEW
Marizyme is a multi-technology
We have incurred losses for each period from
Our Products DuraGraft® Through our acquisition of the Somah assets in July 2020, we acquired key intellectual products based on a patent protected cytoprotective platform technology designed to reduce ischemic injury to organs and tissues in grafting and transplantation surgeries. These assets include DuraGraft, a one-time intraoperative vascular graft treatment, that is able to protect endothelial cells from ischemic damage and reperfusion injury, and reduce complications associated with Vein Graft Failure, or VGF, post-CABG, thereby reducing major adverse cardiac events such as repeat revascularization and myocardial infarction, reducing incidence and complications of graft failure, and improving clinical outcomes. DuraGraft is an endothelial damage inhibitor, or EDI, indicated for cardiac bypass, peripheral bypass, and other vascular surgeries. It carries CE marking and is approved for marketing in 18 countries worldwide on three continents including, but not limited to, the European Union countries, such as Spain, Austria, and Germany, Switzerland, Philippines, Chile, and Turkey. Somah had also been focused on developing products to mitigate the effects of ischemia reperfusion injury in other grafting and transplantation surgeries and other indications in which ischemic injury can cause disease. Now, under our ownership, multiple products derived from the cytoprotective platform technology for several indications are under various stages of development. According to market analysis reports, the size of the coronary artery bypass graft (“CABG”) procedures market globally was approximately $16.7 billion as of 2020 (Expert Markets Research, 2020). This market is forecast to increase at a compound annual growth rate (“CAGR”) of 2.5% between 2021 and 2026 (Expert Markets Research, 2020). Globally, it is estimated that approximately 800,000 CABG procedures are performed each year (Grand View Research, March 2017), with procedures performed in the U.S. being a substantial percentage of the total global procedures performed. In the U.S., it is estimated that approximately 340,000 CABG surgeries are performed each year. The number of CABG procedures performed is predicted to decline at a rate of approximately 0.8% per year to less than 330,000 annually by 2026, primarily due to medical and technological advances in the use of percutaneous coronary intervention, also known as “angioplasty” (idata Research, September 2018). In 2020, the U.S. peripheral vascular device market size was valued at $7.1 billion, with over 8.26 million peripheral vascular procedures performed each year with an expected market size of $10.4 billion by 2026. The vascular device market size globally was valued at $11.9 billion in 2020 with more than 16 million yearly peripheral vascular procedures performed. The market size is expected to increase at a CAGR of 5.2% and reach $16.9 billion in 2026. (idata Research, 2020). For 2022, our main business priority is applying for FDA clearance of DuraGraft for CABG procedures through a De Novo classification request. We also plan to finalize the development of fat grafting procedures using DuraGraft for plastic surgery procedures in the U.S. It is reported that 22.4 million such surgeries take place annually in the U.S. (American Society of Plastic Surgeons, 2020). Following the FDA approval of DuraGraft, which we expect to obtain in 2023, we will seek to commercialize DuraGraft in the U.S. through the assistance of a strategic partner who will be responsible for marketing and sales. We will continue our DuraGraft marketing efforts in Europe relying on our DuraGraft CE marking and our distribution partners. We also intend to develop additional applications for the U.S. marketplace including, but not limited to, fat grafting for plastic surgery. The CE marking signifies that DuraGraft may be sold in the EEA and that DuraGraft has been assessed as meeting safety, health, and environmental protection requirements. We intend to strive for rapid revenue growth using multiple strategic partners and revenue channels. We expect that we will market DuraGraft internationally, through multiple distribution partners with a focus on sales to cardiac surgeons and cardiologists. We are currently working with local distributors of cardiovascular disease-related products, in accordance with local regulatory requirements, to sell and increase the market share of DuraGraft in Spain, Austria, Switzerland, Philippines, Germany, Chile, and Turkey. In the U.S., we intend to enter into a commercialization arrangement with a strategic partner who will be responsible for the marketing and sales of DuraGraft. If we are not able to find an appropriate strategic partner, we will have to build our own marketing and sales capabilities which we expect would be time consuming and costly. MATLOC 1 On December 22, 2021, we acquired My Health Logic, its lab-on-chip technology platform and its patient-centric, digital point-of-care screening device, MATLOC 1. The excitement over microfluidics, also known as lab-on-a-chip technology, lies in its potential for producing revolutionary, timely, accessible, and practical point-of-care devices; devices that are patient-centric (one-to-many, rather than doctor centric, one-to-one) and support self-care and independence. Microfluidics is a technology for analyzing small volumes of fluids, with the potential to miniaturize complex laboratory procedures onto a small microchip, hence the term “lab-on-chip”.
