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 March 31,September 30, 2022
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number: 000-53223
MARIZYME, INC.
(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) |
(561) 935-9955
(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 May 16,November 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
| March 31, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| ASSETS: | ||||||||||||||||
| Current | ||||||||||||||||
| Cash | $ | 3,172,967 | $ | 4,072,339 | $ | 1,182,248 | $ | 4,072,339 | ||||||||
| Accounts receivable | 8,650 | 8,650 | 54,225 | 8,650 | ||||||||||||
| Other receivables | 20,806 | 41,307 | 14,134 | 41,307 | ||||||||||||
| Prepaid expense | 469,913 | 257,169 | ||||||||||||||
| Prepaid expenses | 839,818 | 257,169 | ||||||||||||||
| Inventory | 15,535 | 22,353 | 251,187 | 22,353 | ||||||||||||
| Total current assets | 3,687,871 | 4,401,818 | 2,341,612 | 4,401,818 | ||||||||||||
| Non-current | ||||||||||||||||
| Property, plant and equipment, net | 12,749 | 12,817 | 12,613 | 12,817 | ||||||||||||
| Operating lease right-of-use assets, net | 1,098,059 | 1,158,776 | 1,576,445 | 1,158,776 | ||||||||||||
| Intangible assets, net | 52,655,899 | 52,866,192 | 52,235,313 | 52,866,192 | ||||||||||||
| Prepaid royalties, non-current | 339,091 | 339,091 | 339,091 | 339,091 | ||||||||||||
| Deposits | 30,000 | 30,000 | 30,000 | 30,000 | ||||||||||||
| Goodwill | 7,190,656 | 7,190,656 | 7,190,656 | 7,190,656 | ||||||||||||
| Total non-current assets | 61,326,454 | 61,597,532 | 61,384,118 | 61,597,532 | ||||||||||||
| Total assets | $ | 65,014,325 | $ | 65,999,350 | $ | 63,725,730 | $ | 65,999,350 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
| Current | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 822,556 | $ | 1,596,147 | $ | 848,345 | $ | 1,596,147 | ||||||||
| Note payable | 284,918 | 127,798 | 213,563 | 127,798 | ||||||||||||
| Due to related parties | 271,371 | 1,132,634 | 123,266 | 1,132,634 | ||||||||||||
| Operating lease obligations | 277,142 | 277,142 | 420,913 | 277,142 | ||||||||||||
| Total current liabilities | 1,655,987 | 3,133,721 | 1,606,087 | 3,133,721 | ||||||||||||
| Non-current | ||||||||||||||||
| Operating lease obligations, net of current portion | 820,917 | 881,634 | 1,155,532 | 881,634 | ||||||||||||
| Note payable, net of current portion | - | 469,252 | - | 469,252 | ||||||||||||
| Convertible notes | 318,062 | 26,065 | 1,648,795 | 26,065 | ||||||||||||
| Derivative liabilities | 3,821,564 | 2,485,346 | 4,923,725 | 2,485,346 | ||||||||||||
| Contingent liabilities | 13,143,000 | 11,313,000 | 13,444,000 | 11,313,000 | ||||||||||||
| Total non-current liabilities | 18,103,543 | 15,175,297 | 21,172,052 | 15,175,297 | ||||||||||||
| Total liabilities | 19,759,530 | 18,309,018 | 22,778,139 | 18,309,018 | ||||||||||||
| Commitments and contingencies (Note 10) | - | - | - | - | ||||||||||||
| Stockholders’ equity: | ||||||||||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of March 31, 2022 and December 31, 2021 | - | - | ||||||||||||||
| Common stock, par value $, shares authorized, issued and outstanding shares - and at March 31, 2022 and December 31, 2021, respectively | 40,828 | 40,528 | ||||||||||||||
| 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 | 99,162,415 | 95,473,367 | 103,331,833 | 95,473,367 | ||||||||||||
| Accumulated deficit | (53,948,448 | ) | (47,823,563 | ) | (62,425,070 | ) | (47,823,563 | ) | ||||||||
| Total stockholders’ equity | 45,254,795 | 47,690,332 | 40,947,591 | 47,690,332 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 65,014,325 | $ | 65,999,350 | $ | 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 March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | $ | - | $ | 73,952 | $ | 76,012 | $ | 37,215 | $ | 137,821 | $ | 271,952 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Professional fees (includes related party amounts of $103,200, and $Nil, respectively) | 544,040 | 529,073 | ||||||||||||||||||||||
| 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 | 915,640 | 884,041 | 330,221 | 517,192 | 2,147,967 | 2,084,430 | ||||||||||||||||||
| Research and development | 1,218,296 | 391,504 | 708,220 | 241,748 | 3,297,986 | 877,936 | ||||||||||||||||||
| Stock-based compensation | 716,432 | 367,718 | 271,517 | 64,074 | 1,664,191 | 626,449 | ||||||||||||||||||
| Depreciation and amortization | 210,361 | 416,595 | 210,361 | 1,425 | 631,083 | 5,849 | ||||||||||||||||||
| Other general and administrative expenses | 390,572 | 295,572 | 469,656 | 489,820 | 1,478,726 | 944,248 | ||||||||||||||||||
| Total operating expenses | 3,995,341 | 2,884,503 | 2,309,052 | 1,792,993 | 10,967,960 | 6,152,335 | ||||||||||||||||||
| Total operating loss | (3,995,341 | ) | (2,810,551 | ) | $ | (2,233,040 | ) | $ | (1,755,778 | ) | $ | (10,830,139 | ) | $ | (5,880,383 | ) | ||||||||
| Other expense | ||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Interest and accretion expenses | (299,544 | ) | - | (810,598 | ) | (70,221 | ) | (1,640,368 | ) | (74,410 | ) | |||||||||||||
| Change in fair value of contingent liabilities | (1,830,000 | ) | - | 1,491,000 | 194,000 | (2,131,000 | ) | 472,000 | ||||||||||||||||
| Total other expense | (2,129,544 | ) | - | |||||||||||||||||||||
| Total other income (expense) | 680,402 | 123,779 | (3,771,368 | ) | 397,590 | |||||||||||||||||||
| Net loss | $ | (6,124,885 | ) | $ | (2,810,551 | ) | $ | (1,552,638 | ) | $ | (1,631,999 | ) | $ | (14,601,507 | ) | $ | (5,482,793 | ) | ||||||
| Loss per share – basic and diluted | $ | (0.15 | ) | $ | (0.08 | ) | $ | (0.04 | ) | $ | (0.05 | ) | $ | (0.36 | ) | $ | (0.15 | ) | ||||||
| Weighted average number of shares of common stock outstanding – basic and diluted | 40,628,188 | 35,928,188 | 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 March 31,September 30, 2022 and2021
(Unaudited)
| Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | $ | (36,825,634 | ) | $ | 45,287,628 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | $ | (36,825,634 | ) | $ | 45,287,628 | ||||||||||||||||||||
| Stock-based compensation expense | - | - | 334,385 | - | 334,385 | - | - | 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 | - | - | - | (2,810,551 | ) | (2,810,551 | ) | - | - | - | (1,631,999 | ) | (1,631,999 | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2021 | 35,928,188 | $ | 35,928 | $ | 82,411,719 | $ | (39,636,185 | ) | $ | 42,811,462 | ||||||||||||||||||||||||||||||
| 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’ | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 40,528,188 | $ | 40,528 | $ | 95,473,367 | $ | (47,823,563 | ) | $ | 47,690,332 | 40,528,188 | $ | 40,528 | $ | 95,473,367 | $ | (47,823,563 | ) | $ | 47,690,332 | ||||||||||||||||||||
| Stock-based compensation expense | - | - | 716,432 | - | 716,432 | - | - | 716,432 | - | 716,432 | ||||||||||||||||||||||||||||||
| Issuance warrants | - | - | 2,969,916 | - | 2,969,916 | |||||||||||||||||||||||||||||||||||
| Issuance of warrants | - | - | 2,969,916 | - | 2,969,916 | |||||||||||||||||||||||||||||||||||
| Exercise of warrants | 300,000 | 300 | 2,700 | - | 3,000 | 300,000 | 300 | 2,700 | - | 3,000 | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | (6,124,885 | ) | (6,124,885 | ) | - | - | - | (6,124,885 | ) | (6,124,885 | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2022 | 40,828,188 | $ | 40,828 | $ | 99,162,415 | $ | (53,948,448 | ) | $ | 45,254,795 | ||||||||||||||||||||||||||||||
| 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 Cash Flows
(Unaudited)
| 2022 | 2021 | |||||||||||||||
| Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net loss | $ | (6,124,885 | ) | $ | (2,810,551 | ) | $ | (14,601,507 | ) | $ | (5,482,793 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Depreciation and amortization | 210,361 | 416,595 | 631,083 | (76,013 | ) | |||||||||||
| Stock-based compensation | 716,432 | 334,385 | 1,664,191 | 593,116 | ||||||||||||
| Stock-based compensation - restricted common stock | - | 33,333 | - | 33,333 | ||||||||||||
| Interest and accretion on convertible notes and notes payable | 299,544 | - | 1,637,951 | 74,410 | ||||||||||||
| Issuance of warrants for services | 568,679 | - | 1,850,533 | - | ||||||||||||
| Change in fair value of contingent liabilities | 1,830,000 | - | 2,131,000 | (472,000 | ) | |||||||||||
| Change in operating assets and liabilities: | ||||||||||||||||
| Accounts and other receivable | 20,501 | 4,802 | ||||||||||||||
| Prepaid expense | (212,744 | ) | 43,290 | |||||||||||||
| Accounts and other receivables | (18,402 | ) | (55,706 | ) | ||||||||||||
| Prepaid expenses | (582,649 | ) | 38,057 | |||||||||||||
| Inventory | 6,818 | 11,700 | (228,834 | ) | 40,950 | |||||||||||
| Accounts payable and accrued expenses | (767,187 | ) | (98,584 | ) | (740,034 | ) | 721,078 | |||||||||
| Due to related parties | (861,263 | ) | - | (1,009,368 | ) | 272,530 | ||||||||||
| Net cash used in operating activities | (4,313,744 | ) | (2,065,030 | ) | (9,266,036 | ) | (4,313,038 | ) | ||||||||
| Cash flows used in investing activities: | ||||||||||||||||
| Purchase of intangible assets | - | (2,775 | ) | |||||||||||||
| Net cash used in investing activities | - | (2,775 | ) | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from convertible promissory notes, net of issuance cost | 3,411,372 | - | ||||||||||||||
| Shares issued for exercise of warrants | 3,000 | - | ||||||||||||||
| 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 | 3,414,372 | - | 6,375,945 | 1,426,949 | ||||||||||||
| Net change in cash | (899,372 | ) | (2,067,805 | ) | (2,890,091 | ) | (2,886,089 | ) | ||||||||
| Cash at beginning of period | 4,072,339 | 2,902,762 | 4,072,339 | 2,902,762 | ||||||||||||
| Cash at end of period | $ | 3,172,967 | $ | 834,957 | $ | 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 | $ | 1,336,218 | $ | - | $ | 2,438,379 | $ | 391,648 | ||||||||
| Warrants and debt discount issued in connection with convertible notes | $ | 2,401,237 | $ | - | $ | 4,341,042 | $ | 571,807 | ||||||||
| Settlement of notes payable with convertible notes | $ | 326,083 | $ | - | $ | 278,678 | $ | - | ||||||||
| Contingent liabilities | $ | - | $ | 9,926,000 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
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 accounting 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 $53,948,448 62,425,070at March 31,September 30, 2022 (December 31, 2021 - $47,823,563). Additionally, the Company has working capital of $2,031,884735,525 (December(December 31, 2021 - $1,268,097) and $3,172,9671,182,248 (December(December 31, 2021 - $4,072,339) of cash on 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 filingsfiling 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 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 offerings.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: My Health Logic Inc.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.
| 7 |
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 March 31, 2022 (the “2021 Form 10-K”). The condensed consolidated balance sheet as of December 31, 2021 was derived from audited consolidated financial statements included in the 2021 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 1 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 accounts and other receivable,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 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.
| 8 |
| 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 | |
| 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 – 20.6%. For the three and nine months ended | |
| 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 agreement. The following assumptions were used in the Black-Scholes option pricing model: risk free rate of 0.21%, expected volatility of78.93%, expected dividend of $0, and expected life of 5 years. No changes to the fair value of liquidation preference liability were recorded in the three and nine months ended |
The derivative liabilities consist of optional and automatic conversion features and the share redemption feature attached to the convertible notes, issued pursuant to the Unit Purchase Agreement (Note 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 at March 31,of 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 | |||||||||||||||||||||||
| March 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||
| September 30, 2022 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 3,821,564 | $ | - | $ | - | $ | 4,923,725 | ||||||||||||
| Contingent liabilities | - | - | 13,143,000 | - | - | 13,444,000 | ||||||||||||||||||
| Total | $ | - | $ | - | $ | 16,964,564 | $ | - | $ | - | $ | 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 | ||||||
| 9 |
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
| Derivative and Contingent Liabilities | ||||
| Balance at December 31, 2021 | $ | 13,798,346 | ||
| Change in fair value of contingent liabilities | 1,830,000 | |||
| Derivative liabilities issued pursuant to Unit Purchase Agreement | 1,336,218 | |||
| Balance at March 31, 2022 | $ | 16,964,564 | ||
The Company did not have any derivative or contingent liabilities in the three months ended March 31, 2021.
| 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 those 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.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 directors 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, we estimatethe 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. WeThe 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, we estimatethe Company estimates the grant date fair value using ourit’s closing stock price on the date of grant. We recognizeThe 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. We recognizeThe 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 our share-based awards vest.
Comparative Information
To conform with the current period’s financial statement presentation, the Company reclassified certain professional fees, salaries, rent and rentrepairs and maintenance expenses related to research and development activities for the periodthree and nine months ended March 31,September 30, 2021, into the research and development expenses line item on the Condensed Consolidated Statements of Operations. Such reclassifications were not considered material and did not have any effect on the Company’s net loss for the periodthree- and nine- month periods ended March 31,September 30, 2021.
NOTE 4 – ACQUISITION
My Health Logic Inc.
On November 1, 2021, Marizyme entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to which the Company would acquire all of the issued and outstanding common shares of My Health Logic, a wholly owned subsidiary of HLII, in exchange for common shares of Marizyme (the “Marizyme Shares”).
Marizyme is dedicated to the acceleration, development and commercialization of medical technologies that promote patient health, therefore a strategic decision was made to acquire My Health Logic, which havehas 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.
| 10 |
On December 22, 2021, Marizyme received the necessary regulatory, court and stock exchange approval to complete the acquisition of MHL 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 the total number of issued and outstanding Marizyme Shares (based on Marizyme Shares issued and 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 My 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 was 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, and the fair value, and the estimated useful life of identifiable assets and liabilities acquired, provided below, to change, the estimates surrounding the useful life of intangible assets acquired may differ from the initial values determined. As at March 31, 2022, those estimates remain preliminary. The change in useful life of the intangible assets will not have a material impact on the net loss for the periods ended March 31, 2022 and 2021. Additionally, the Company is in the process of finalizing the tax basis related to these intangible assets which is not final as of March 31,and 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 were as follows:
SCHEDULE OF PRELIMINARY ALLOCATION OF CONSIDERATION
| Consideration given up | ||||
| Common shares | $ | 7,774,000 | ||
| Total consideration given up | $ | 7,774,000 | ||
| Fair value of identifiable assets acquired, and liabilities assumed | ||||
| Net working deficit | $ | (613,156 | ) | |
| Property, plant, and equipment | 12,500 | |||
| Intangible assets | 6,600,000 | |||
| Goodwill | 1,774,656 | |||
| Total identifiable assets | $ | 7,774,000 |
As a result of the My Health Logic acquisition, wethe 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, wethe Company acquired ownership rights to MATLOC patents issued in the European Union, Canada, and the United States.