Marizyme’s lab-on-chip technology is currently being developed for screening and diagnosis related to the three leading biomarkers for chronic kidney disease (CKD), a disease estimated to affect 37 million Americans – or one out of every seven people (National Kidney Foundation, 2019). If left untreated, many patients will advance to end stage renal disease (ESRD), often leading to kidney transplant, renal failure, or dialysis. Since 90% of those with CKD do not know they have it, the risk of progression in the disease is high and this creates massive burdens for CKD patients and healthcare systems (National Kidney Foundation, 2019). CKD and ESRD costs the U.S. public healthcare systems hundreds of billions of dollars a year. In 2018 Medicare alone spent $130 billion on CKD and ESRD-related costs (National Kidney Foundation, 2019). With the increase of diabetics and hypertension cases in the U.S., which make up roughly two-thirds of all CKD patients (National Kidney Foundation, 2022), CKD related healthcare costs are expected to increase significantly. Compounding this development is the fact that less than 50% of diabetic patients, the highest at-risk group, are annually screened or tested for CKD (Mayo Clinic Proceedings, 2021). This creates an unmet need for point-of-care technologies that facilitate CKD screening and diagnosis, which further facilitates earlier screening and diagnosis and detection to slow down or eliminate the CKD progression. By combining lab-on-chip technology with Marizyme’s MATLOC 1 device, it will be able to quantitatively read the two urine biomarkers, albumin and creatine, necessary for effective CKD screening at point-of-care with results available instantly on a patient’s smartphone. MATLOC 2, the Company’s next-generation point-of-care device in development, is designed to provide a fully integrated, quantitative diagnostic assessment of estimated glomerular filtration rate, or eGFR, using a blood-based biomarker. eGFR is a key measure of kidney function health and/or stage of kidney disease and our MATLOC 2 device is designed to provide a fully integrated, complete diagnostic assessment for CKD, potentially eliminating the need for lab visits and in-person assessment. The COVID-19 pandemic has accelerated the ongoing transformation in healthcare. Connected consumer electronic devices are enabling 24/7 home-based digital healthcare. We believe that consumers have the desire and are now becoming empowered to manage their own healthcare and that they will seek to utilize our point-of-care MATLOC 1 device. With our lab-on-chip technology and MATLOC 1 device in development, we are striving to achieve earlier detection and slowing of the progression of CKD, allowing patients and healthcare systems to reduce the enormous costs of kidney failure, transplant, and/or dialysis. After completing the technology for CKD assessment, we plan to explore the commercial potential of other biomarkers for chronic diseases to be measured at point-of-care. MATLOC 1, upon FDA approval, which we anticipate but cannot guarantee, is expected to be marketed and sold through an experienced medical device distribution partner network with a focus on nephrologists in hospitals, ambulatory surgery centers and private practices, to better assess patients and slow the progression of CKD. Krillase Through our acquisition of ACB Holding AB in 2018, we acquired the Krillase technology, a protease therapeutic platform originally researched and evaluated in the European Union that has the potential for use in the treatment of chronic wounds and burns, and other clinical applications. Krillase, derived from Antarctic krill, shrimp-like crustaceans, is a combination of endo- and exopeptidases that safely and efficiently breaks down organic material. As a “biochemical knife,” Krillase can potentially break down organic matter, such as necrotic tissue, thrombogenic material, and biofilms produced by microorganisms. As such, it may be useful in the mitigation or treatment of multiple disease states in humans. For example, Krillase may promote faster healing, support the grafting of skin for the treatment of chronic wounds and burns, and reduce bacterial biofilms associated with poor oral health in humans and animals. We are currently focused on developing a Krillase-based product for the dissolving of plaque and biofilms on teeth for the pet health dental market. In addition, our Krillase platform team is planning a pet health study, and we expect that the results of this study may enable us to introduce our Krillase products into the pet health market in the United States. We believe that the U.S. pet health market presents a substantial opportunity for the marketing of our Krillase products. We expect to establish the first stream of revenue from the sale of Krillase-based pet health products in 2023.