The intangible assets acquired include:
| ● | Trade name, with estimated remaining economic life of 14years, | |
| ● | Software, which enables customers to track and update their test results, with economic life of 15 years, and | |
| ● | Biotechnology intangible assets related to lab-on-chip technology, with estimated remaining economic life of 17 years. |
As part of the acquisition, Marizyme assumed an aggregate of $468,137in notes payable, the notes arewere unsecured, bearbore interest at a rate of 9% per annum and mature on August 12, 2022.with no maturity date. For the three and nine months ended March 31,September 30, 2022, Marizyme recognized $6,085 4,538 and $15,124of interest expense on the notes payable, (March 31,respectively (September 30, 2021 - $Nil and $)Nil, respectively). The Company settled an aggregate of $278,678of these notes payable as part of Unit Purchase Agreement issuances during the threenine months ended March 31,September 30, 2022 (Note 7). As at March 31,of September 30, 2022, balance of notesthe remaining note payable net of current portion was $204,525213,563 (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 37.5% was used in the fair value assumptions for the assembled workforce acquired.
Pro-forma revenue, net income /(loss)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 $10,800, 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 $12,000per 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 at March 31,of September 30, 2022, the remaining lease term was 4.17 3.83years. 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 March 31,September 30, 2022 and 2021 was approximately $110,900 103,291and $35,600324,544, respectively.respectively (September 30, 2021 - $77,357 and $168,769, respectively).
The following table summarizes supplemental balance sheet information related to the operating lease as of March 31,September 30, 2022, and December 31, 2021.2021:
SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITIES
| March 31, 2022 |
| December 31, 2021 | September 30, 2022 | December 31, 2021 | ||||||||||||
| Right-of-use asset | $ | 1,098,059 | $ | 1,158,776 | ||||||||||||
| Right-of-use assets | $ | 1,576,445 | $ | 1,158,776 | ||||||||||||
| Operating lease liabilities, current | $ | 277,142 | $ | 277,142 | $ | 420,913 | $ | 277,142 | ||||||||
| Operating lease liabilities, non-current | 820,917 | 881,634 | 1,155,532 | 881,634 | ||||||||||||
| Total operating lease liabilities | $ | 1,098,059 | $ | 1,158,776 | $ | 1,576,445 | $ | 1,158,776 | ||||||||
As at March 31,of September 30, 2022, the maturities of the lease liabilities for the periods ending December 31 are as follows:
SCHEDULE OF MATURITIES OF THE LEASE LIABILITIES
| 2022 | 207,857 | |||
| 2023 | 277,142 | |||
| 2024 | 277,142 | |||
| 2025 | 277,142 | |||
| Thereafter | 130,950 | |||
| Total lease payments | 1,170,233 | |||
| Less: present value discount | (72,174 | ) | ||
| Total | $ | 1,098,059 |
| 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 6 – 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, wound 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.
DuraGraft
As part of SomahlutionSomah acquisition in 2020, Marizyme purchased $18,170,000 of intangible assets related to the DuraGraft® technology.
| 12 |
My Health Logic
As part of My Health Logic acquisition (Note(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
| Intangible Assets | March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 | 122,745 | - | 122,745 | 122,745 | - | 122,745 | ||||||||||||||||||||||||||||||||||||
| DuraGraft patent | 5,256,000 | (673,845 | ) | 4,582,155 | 5,256,000 | (572,768 | ) | 4,683,232 | 5,256,000 | (875,999 | ) | 4,380,001 | 5,256,000 | (572,768 | ) | 4,683,232 | ||||||||||||||||||||||||||||||||
| Duragraft - Distributor relationship | 308,000 | (51,333 | ) | 256,667 | 308,000 | (43,633 | ) | 264,367 | 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 | 12,606,000 | - | 12,606,000 | 12,606,000 | - | 12,606,000 | ||||||||||||||||||||||||||||||||||||
| My Health Logic - Trade name | 450,000 | (8,840 | ) | 441,160 | 450,000 | (804 | ) | 449,196 | 450,000 | (24,911 | ) | 425,089 | 450,000 | (804 | ) | 449,196 | ||||||||||||||||||||||||||||||||
| My Health Logic - Biotechnology | 4,600,000 | (74,412 | ) | 4,525,588 | 4,600,000 | (6,765 | ) | 4,593,235 | 4,600,000 | (209,706 | ) | 4,390,294 | 4,600,000 | (6,765 | ) | 4,593,235 | ||||||||||||||||||||||||||||||||
| My Health Logic - Software | 1,550,000 | (28,416 | ) | 1,521,584 | 1,550,000 | (2,583 | ) | 1,547,417 | 1,550,000 | (80,083 | ) | 1,469,917 | 1,550,000 | (2,583 | ) | 1,547,417 | ||||||||||||||||||||||||||||||||
| Total intangibles | $ | 53,492,745 | $ | (836,846 | ) | $ | 52,655,899 | $ | 53,492,745 | $ | (626,553 | ) | $ | 52,866,192 | $ | 53,492,745 | $ | (1,257,432 | ) | $ | 52,235,313 | $ | 53,492,745 | $ | (626,553 | ) | $ | 52,866,192 | ||||||||||||||||||||
SCHEDULE OF GOODWILL
| DuraGraft | My Health Logic | Total | ||||||||||||||||||||||
| Goodwill | DuraGraft | My Health Logic | Total | |||||||||||||||||||||
| Balance, December 31, 2020 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| Additions on acquisitions | 5,416,000 | 1,774,656 | 7,190,656 | 5,416,000 | 1,774,656 | 7,190,656 | ||||||||||||||||||
| Impairment | - | - | - | - | - | |||||||||||||||||||
| Balance, December 31, 2021 and March 31, 2022 | $ | 5,416,000 | $ | 1,774,656 | $ | 7,190,656 | ||||||||||||||||||
| 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, 2020 | $ | 42,278,211 | $ | 42,278,211 | ||||
| Acquired in Somah Transaction | 4,022,271 | 4,022,271 | ||||||
| Acquired in My Health Logic Transaction | 6,600,000 | 6,600,000 | ||||||
| Additions | 2,775 | 2,775 | ||||||
| Amortization expense | (37,065 | ) | (37,065 | ) | ||||
| Balance, December 31, 2021 | $ | 52,866,192 | $ | 52,866,192 | ||||
| Amortization expense | (210,293 | ) | (630,879 | ) | ||||
| Balance, March 31, 2022 | $ | 52,655,899 | ||||||
| Balance, September 30, 2022 | $ | 52,235,313 | ||||||
Future amortizations for Duragraft and My Health Logic intangible assets for the next five years will be $841,172 for each year from 2023 through 2027 and $7,121,2926,700,706 for 2028 and thereafter. Amortization related to the Krillase product and in process research and development will be determined upon the Company achieving commercialization.
NOTE 7 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS
May 2021 Unit Purchase Agreement
On May 27, 2021, Marizyme entered into a 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 convertible into common stock of the Company, (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 Units at a price of $ per Unit for gross proceeds of $74,945, consisting of 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.
| 13 |
In July 2021, the Company issued and sold Units under the Unit Purchase Program for gross proceeds of $1,100,000. The Units included 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.
November September 2021 Amended Unit Purchase Agreement
On NovemberSeptember 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 which resulted in the following significant changes to the offering:
| (i) | Decreased the offering price under the Unit Purchase Agreement from $ per Unit to $ per Unit for all future sales under the Unit Purchase Agreement. No proceeds from the initial investment were returned. | |
| (ii) | Decreased the conversion price from $2.50per share to $2.25per share for all current Unit holders and all future | |
| (iii) | Cancelled all Class A Warrants and Class B Warrants and replaced them with Class C Warrants. |
On December 2, 2021, the Company issued and sold to new investors additional units for gross proceeds of $222,500. These units consisted of convertible notes in the aggregate principal amount of $222,500 and Class C Warrants for the purchase of shares of common stock.
December 2021 Unit Purchase Agreement
On December 21, 2021, the Company entered into a Unit Purchase Agreement (the “December UPA”) to sell up to Units at a price per unit of $. 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).
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 terms of the New Securities were substantially different from the Original Securities, and, as such the exchange of 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 621,087 Units previously issued were replaced with an aggregate of 832,022 pro-rata Units.
During the threenine months ended March 31,September 30, 2022, the Company issued additional units under the New Securities agreement for the gross proceeds of $4,008,6537,315,138. Of the total Units issued: (i) Units were issued to settle notes payable assumed on acquisition of My Health Logic (Note(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 threenine months ended March 31,September 30, 2022.
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.
| 14 |
The fair value of the warrants issued in the threenine months ended March 31,September 30, 2022, of $2,401,2374,341,042 (December 31, 2021 - $4,299,649) and the fair value of derivative liabilities of $1,336,2182,438,379 issued (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.
During the three and nine months ended March 31,September 30, 2022, the Company recognized interest and accretion expense of $291,997805,849 (March 31,and $1,622,730, respectively (September 30, 2021 - $Nil70,221) and $74,410, respectively) in the condensed consolidated statements of operations.
SCHEDULE OF CONVERTIBLE NOTES
| Convertible Notes, Net of Debt Discount | ||||
| Balance, December 31, 2021 | $ | 26,065 | ||
| Convertible notes issued - new securities | 4,008,653 | |||
| Issuance costs | (271,198 | ) | ||
| Debt discount | (3,737,455 | ) | ||
| Debt accretion | 291,997 | |||
| Balance, March 31, 2022 | $ | 318,062 | ||
As of March 31,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
| March 31, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||||||||||
| Convertible notes - total principal | $ | 11,464,692 | $ | 7,482,104 | $ | 14,771,177 | $ | 7,482,104 | ||||||||
| Unamortized issuance costs and discount | (11,146,630 | ) | (7,456,039 | ) | (13,122,382 | ) | (7,456,039 | ) | ||||||||
| Convertible notes, net of debt discount | $ | 318,062 | $ | 26,065 | $ | 1,648,795 | $ | 26,065 | ||||||||
Convertible Notes Terms
The Convertible Notes mature in 24 months from the initial closing date and accrue 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 the September 2021 Amendment and originally $2.50 per the May Unit Purchase Agreement).
The Convertible Notes issued or reissued in exchanged for the cancellation of previously-issued Convertible Notes from May 2021 until March 24, 2022 provide that in In the event the Company consummates, a qualified financing of at least $10 million of equity or equity equivalents, and provided that the Company is listed on a trading market that is a senior exchange such as Nasdaq or the New York Stock Exchange and the shares into whichwhile the Convertible Notes may be converted may be issued or resold underNote is outstanding, an effective registration statement,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, wouldConvertible Notes, shall automatically convert into shares of the equity financing at the lesser of (i) 75%75% of the cash price per share paid in the financing and the otherwise applicable conversion price. In addition, if at any time following the sixty (60) day anniversary of the final closing date or termination of this private placement, and if there is an effective registration statement permitting the issuance or resale of the shares of common stock into which the convertible notes may be converted, (A) the Company’s common stock is listed on a senior national securities exchange, (B) the daily volume-weighted average price for the prior twenty (20) consecutive trading days is $6.00 or more (adjusted for splits and similar distributions) and (C) the daily trading volume is at least $1,000,000 during such twenty (20)-day period, then the Company would have the right to require the convertible notes to convert all or any portion of the principal and accrued interest then remaining under the note into shares of common stock at the above conversion price in effect on the mandatory conversion date.
In addition, the Convertible Notes provide that more favorable terms under subsequent equity issuances will become part of the Convertible Notes. The Convertible Notes also include certain customary antidilution provisions and registration rights under a Registration Rights Agreement with the investors.
The Convertible Notes in our March 24, 2022 and subsequent closings were also modified to provide that upon the occurrence of certain qualified financings of $10 million or more as described above, such Convertible Notes would be voluntarily, not automatically, convertible at the lower of 75% of the price per equity security in such financing and the otherwise applicable conversion price. The conversion provision was also modified to remove the requirement that an effective registration statement allow for the issuance or resale of shares of common stock into which the convertible notes may be converted in order for the conversion price of the Convertible Notes to be subject to the reduction to 75% of the price$1.75 per equity security in a qualified financing.
unit. The Convertible Notes are secured by a first priority security interest in all assets of the Company. They also have certain registration requirements for the shares of common stock underlying the Convertible Notes upon the final closing under the unit purchase agreement between the Company and the investors in this private placement.
New Class C Warrants Terms
| ● | Exercise price is the lower of (i) $2.25per 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 | |
| ● | Exercisable for a period of 5 years from issuance. | |
| ● | Warrant Coverage: 200%. |
NOTE 8 – STOCKHOLDERS’ EQUITY
a) Preferred stock
The Company is authorized to issue a total number of shares of “blank check” preferred stock with a par value of $. As of March 31,September 30, 2022, and December 31, 2021, there were shares of preferred stock issued or outstanding.
b) Common stock
The Company is authorized to issue a total number of shares of common stock with a par value of $.
| 15 |
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 March 31,September 30, 2022, and December 31, 2021, there were and shares of common stock issued and outstanding, respectively. During the threenine months ended March 31,September 30, 2022, the Company issued shares of common stock for exercise of warrants.
c) Options
On May 18, 2021, ourthe Company’s Board of Directors approved the Marizyme, Inc. Amended and Restated 2021 Stock Incentive Plan (“SIP”), and our shareholders ratified it on September 20, 2021.. The SIP incorporates stock options issued prior to May 18, 2021. The SIP authorized options for issuance. As of March 31,September 30, 2022, there remains options available for issuance (December 31, 2021 – ).issuance.
During the threenine months ended March 31,September 30, 2022, the companyCompany granted (December (December 31, 2021 – ) share purchase options to directors officers, employees, and consultants of the Company.
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, 2020 | 3,800,943 | $ | 1.36 | 3,800,943 | $ | 1.36 | ||||||||||||||||||||||||||
| Granted | 1,532,500 | 1.51 | 1,532,500 | 1.51 | ||||||||||||||||||||||||||||
| Forfeited | (1,682,500 | ) | 1.36 | (1,682,500 | ) | 1.36 | ||||||||||||||||||||||||||
| Outstanding at December 31, 2021 | 3,650,943 | $ | 1.24 | $ | 1,951,117 | 3,650,943 | $ | 1.24 | $ | 1,951,117 | ||||||||||||||||||||||
| Granted/forfeited | - | |||||||||||||||||||||||||||||||
| Outstanding at March 31, 2022 | 3,650,943 | 1.24 | 2,571,777 | |||||||||||||||||||||||||||||
| Exercisable at March 31, 2022 | 2,561,023 | $ | 1.10 | $ | 2,160,932 | |||||||||||||||||||||||||||
| 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 | Exercise Price | Number of Options Outstanding | Number of Options Exercisable | Weighted Average Remaining Contractual Years | Intrinsic Value | 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 | $ | 1,846,927 | 1.01 | 1,985,943 | 1,985,943 | $ | 1,767,489 | ||||||||||||||||||||||||||
| 1.25 | 665,000 | 265,080 | 458,850 | 1.25 | 540,000 | 524,721 | 351,000 | |||||||||||||||||||||||||||||
| 1.37 | 200,000 | 190,000 | 114,000 | 1.37 | 200,000 | 200,000 | 106,000 | |||||||||||||||||||||||||||||
| 1.75 | 800,000 | 120,000 | 152,000 | 1.75 | 800,000 | 280,000 | 120,000 | |||||||||||||||||||||||||||||
| 2.20 | 400,000 | 60,000 | - | |||||||||||||||||||||||||||||||||
| $ | 1.24 | 3,650,943 | 2,561,023 | $ | 2,571,777 | 1.33 | 3,925,943 | 3,050,664 | $ | 2,344,489 | ||||||||||||||||||||||||||
d) Restricted Share Units
As of March 31,September 30, 2022, wethe Company determined that the following performance condition attached to the restricted share awards granted in the fiscal 2021 were more likely than not to behave 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 |
Therefore, compensation cost of $295,750for the restricted share awards was recognized in stock-based compensation for the periodnine months ended March 31,September 30, 2022 (March 31,(September 30, 2021 - $Nil).
| 16 |
e) Warrants
As of March 31,September 30, 2022 and December 31, 2021, there arewere 16,726,157 20,969,751and 12,144,838warrants outstanding, respectively.