Our strategic plan for Krillase is, first, to leverage and maximize near-term revenue generating opportunities with Krillase products for commercial or clinical applications with low regulatory risk, such as in the pet health market, and second, to develop products for applications of the Krillase platform that address unmet medical needs or address medical market needs better than existing products in the marketplace, in clinical applications with higher regulatory risk but significant commercial potential. Our Competitive Strengths We believe that the following competitive strengths will enable us to compete effectively:
Our Growth Strategies We will strive to grow our business by pursuing the following key growth strategies:
The strategic plans described above will require capital. We expect to raise a substantial portion of the required capital in our planned future offerings. There can be no assurances, however, that we will be able to raise the capital that we need to execute our plans or that capital, whether through securities offerings, either private or public, will be available to us on acceptable terms, if at all. An inability to raise sufficient funds could cause us to scale back our development and growth plans or discontinue them altogether.
KEY
In aggregate, the Company
Reverse Stock Split On August 1, 2022, the Board of Directors (the “Board”) of Marizyme approved a reverse stock split of the Company’s authorized and outstanding common stock at a ratio of 1-for-4. On August 3, 2022, the Company effected the reverse stock split by filing a Certificate of Change with the Secretary of State of the State of Nevada. As a result, the total number of shares of common stock held by each stockholder was converted automatically into the number of whole shares of common stock equal to the number of issued and outstanding shares of common stock held by such stockholder immediately prior to the reverse stock split, divided by four, subject to rounding of fractional shares. The Company expects that the reverse stock split will be reflected in the trading price of the common stock after the Financial Industry Regulatory Authority, Inc. (“FINRA”) completes its processing of the reverse stock split, which is expected to be the date on which the common stock is listed on the Nasdaq Capital Market tier operated by Nasdaq in the event that the Company’s listing application to Nasdaq is approved. As a result of the reverse stock split, there are approximately 10,207,212 shares of common stock outstanding, not including the shares of common stock included in the units that the Company expects to issue in this public offering or upon any exercise of the Over-Allotment Option or of any warrants included in the units issued to investors or of the representative’s warrant. No fractional shares have been or will be issued, and no cash or other consideration has been or will be paid. Instead, the Company issued one whole share of the post-reverse stock split common stock to any stockholder who otherwise would have received a fractional share as a result of the reverse stock split. The Company’s existing shareholders’ percentage ownership interests in the Company remains the same following the reverse stock split (subject to rounding of fractional shares).
As of November 14, 2022, the approval from Nasdaq is still pending and FINRA has not yet completed the processing of the reverse stock split for purposes of the trading price of the common stock. Operational
FINANCIAL OPERATIONS REVIEW
Component of Results of Operations
Revenue
Revenue represents gross product sales less service fees and product returns. For our Distribution Partner channel, we recognize revenue for product sales at the time of delivery of the product to our Distribution Partner. As our products have an expiration date, if a product expires, we will replace the product at no charge. Currently, all of our revenue is generated from the sale of DuraGraft in European and Asian markets where the product
Direct
Direct costs of revenue include primarily product costs, which include all costs directly related to the purchase of raw materials, charges from our contract manufacturing organizations, and manufacturing overhead costs, as well as shipping and distribution charges. Direct costs of revenue also include losses from excess, slow-moving or obsolete inventory and inventory purchase commitments, if any.