SCHEDULE OF WARRANTS OUTSTANDING
| Number | Weighted Average Price | Number | Weighted Average Price | |||||||||||||
| December 31, 2020 | 3,393,651 | $ | 2.13 | 3,393,651 | $ | 4.63 | ||||||||||
| Issued pursuant to Unit Purchase Agreement | 8,521,187 | 2.25 | 8,521,187 | 2.25 | ||||||||||||
| Issued | 230,000 | 1.39 | 230,000 | 1.39 | ||||||||||||
| December 31, 2021 | 12,144,838 | $ | 2.20 | 12,144,838 | $ | 2.90 | ||||||||||
| Issued pursuant to Unit Purchase Agreement | 4,581,319 | 2.25 | 8,360,152 | 2.25 | ||||||||||||
| Issued | 300,000 | 0.01 | 878,398 | 1.16 | ||||||||||||
| Exercised | (300,000 | ) | 0.01 | (300,000 | ) | 0.01 | ||||||||||
| March 31, 2022 | 16,726,157 | $ | 2.21 | |||||||||||||
| Expired | (113,637 | ) | 3.00 | |||||||||||||
| September 30, 2022 | 20,969,751 | $ | 2.61 | |||||||||||||
During the threenine months ended March 31,September 30, 2022, the Company issued the following:
On January 26 and February 14, 2022, in exchange for services of Mr. Richmond, wethe 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 threenine months ended March 31,September 30, 2022. On March 15, 2022, Mr. Richmond exercised warrants issued to him.
On January 14, January 24June 26, 2022, the Company issued additional 347,039 warrants to Mr. Richmond and March 24,231,359 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 the Company issued an aggregate of 4,581,3198,360,152 additional New Class C warrants with an exercise price of $2.25 per share and a term of five years.
f)Stock-based compensation
During the three and nine months ended March 31,September 30, 2022, the Company recorded $ and $in non-cash share-based compensation (March 31,in the stock-based compensation line on the condensed consolidated statements of operations, respectively (September 30, 2021 - $ and $ respectively). As of September 30, 2022, there was $ of total unrecognized compensation cost related to non-vested stock-based compensation awards. The unrecognized compensation cost is expected to be recognized over a weighted average period of years.
NOTE 9 – RELATED PARTY TRANSACTIONS
As at March 31,September 30, 2022, the Company owed an aggregate of $271,371123,266 (December 31, 2021 - $1,132,634) to related parties of the Company. The fullmajority of the balance iswas owed to Mr. Frank Maresca, a related party and shareholder of the Company, and comprised of the following:
| ● | The Company received consulting services from Mr. Maresca and pursuant to the agreement incurred $ |
In the threenine months ended March 31,September 30, 2022, the Company incurred and settled additional $43,200133,797 in professional services rendered by related parties of the Company and settled $96,744149,178 in various Company-related expenses incurred by these parties.parties in relation to their services rendered to the Company.
Additionally, as part of the Somah acquisition in 2020, the Company recorded a prepaid royalty to the shareholders of Somahlution. The primary beneficial owner is Dr. Vithal Dhaduk, currently a director, and significant shareholder of the Company. As at March 31,September 30, 2022, the companyCompany had $339,091in prepaid royalties (December 31, 2021 - $339,091) which had been classified as non-current in the condensed consolidated balance sheets.
| 17 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal Matters
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 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 allege 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 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 Campbell/Harmon Complaints demand 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. We intend to vigorously defend against these claims. As of March 31, 2022, these cases were in arbitration. Subsequently toIn the quarter end, in Aprilnine months ended September 30, 2022, both cases were dismissed with prejudice and without any financial impact on the Company.
On January 28, 2022, we filed a Complaint in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida (the “Florida Circuit Court”), case number 50-2022-CA-000859-XXX-MB, against Amy Chandler (the “Chandler Complaint”). The Chandler Complaint seeks damages for breach of fiduciary duty, breach of contract, negligence, conversion, and civil theft. The Chandler Complaint alleged that, approximately two months before her resignation in September 2021, Ms. Chandler intentionally and recklessly took affirmative 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, and disregarded her fiduciary duty to Marizyme and responsibilities as its former Executive Vice President for Regulatory Affairs and Quality Management Systems. 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 were required for essential 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 a Answer, Affirmative Defenses and Counterclaim to Plaintiff’s Complaint with the Florida Circuit Court (the “Chandler Countercomplaint”). The Chandler Countercomplaint denied the claims in the Chandler Complaint and most of the factual allegations regarding her alleged actions. The Chandler Countercomplaint also included a counterclaim of defamation per se against the Company based on certain statements regarding this litigation that were included in the Registration Statement. As to the claims in the Chandler Complaint, the Chandler Countercomplaint demanded an award of attorneys’ fees and costs, court costs on all counts, and such further relief the court deems just and proper. As to the counterclaim of defamation, the Chandler Countercomplaint requested monetary damages, punitive damages, court costs, and any other relief the court deems just and proper. The Chandler Countercomplaint also demanded trial by jury on all triable issues.
On March 18, 2022, the Company filed a Motion to Dismiss Counterclaim with the Florida Circuit Court (the “Motion to Dismiss”). The Motion to Dismiss stated that the Chandler Countercomplaint for defamation per se should be dismissed with prejudice because the Company has not made any statements about Chandler outside the allegations in the Chandler Complaint. The Motion to Dismiss stated that the statements regarding this litigation that were included in the Registration Statement were as a matter of law not false because they all accurately reproduced the allegations in the Chandler Complaint and such statements were prefaced by the words “The Chandler Complaint alleged”. The Motion to Dismiss further stated that allegations in the litigation are subject to Florida’s litigation privilege and cannot serve as a basis for a defamation claim as a matter of law. As of [*], 2022, this case was pending.
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 shares of common stock at a strike price of $, which vest monthly through July 13, 2021. The vesting of these options was accelerated by the Board on September 2, 2020. | |
| ● | Royalties based on sales of Krillase assets, equal to 10% of net sales of the product. During the |
| b. | As part of the DuraGraft Acquisition, completed on July 31, 2020, the Company entered into the Agreement with Somah stockholders, whereby Marizyme is legally obligated to pay royalties on all net sales for |
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 threenine months ended March 31,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 approvalclearance for the Duragraft product, the Company will:
| ● | Issue performance warrants with a strike price determined based on the average of the closing prices of the Company’s common stock for the 30 calendar days following the date of the public announcement of the FDA approval; and | |
| ● | Upon liquidation of all or substantially all of the assets relating to DuraGraft, the Company will pay 15% of the net sale proceeds up to $20 million. |
| c. | The Company has entered into arrangements for office and laboratories spaces. As |
| 18 |
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 ourthe 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 wethe Company might interact, might impact the approval of any applications we planthe Company plans and will need to file in the future.
In addition, we arethe Company is dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers and suppliers. As a result, wethe Company has have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect ourits 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 ourthe Company’s ability to access capital in the future, which could negatively affect ourits liquidity.
If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, ourthe 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 ourthe Company’s ability to operate ourits 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 11 - SUBSEQUENT EVENTS
Effective April 1, 2022The Financial Industry Regulatory Authority, Inc. (“FINRA”) Staff has determined that certain securities previously received by each of Univest Securities, LLC (“Univest”) and Bradley Richmond, a registered representative of Univest, in connection with the following transactions with the Company has amended their leaseconstituted underwriting compensation in connection with the Company’s anticipated public offering pursuant to FINRA Rule 5110, based on the FINRA Staff’s interpretation of such rule: (a) the Company’s Units Private Placement conducted between May 2021 and August 2022, (b) the My Health Logic acquisition, (c) a consulting agreement for administrative office and laboratories currently leased to add additional space. The monthly cost of additional space is approximately $4,510 increasing to $8,682 on July 1, 2022 and continue to increase by 2.5% annually thereafter until the end of the term. The term of the lease remains unchanged.
Effective May 1, 2022,that the Company has leased additional laboratory space. The term of the lease isentered into with Mr. Richmond in September 2020, and (d) a stock option exercisable for years expiring on July 30, 2026. The monthly cost of laboratory space is approximately $3,757, increasing by 6% annually. Additionally, pursuant to the agreement, the Company will pay approximately $3,344 per month in operating expenses.
On May 11, 2022, the Company issued and sold to new investors additional units for gross proceeds of $1,306,485. These units consisted of convertible notes in the aggregate principal amount of $1,306,485 and Class C Warrants for the purchase of shares of common stock.stock received by Mr. Richmond from one of the Company’s former executives in March 2022. Consequently, each of Univest and Mr. Richmond, pursuant to a letter agreement entered into with the Company (the “October 2022 Letter Agreement”), has agreed to forego their rights, to an aggregate of shares of common stock beneficially owned by them collectively (including shares of common stock and shares of common stock issuable upon exercise and conversion of warrants, convertible notes and a stock option), which were issued pursuant to the transactions listed above, not accept the receipt of the aforementioned securities or undo or dispose of the aforementioned securities. Pursuant to the October 2022 Letter Agreement, the parties thereto agreed that the cancellation or disposal of the aforementioned securities shall be without recourse by either Univest or Mr. Richmond.
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, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).
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, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, research and development plans and costs, the impact of COVID-19, the timing and likelihood of regulatory filings and approvals, commercialization plans, pricing and reimbursement, the potential to develop future product candidates, the timing and likelihood of success of the plans and objectives of management for future operations, and future results of anticipated product development efforts, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described underin the Part II, Item 1A under the heading “Risk Factors” in our annual report on Form 10-K.Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
OVERVIEW
Marizyme is a multi-technology life sciencebiomedical company dedicated to the acceleration,accelerated development and commercialization of medical device technologies that promoteimprove patient health and present potential for rapid revenue growth.outcomes.
Key elements of our strategy include:
| ● | Advancing development of three medical technology platforms – DuraGraft, MATLOC and Krillase – each of which is | |
| ● | Advancing DuraGraft, our endothelial damage inhibitor, or | |
| ● | Progressing the development of Krillase |
We have incurred losses for each period from inception. Our net loss was approximately $6.1$1.6 million and $2.8$14.6 million for the three and nine months ended March 31,September 30, 2022, respectively ($1.6 million and $5.5 million for the three and nine month ended September 30, 2021, respectively.respectively). We expect to incur significant expenses and operating losses over the next several years. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity offerings, debt financings, government or other third-party funding, collaborations and licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would impact our ability to continue as a going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy.strategy and continue as a going concern. We will need to generate significant revenues to achieve profitability, and we may never do so.
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”.
| 21 |
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.
| 22 |
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:
| ● | Superior, first-in-class vascular graft storage and flushing solution. Management believes that the DuraGraft platform provides a significant and substantial competitive advantage over current methods. Having received CE marking in Europe, DuraGraft is certified for marketing in Europe as an endothelial damage inhibitor. | |
| ● | Early detection at point-of-care. Through our MATLOC platform, we plan to provide the ability to quantitatively screen and diagnose for CKD at point-of-care. We believe that the platform’s lab-on-chip technology’s low threshold of detection and sensitivity will enable earlier screening and diagnosis of CKD while the point-of-care capabilities of our MATLOC device(s) will allow for testing outside of a lab setting. | |
| ● | Superior dental cleaning method. Our Krillase platform could provide a significant and substantial competitive advantage by achieving superior pet dental cleaning through the reduction of plaque and tartar build up. |
Our Growth Strategies
We will strive to grow our business by pursuing the following key growth strategies:
| ● | Commercialize DuraGraft and related products. | |
| ● | Commercialize MATLOC 1 and related products. | |
| ● | Commercialize Krillase and related products. | |
| ● | Acquire more life science assets. |
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 Q1HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 HIGHLIGHTS
Financing
In 2021 and 2022, the Company offered up to 4,000,000 units (the “Units Offering”), comprised of convertible notes and warrants, with the intent to raise up to $10,000,000$17,000,000 on a rolling basis. CertainIn late 2021, due to the Company’s continuous growth and need for additional capital to sustain its operations and progress towards its goals, the Company amended certain terms and conditions of the Units Offering were amended and asOffering. As a result, during the year ended December 31, 2021, the Company issued an aggregate of 4,260,594 units for net proceeds of $6,692,765.result:
| ● | In 2021 the Company issued an aggregate of 4,260,594 units for gross proceeds of $7.4 million. | |
| ● | During the nine months ended September 30, 2022 the Company issued an additional 4,180,071 units for gross proceeds of $7.3 million. |
During Q1 2022,
In aggregate, the Company issued additional 2,290,659received $14.8 million in proceeds from the units for gross proceeds of $4,008,653.private placement . The proceeds from the Units Offering were used to settle certain debt obligations and will be used to sustain the Company’s growth and meet its capital obligations.
In 2021Reverse 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 enteredeffected 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 an agreement with an investor for an investmentthe number of $6,000,000. Pursuantwhole shares of common stock equal to the agreement,number of issued and outstanding shares of common stock held by such stockholder immediately prior to the investor agreedreverse stock split, divided by four, subject to uprounding 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 two additional closingsbe the date on which the common stock is listed on the Nasdaq Capital Market tier operated by Nasdaq in which it would invest (i) $2,000,000 uponthe event that the Company’s filinglisting 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 registration statement on Form S-1 withfractional share as a result of the SEC (filed on Februaryreverse 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).
| 23 |
As of November 14, 2022, the approval from Nasdaq is still pending and $2,000,000 were received as partFINRA has not yet completed the processing of the proceeds fromreverse stock split for purposes of the Units Offering in Q1 2022), and (ii) an additional $2,000,000 upontrading price of the Company’s responding in a satisfactory manner to the first round of SEC comments relating to the filed Form S-1 (no comments were received from SEC on the filed S-1 form). As of date of this 10-Q Form the second closing for $2,000,000 is in process of completion.common stock.
Operational
In 2021 Marizyme underwentundertook a corporate restructuring, whereby the key officers, directors, and management team changed in order to accelerate the Company’s progress toward meeting its key objectives and deliver on its strategy and to be in a better position to address certain material weaknesses in its disclosure controls and procedures and internal control over financial reporting.strategy. In Q1the nine months ended September 30, 2022, the executive and management team continued this process while also focusingwas focused on meeting and delivering on the Company’s objectives to commercialize its key products and advance in its search for more life science assets. However, as discussed in Part II—Other Information, Item 4. “ControlsAdditionally, the Board of Directors of the Company was increased to seven members and Procedures”, no further significant steps were taken to remediatea new Chair of the material deficiency in our disclosure controls and procedures and internal control over financial reporting during the three months ended March 31, 2022.Audit Committee was elected.
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 has the required regulatory approvals.
Direct Cost of Revenue
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
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 SEC requirements.
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 thosefor 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.
| 24 |
Professional Fees
Professional fees include legal fees relating to intellectual property development, due diligenceDepreciation and corporate matters, and consulting fees for accounting, finance, and valuation services. We anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with our application to be listed on the Nasdaq Capital Market tier of The Nasdaq Stock Market LLC and related ongoing stock exchange and SEC requirements.
Salaries and Stock-Based CompensationAmortization
Salaries consistsIntangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. Intangible assets acquired as a result of compensation and related personnel costs. Stock-based compensation represents thean acquisition or in a business combination are measured at fair value at the acquisition date. The useful lives of equity-settled share awardsintangible 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 stock options 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.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 ExpensesIncome (Expenses)
Other expenses consistincome (expenses) consists of mark to marketmark-to-market adjustments on contingent liabilities assumed on the acquisition of the SomahlutionSomah assets and interest and accretion expenses related to our convertible notes issued in an ongoing private placement since May 2021 pursuant to our Unit Purchase Agreement.the units private placement.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31,September 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31,September 30, 2022 and 2021:
| Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||
| Revenue | $ | - | $ | 73,952 | $ | (73,952 | ) | $ | 76,012 | $ | 37,215 | $ | 38,797 | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Professional fees | 544,040 | 529,073 | 14,967 | |||||||||||||||||||||
| Direct costs of revenue | 15,503 | 18,356 | (2,853 | ) | ||||||||||||||||||||
| Professional fees (includes related party amounts of $155,000 and $90,000, respectively) | 303,574 | 460,378 | (156,804 | ) | ||||||||||||||||||||
| Salary expenses | 915,640 | 884,041 | 31,599 | 330,221 | 517,192 | (186,971 | ) | |||||||||||||||||
| Research and development | 1,218,296 | 391,504 | 826,792 | 708,220 | 241,748 | 466,472 | ||||||||||||||||||
| Stock-based compensation | 716,432 | 367,718 | 348,714 | 271,517 | 64,074 | 207,443 | ||||||||||||||||||
| Depreciation and amortization | 210,361 | 416,595 | (206,234 | ) | 210,361 | 1,425 | 208,936 | |||||||||||||||||
| Other general and administrative expenses | 390,572 | 295,572 | 95,000 | 469,656 | 489,820 | (20,164 | ) | |||||||||||||||||
| Total operating expenses | 3,995,341 | 2,884,503 | 1,110,838 | 2,309,052 | 1,792,993 | 516,059 | ||||||||||||||||||
| Total operating loss | $ | (3,995,341 | ) | $ | (2,810,551 | ) | $ | (1,184,790 | ) | $ | (2,233,040 | ) | $ | (1,755,778 | ) | $ | (477,262 | ) | ||||||
| Other expenses: | ||||||||||||||||||||||||
| Interest and accretion expenses | (299,544 | ) | - | (299,544 | ) | |||||||||||||||||||
| Other income (expenses): | ||||||||||||||||||||||||
| Interest and accretion expense | (810,598 | ) | (70,221 | ) | (737,960 | ) | ||||||||||||||||||
| Change in fair value of contingent liabilities | (1,830,000 | ) | - | (1,830,000 | ) | 1,491,000 | 194,000 | 1,297,000 | ||||||||||||||||
| Net loss | $ | (6,124,885 | ) | $ | (2,810,551 | ) | $ | (3,314,334 | ) | $ | (1,552,638 | ) | $ | (1,631,999 | ) | $ | 81,778 | |||||||
Revenue
We recognized no revenue for the three months ended March 31, 2022 compared to $0.07of approximately $0.08 million for the three months ended March 31,September 30, 2022 compared to approximately $0.04 million for the three months ended September 30, 2021. NoThe increase in revenues were generated in Q1 2022was due to the impact of COVID-19 pandemic’s ongoing impact on the Company’s supply chain in fiscal 2021 and its lapsed ability to produce Duragraft inventory during 2021 and market Duragraft inventory. In Q1the 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, theour executive and management teams have been working on re-establishingteams’ efforts to re-establish the Company’s business relationships with its trusted manufacturing and distribution partners, and expect the productionloosening of Duragraft inventory and salesCOVID-19 restrictions, led to resumea decrease in Q2 2022.direct costs of revenue.