Professional fees include legal fees relating to intellectual property development, due diligence and corporate matters, and consulting fees for accounting, finance, and valuation services. Professional fees paid to a related party relate to certain consulting services - see Note 9 to the financial statements accompanying this report for further related party disclosures. We anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and
Salaries and Stock-Based Compensation
Salaries consists of compensation and related personnel costs. Stock-based compensation represents the fair value of equity-settled share awards on stock options and restricted share awards granted by the Company to its employees, officers, directors, and consultants. The fair value of awards is calculated using the Black-Scholes option pricing model, which considers the following factors: exercise price, current market price of the underlying shares, expected life, risk-free interest rate, expected volatility, dividend yield, and forfeiture rate.
Research and Development All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of Duragraft, and costs related to manufacturing Duragraft for clinical trials. The Company has entered into various research and development contracts with various organizations and other companies.
Depreciation and Amortization Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. Intangible assets acquired as a result of an acquisition or in a business combination are measured at fair value at the acquisition date. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the estimated useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis. Other General and Administrative Expenses
Other general and administrative expenses consist principally of marketing and selling expenses, facility costs, administrative and office expenses, director and officer insurance premiums, and investor relations costs associated with operating a public company.
Other Income
Other income
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2022 and 2021 The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:
Revenue We recognized revenue of approximately $0.08 million for the three months ended September 30, 2022 compared to approximately $0.04 million for the three months ended September 30, 2021. The increase in revenues was due to the impact of COVID-19 on the Company’s supply chain in fiscal 2021 and its ability to produce Duragraft inventory during 2021 and the resumption of production of the Company’s DuraGraft inventory and sales in Q2 2022. Direct Costs of Revenue The higher direct costs of revenue in the comparative Q3 2021 quarter was predominantly due to the COVID-19 interruptions to the Company’s supply chain and limited access to raw materials for DuraGraft product. During the three months ended September 30, 2022, our executive and management teams’ efforts to re-establish the Company’s business relationships with its trusted manufacturing and distribution partners, and the loosening of COVID-19 restrictions, led to a decrease in direct costs of revenue.
Professional Fees Professional fees decreased by approximately $0.2 million or 34% to approximately $0.3 million in Q3 2022 compared to approximately $0.5 million in Q3 2021. The decrease relates to higher professional fees incurred in the prior comparative period due to the acquisition of the Somah assets. Salary Expenses Salary expenses in Q3 2022 were approximately $0.3 million, an approximately $0.2 million or 36% decrease from the comparative period. The decrease in the cost is attributable to the restructuring in the prior comparative period as the Company restructured its executive and management teams in 2021. Research and Development Research and development expenses in Q3 2022, were approximately $0.7 million, an approximately $0.5 million or 193% increase from the comparative period. The increase in research and development expenses can be mainly attributed to the Company’s acquisition of MATLOC 1 assets in late 2021 and its focus on development and advancement of DuraGraft, Krillase, and MATLOC 1 towards commercialization. Stock-Based Compensation Stock-based compensation increased from approximately $0.06 million to approximately $0.27 million during the three months ended September 30, 2021 and 2022, respectively, a $0.21 million or 324% increase. The increase in stock-based compensation can be explained by am additional 400,000 stock options granted in 2022 and 350,000 restricted share awards granted in late 2021, which were fair valued significantly higher compared to the stock options granted and outstanding in the comparative period. This was due to a 58% increase in the Company’s stock price period over period to $1.90 as of September 30, 2022 from $1.20 as of September 30, 2021. Depreciation and Amortization Depreciation and amortization increased approximately $0.21 million or 324% in Q3 2022. The increase was due to the acquisition of My Health Logic in December 2021 and its intangible capital assets and acquisition of the Somah assets in July 2020 where key intellectual products were acquired. Other General and Administrative Expenses Other general and administrative expenses decreased approximately $0.02 million or 4% to approximately $0.47 million in Q3 2022. The majority of the expenses in Q3 2022 were due to the Company’s lower non-legal fees related to the filing of an amendment to a Registration Statement on Form S-1 in the period and preparation for the Company’s public offering compared to the higher general and administrative expenses in Q3 2021 from higher non-legal fees related to the acquisition of the Somah entities. Other Income (Expenses) In Q3 2022, the Company incurred approximately $0.8 million of interest and accretion costs associated with convertible notes issued at discount as part of its units private placement . Additionally, the Company recognized $1.5 million of fair value gain from mark-to-market adjustments on the contingent liabilities assumed on the acquisition of the Somah assets due to the change of the fair value of the contingent consideration.
Comparison of the Nine Months Ended September 30,
The following table summarizes our results of operations for the nine months ended September 30,
Revenue
We recognized revenue of
Direct Costs of Revenue
Professional Fees
Professional fees increased by
Salary Expenses
Salary expenses for the
Research and Development Research and development expenses for the nine months ended September 30, 2022 were approximately $3.3 million, an approximately $2.4 million or 276% increase from the comparative period. The increase in research and development expenses can be mainly attributed to the Company’s acquisition of MATLOC 1 assets in late 2021 and its focus on development and advancement of DuraGraft, Krillase, and MATLOC 1 towards commercialization. Stock-Based Compensation Stock-based compensation for the nine months ended September 30, 2022 increased by approximately $1.0 million or 166% to approximately $1.7 million if compared to the nine months ended September 30, 2021. The increase in stock-based compensation can be explained by an additional 400,000 stock options granted in 2022 and 350,000 restricted share awards granted in late 2021, which were fair valued significantly higher compared to the stock options granted and outstanding in the comparative period. This was due to a 58% increase in the Company’s stock price period over period to $1.90 as of September 30, 2022 from $1.20 as of September 30, 2021. Depreciation and Amortization Depreciation and amortization increased approximately $0.6 million or 10,690% in Q3 2022. The increase was due to the acquisition of My Health Logic in December 2021 and its intangible capital assets and acquisition of the Somah assets in July 2020 where key intellectual products were acquired. Other General and Administrative Expenses
Other general and administrative expenses increased
Other Income During the nine months ended September 30, Company’s units private placement. Additionally, the
nine months ended September 30, 2022. The
Public Offering On February 14, 2021, Marizyme filed a Registration Statement on Form S-1 to raise up to $17,250,000. As at the end of Q3 2022, the final prospectus had not yet been filed and the final amount of the offering will be dependent on market conditions. The proceeds from the offering will be used by the Company (i) to develop its DuraGraft, MATLOC, and Krillase platforms; (ii) to commercialize and produce its products, and (iii) for general working capital and other corporate purposes. Management anticipates that the offering will close in Q4 2022.
Funding Requirements and Other Liquidity Matters
Marizyme expects to continue to incur expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase as a result of the following operational and business development efforts:
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, the Company will continue to have to raise funds beyond its current working capital balance in order to finance future development of products, potential acquisitions, and meet its debt obligations until such time as future profitable revenues are achieved.