| 25 |
Professional Fees
Professional fees increaseddecreased by $0.01approximately $0.2 million or 3%34% to $0.54approximately $0.3 million for the quarter ended March 31,in Q3 2022 compared to $0.53approximately $0.5 million for the same period ended March 31,in Q3 2021. The spend remained relatively flat period over period -decrease relates to higher professional fees incurred in Q1 2022 can be attributedthe prior comparative period due to legal support with preparation and fillingthe acquisition of the Company’s Form S-1 filed with the SEC on February 14, 2022, and audit fees in connection with the audit of the 2021 Form 10-K.Somah assets.
Salary Expenses
Salary expenses for the quarter ended March 31,in Q3 2022 were $0.92approximately $0.3 million, a $0.03an approximately $0.2 million or 4% increase36% decrease from the comparative period. The increasedecrease in salarythe cost is attributable to the restructuring and growth ofin the organizationprior comparative period as the Company continued to restructurerestructured its executive and management teams and seek to expand into new markets and work towards commercialization of DuraGraft in the United States.2021.
Research and Development
Research and development expenses for the quarter ended March 31,in Q3 2022, were $1.22approximately $0.7 million, a $0.83an approximately $0.5 million or 211%193% increase from the comparative period. The increase in research and development expenses can be mainly attributed to its expanded research and development program due the Company’s acquisition of the MATLOC 1 assets in late 2021 and its focus on development and advancement of its other products – DuraGraft, Krillase, and Krillase –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 increaseddecreased 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.
| 26 |
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | $ | 137,821 | $ | 271,952 | $ | (134,131 | ) | |||||
| Operating expenses: | ||||||||||||
| Direct costs of revenue | 26,528 | 168,419 | (141,891 | ) | ||||||||
| Professional fees (includes related party amounts of $422,000 and $180,000, respectively) | 1,721,479 | 1,445,004 | 276,475 | |||||||||
| Salary expenses | 2,147,967 | 2,084,430 | 63,537 | |||||||||
| Research and development | 3,297,986 | 877,936 | 2,420,050 | |||||||||
| Stock-based compensation | 1,664,191 | 626,449 | 1,037,742 | |||||||||
| Depreciation and amortization | 631,083 | 5,849 | 625,234 | |||||||||
| Other general and administrative expenses | 1,478,726 | 944,248 | 534,478 | |||||||||
| Total operating expenses | 10,967,960 | 6,152,335 | 4,815,625 | |||||||||
| Total operating loss | $ | (10,830,139 | ) | $ | (5,880,383 | ) | $ | (4,949,756 | ) | |||
| Other income (expenses): | ||||||||||||
| Interest and accretion expense | (1,640,368 | ) | (74,410 | ) | (1,563,541 | ) | ||||||
| Change in fair value of contingent liabilities | (2,131,000 | ) | 472,000 | (2,603,000 | ) | |||||||
| Net loss | $ | (14,601,507 | ) | $ | (5,482,793 | ) | $ | (9,116,297 | ) | |||
Revenue
We recognized revenue of approximately $0.1 million for the nine months ended September 30, 2022 compared to approximately $0.3 million for the nine months ended September 30, 2021. No revenue was generated in Q1 2022 due to the impact of COVID-19 on the Company’s supply chain in fiscal 2021 and its ability to produce DuraGraft inventory. As the result of the Company’s executive and management teams’ efforts to re-establish the Company’s business relationships with its trusted manufacturing and distribution partners, the production of DuraGraft inventory and sales resumed in Q2 2022 and continued into Q3 2022.
Direct Costs of Revenue
Direct costs of revenue decreased by approximately $0.1 million or 32%84% to $0.39approximately $0.03 million for the nine months ended September 30, 2022. This was predominantly due to fewer units of DuraGraft product produced in the current period because of the shortage of raw materials as a result of COVID-19.
Professional Fees
Professional fees increased by approximately $0.3 million or 19% to approximately $1.7 million for the nine months ended September 30, 2022 compared to approximately $1.4 million for the comparative period ended September 30, 2021. The increase in professional fees can be attributed to legal support with preparation and filing of the Company’s amendment to its Registration Statement on Form S-1 with the SEC, audit fees in connection with the audit of the 2021 Form 10-K, and compensation costs incurred in connection with closings of the Company’s units private placement financing. Related party professional fees increased by approximately $0.2 million or 134% to approximately $0.4 million from approximately $0.2 million during the third quarter of 2022 compared to the third quarter of 2021 because the Company retained additional consulting services in order to advance development of its medical technologies.
Salary Expenses
Salary expenses for the nine months ended September 30, 2022, were approximately $2.1 million, an approximately $0.1 million or 3% increase from the comparative period. The increase in the salary cost is attributable to the restructuring and growth of the organization as the Company continues to expand into new markets and work towards commercialization of DuraGraft in the United States.
| 27 |
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 approximately $0.5 million or 57% to approximately $1.5 million in the threenine months ended March 31,September 30, 2022. The increase was due to the Company’s non-legal fees related to the filing of an amendment to a Registration Statement on Form S-1, preparation for the Company’s Form S-1 filed withpublic offering, increased rent due to the SEC on February 14, 2022, preparation toward its anticipated public offering,lease of additional office and laboratory space, and expenses associated with running a public company.company, during the nine-month period ended September 30, 2022. Due to the planned continued buildout of administrative and commercial functions we expect general and administrative expenses to increase in future periods.
Other ExpensesIncome (Expenses)
During the quarternine months ended March 31,September 30, 2022, the Company incurred $0.30approximately $1.6 million of interest and accretion costs associated with convertible notes issued at discount as part of the Units Offering agreements.Company’s units private placement. Additionally, the Company recognized $1.83approximately $2.1 million of fair value loss from mark to marketmark-to-market adjustments on the contingent liabilities assumed on the acquisition of Somah due to the change of the fair value of the contingent consideration.
LIQUIDUTYLIQUIDITY AND CAPITAL RESOURCES
To date, we have incurred significant net losses and negative cash flows from operations. As of March 31,September 30, 2022, we had available cash of $3,172,967approximately $1.2 million and an accumulated deficit of $53,948,448.approximately $62 million. We fund our operations through capital raises.