We expect to finance our cash needs through a combination of private and public equity offerings, debt financings, government or other third-party funding, and collaborations arrangements or acquisitions. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development or acquisition of product.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated:
Operating Activities
Net cash used in operating activities was approximately $9.3 million and approximately $4.3 million
Financing Activities
Net cash provided by financing activities for the nine months ended September 30,
Contractual Obligations and Commitments
Other than disclosed below, there were no material changes outside the ordinary course of our business during the nine months ended September 30,
Royalties and Other Commitments
Upon receiving the FDA
Lease Commitments The Company has entered into arrangements for office and laboratories spaces. As at September 30, 2022, minimum lease payments in relation to lease commitments were payable as outlined in Note 5 to the interim consolidated financial statements. Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a description of our critical accounting policies, please see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” contained in our
As
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We evaluated the effectiveness of our
Disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. A material weakness
To remediate the material weaknesses described above, in addition the measures that management has taken as described under “Changes in Internal Control Over Financial Reporting” below, management will continue to add controls to further enhance and revise the design of the existing controls including:
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We believe these measures will remediate the material weakness in internal control over financial reporting and disclosure controls and procedures described
Changes in Internal Control Over Financial Reporting As discussed above, the management is working on
During the nine months ended September 30, 2022, management of the Company will continue to work on addressing to remediate the material weaknesses in internal controls over financial reporting described above. PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. DeVito Litigation On June 7, 2022, Nicholas DeVito, a former Interim Chief Executive Officer and Interim Chief Financial Officer of the Company, filed a Complaint in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, Case No. 50-2022-CA-005437 (the “Florida Circuit Court”), against the Company (the “DeVito Complaint”). The DeVito Complaint claimed breach of contract, declaratory relief, specific performance, breach of an implied covenant of good faith and fair dealing, and unjust enrichment against the Company with respect to the Company’s alleged breach of the common stock issuance requirements of an Incentive Stock Option Agreement between Mr. DeVito and the Company, dated as of July 13, 2019 (the “DeVito ISO”). Under the DeVito ISO, on July 13, 2019, the Company granted an option to Mr. DeVito to purchase 125,000 shares of common stock at $4.04 per share, subject to certain vesting terms. The DeVito ISO provided that it would terminate twelve (12) months after the end of Mr. DeVito’s “Continuous Service,” which was not defined by the DeVito ISO. On August 27, 2020, as part of a Mutual Release of Claims Agreement between Mr. DeVito and the Company dated as of that date (the “DeVito Release”), the Company agreed to immediately vest the unvested portion of the DeVito ISO such that the DeVito ISO became fully vested, to pay Mr. DeVito $20,000 to add in the transition during the month of September 2020, and that Mr. DeVito would retain all of his rights under the DeVito ISO. Under the DeVito Release, Mr. DeVito agreed to step down from his positions as Interim Chief Executive Officer and Interim Chief Financial Officer on September 1, 2020, to assist Marizyme with its transition to a new Chief Executive Officer and Chief Financial Officer for the month of September 2020, and effective as of September 1, 2020 would no longer act as an officer of Marizyme in any capacity. The DeVito Release also recited that the Company requested that Mr. DeVito be available for additional consulting going forward as the needs of the business dictate. The DeVito Release also provided for a general mutual release of claims by the Company and Mr. DeVito apart from continuing employment obligations and corporate officer indemnification obligations of Marizyme. The DeVito Complaint alleged that Mr. DeVito continued his role as an advisor and consultant to the Company. Due to the Company’s alleged nonperformance of Mr. DeVito’s exercise rights under the DeVito ISO, the DeVito Complaint sought declaratory relief, specific performance, direct and consequential damages in an unspecified amount of more than $30,001.00, damages prescribed by the DeVito ISO, reasonable attorney’s fees and costs, prejudgment interest, and such other relief as the court deems equitable. On July 21, 2022, the Company filed a motion to dismiss the claims of declaratory relief, specific performance, and breach of an implied covenant of good faith and fair dealing in the DeVito Complaint. On August 3, 2022, Mr. DeVito filed an amended complaint without a hearing (the “Amended DeVito Complaint”). The Amended DeVito Complaint includes two claims, for breach of contract and unjust enrichment, and otherwise realleges substantially all of the factual allegations of the DeVito Complaint. On August 26, 2022, the Company filed an Answer to the Amended DeVito Complaint denying substantially all of the allegations. The Company is determining whether to file a counterclaim. As of November 2022, this case is pending. [NTD: Please confirm/update] Chandler Litigation On January 28, 2022, the Company filed a Complaint in the Florida Circuit Court, case number 50-2022-CA-000859-XXX-MB, against Amy Chandler (the “Chandler Complaint”). The Chandler Complaint sought damages for breach of fiduciary duty, breach of contract, negligence, conversion, and civil theft. The Chandler Complaint alleged that, prior to her resignation in September 2021, Ms. Chandler intentionally and recklessly took actions to cancel the CE certificate required by European Union regulations in order for Marizyme and its subsidiary, Somahlution, LLC, to ship and distribute certain products to/within the European Union. The Chandler Complaint also alleged that Ms. Chandler disregarded her fiduciary duty to Marizyme and responsibilities as the top regulatory and compliance official of Marizyme. As a result, the Chandler Complaint alleged that Ms. Chandler’s actions caused significant disruption and damage to Marizyme’s business, including, but not limited to, financial damages and damage to Marizyme’s reputation and business relationships. The Chandler Complaint further alleged that prior to her last day, Ms. Chandler stole confidential, proprietary files governing Marizyme’s quality management system, which related to internal business operations, and that Marizyme incurred significant costs to recreate these files. The Chandler Complaint alleged damages in excess of thirty thousand dollars ($30,000.00), exclusive of interest, attorneys’ fees, and costs.
On February 28, 2022, Ms. Chandler filed an Answer, Affirmative Defenses and Counterclaim with the Florida Circuit Court (the “Answer”). The Answer denied the claims in the Chandler Complaint and most of the factual allegations regarding Ms. Chandler’s alleged actions. The Answer also asserted a counterclaim against the Company for defamation per se. The Answer sought to recover monetary damages, attorneys’ fees, and court costs in connection with this litigation. The Answer also demanded a trial by jury on all triable issues. On March 18, 2022, the Company filed a Motion to Dismiss Ms. Chandler’s Counterclaim with the Florida Circuit Court (the “Motion to Dismiss”). The Motion to Dismiss stated that Ms. Chandler’s Counterclaim for defamation per se should be dismissed with prejudice. On July 13, 2022, the court ruled that the counterclaim of defamation was dismissed with prejudice. Ms. Chandler’s deposition is now scheduled for September 21, 2022. At that time, the Company’s counsel will attempt to obtain the admissions necessary to confirm Chandler’s liability and to potentially add James Sapirstein and his company, First Wave BioPharma, as defendants. In the coming months, the Company expects to retain a consultant to assist it with quantifying the substantial damages caused by Chandler’s actions. As of August 2022, the remaining matters under litigation in this case are pending. Campbell/Harmon Litigation On August 19, 2021, Dr. Neil Campbell, former President, Chief Executive Officer and director of the Company, and Bruce Harmon, former Chief Financial Officer and Secretary of the Company, each filed a Complaint and Demand for Jury Trial in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, case numbers No. 50-2021-CA-009938 and No. 50-2021-CA-009954, respectively, against the Company and Insperity Peo Services, L.P., a Delaware limited partnership (“Insperity”), a joint employer of Dr. Campbell and Mr. Harmon with the Company under a Client Service Agreement, dated November 30, 2020 (collectively, the “Campbell/Harmon Complaints”). Both Campbell/Harmon Complaints alleged that the Company and Insperity violated Section 448.105 of the Florida Private Whistleblower Act as a result of the constructive terminations of Dr. Campbell and Mr. Harmon after the occurrence of violations of federal and state law, including federal securities law, at the Company that exposed Dr. Campbell and Mr. Harmon to civil and criminal forms of liability and that the Company was not addressing to their satisfaction. Both of the Campbell/Harmon Complaints demanded approximately $30,000-$50,000 in back pay and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costs and attorney’s fees, and such other relief as the court deems equitable. Pursuant to a Joint Stipulation of Voluntary Dismissal With Prejudice filed in each of these cases, the arbitrator of these cases dismissed Dr. Campbell and Mr. Harmon’s actions with prejudice on April 18, 2022 and April 14, 2022, respectively, and the court subsequently dismissed Dr. Campbell and Mr. Harmon’s actions with prejudice on April 22, 2022 and April 14, 2022, respectively.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors disclosed in
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report or incorporated by reference:
* Filed herewith ** Furnished herewith SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
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