Units Private Placements
Placement
Unit Purchase Agreement
During the threenine months ended March 31,September 30, 2022, the Company issued an additional 2,290,6594,180,071 units underin its Unit Purchase Agreementunits private placement for the gross proceeds of $4,008,653.approximately $7.3 million. Of the total 2,290,659 Units4,180,071 units issued: (i) 159,245 Unitsunits were issued to settle notes payable assumed on acquisition of My Health Logic, (ii) 22,857 Unitsunits were issued to settle accounts payable, and 171,428 Unitsunits were issued in exchange for services rendered to the Company in the threenine months ended March 31,September 30, 2022. The remaining proceeds from this offering will be used to sustain the Company’s growth and meet its capital obligations.
Public Offering
On February 14, 2021, Marizyme filed a registrationRegistration Statement on Form S-1 with the SEC with intention to raise up to an estimated $15,000,000, or $17,250,000 including$17,250,000. As at the underwriter’s over-allotment option.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.
| 28 |
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:
| ● | Increase our expertise and knowledge through hiring and retaining qualified operational, financial and management personnel, who will build efficient infrastructure to support development and commercialization of therapies and | |
| ● | Increase in research and development and legal expenses as we continue to develop our products, conduct clinical trials and pursue FDA | |
| ● | Expand our product portfolio through the identification and acquisition of additional life science | |
| ● | Seek to increase awareness about our products to boost sales and distributions internationally. |
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. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated:
| Three Months Ended March 31, | ||||||||||||
| 2022 | 2021 | $ Change | ||||||||||
| Net Cash provided by/(used in): | ||||||||||||
| Operating activities | $ | (4,313,744 | ) | $ | (2,065,030 | ) | $ | (2,248,714 | ) | |||
| Investing activities | - | (2,775 | ) | 2,775 | ||||||||
| Financing activities | 3,414,372 | - | 3,414,372 | |||||||||
| Net increase/(decrease) in cash | $ | (899,372 | ) | $ | (2,067,805 | ) | $ | 1,168,433 | ||||
| Nine Months Ended September 30, | ||||||||||||
| 2022 | 2021 | $ Change | ||||||||||
| Net cash provided by/(used in): | ||||||||||||
| Operating activities | $ | (9,266,036 | ) | $ | (4,313,038 | ) | $ | (4,952,998 | ) | |||
| Financing activities | 6,375,945 | 1,426,949 | 4,948,996 | |||||||||
| Net change in cash | $ | (2,890,091 | ) | $ | (2,886,089 | ) | $ | (4,002 | ) | |||
Operating Activities
Net cash used in operating activities was approximately $4.31$9.3 million and $2.07approximately $4.3 million forin the threenine months ended March 31,September 30, 2022 and 2021, respectively. The net cash used in operating activities forduring the threenine months ended March 31,September 30, 2022 was due to approximately $0.54$1.7 million spent on professional fees, $0.92approximately $2.1 million spent on salaries and related compensation expenses and $1.22approximately $3.3 million spent on research and development activities.activities . The increase in net case usedchange in operating activitiesassets and liabilities primarily related to a $1.63approximately $0.4 million spent on the manufacturing of DuraGraft product in the period and an approximately $1.8 million increase in accounts payable, accrued expenses, and amounts due to related parties in support of the growth of our research and development and other operating activities.
| 29 |
Financing Activities
Net cash provided by financing activities for the threenine months ended March 31,September 30, 2022 was due to $3.74approximately $6.5 million of funds raised from the issuance of convertible promissory notes pursuant toin the Unit Purchase Agreement. TheCompany’s units private placement, net of issuance costs. During the nine months ended September 30, 2022, the Company also settledrepaid notes payable an aggregate of $0.33approximately $0.1 million in notes payable as part of the Unit Purchase agreementunits private placement issuances duringand repaid approximately $0.1 million in notes payable assumed on the three months ended March 31, 2022.acquisition of My Health Logic.
Contractual Obligations and Commitments
Other than disclosed below, there were no material changes outside the ordinary course of our business during the threenine months ended March 31,September 30, 2022 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Form 10-K.
Royalties and Other Commitments
Upon receiving the FDA approval clearance for the DuraGraft and other key intellectual products, the Company will:
| ● | Grant performance warrants to | |
| ● | Pay royalties on all net sales of the product acquired from Somah of 6% on the first $50 million of international net sales (and 5% on the first $50 million of U.S. net sales), 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million; | |
| ● | Pay 10% of cash value of the rare pediatric voucher sales following the FDA | |
| ● | Grant of rare pediatric voucher warrants to purchase an aggregate of 250,000 commons shares with a term of five years and a strike price determined based on the average of the closing prices of the common shares for the 30 calendar days following the date of the public announcement of FDA | |
| ● | Pay a liquidation preference, up to a maximum of $20 million upon the sale by the Company of all or substantially all of the assets relating to the Somah products. Upon the sale of either or both of the DuraGraft or Somah derived solid organ transplant products, the Company will pay 15% of the net sale proceeds towards the liquidation preference maximum amount. |
Lease Commitments
The Company has entered into arrangements for office and laboratories spaces. As of March 31,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 included with this report.statements.
Recent Developments
Effective April 1, 2022 the Company has amended its lease agreement for administrative office and laboratories currently leased to add additional space. The monthly cost of additional space is approximately $4,510 increasing to $8,682 on July 1, 2022 and continue to increase by 2.5% annually thereafter until the end of the term. The term of the lease remains unchanged.
In addition, effective May 1, 2022, the Company has leased additional laboratory space. The term of the lease is for 4.3 years expiring on July 30, 2026. The monthly cost of laboratory space is approximately $3,757, increasing by 6% annually. Additionally, pursuant to the agreement, the Company will pay approximately $3,344 per month in operating expenses.
On May 11, 2022, the Company issued and sold to new investors 746,563 additional units for gross proceeds of $1,306,485. These units consisted of convertible notes in the aggregate principal amount of $1,306,485 and Class C Warrants for the purchase of 1,493,126 shares of common stock.
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 2021 Form 10-K. There have not been any material changes to the critical accounting policies discussed therein during the threenine months ended March 31,September 30, 2022.
Off-Balance Sheet Arrangements
As of March 31,September 30, 2022, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this quarterly report, with the participation, and under the supervision, of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO concluded that as of March 31,September 30, 2022, our disclosure controls and procedures were ineffective due to the material weakness described below.
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 in disclosure controls and procedures includes a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As previously reported in our annual report on Form 10-K for the year ended December 31, 2021, management concluded that, as of such date, our disclosure controls and procedures were not effective due to the existence of a material weakness in the design and operating effectiveness of internal controls related to inadequate internal technical staffing levels and lack of board or management oversight. In connection with our preparation of our interim condensed consolidated financial statements for the three and nine months ended March 31, 2021,September 30, 2022, we identified a material weaknessweaknesses in our disclosure controls and procedures due to the material weaknessweaknesses in internal control over financial reporting related to the following:
| ● | We did not maintain a sufficient complement of internal personnel with appropriate knowledge, experience and/or training commensurate with our financial reporting requirements. We relied on outside consulting technical experts and did not maintain adequate internal qualified personnel to properly supervise and review the information provided by the outside consulting technical experts to ensure certain significant complex transactions and technical matters were properly accounted for. | |
| ● | In addition, we did not have proper segregation of duties in certain areas of our financial reporting process. The areas where we had a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. | |
| ● | We did not have adequate policies and procedures in place to ensure the timely, effective review of assumptions used in measuring the fair value of certain financial instruments. We did not have adequate policies and procedures in place to ensure the timely, effective review of compliance with contractual covenants in certain financial instruments, and | |
| ● | We did not have an independent audit committee to oversee the financial reporting processes and reporting. |
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:
| ● | Establishing policies and procedures to ensure timely review, by qualified personnel, of assumptions used in measuring fair value of certain financial instruments. | |
| ● | Reassessing the design and operation of internal controls over financial reporting and review procedures over the preparation of our financial statements. | |
| ● | Hiring permanent accounting personnel and | |
| ● | Maintaining adequate internal qualified personnel to properly supervise and review the information provided by the outside consulting technical experts to ensure certain significant complex transactions and technical matters were properly accounted for. |
We believe these measures will remediate the material weakness in internal control over financial reporting and disclosure controls and procedures described above by the second quarter of 2022.above.
| 31 |
Changes in Internal Control Over Financial Reporting
As discussed above, the management is working on remediating the material weakness in internal control over financial reporting identified above, but dueabove. In the nine months ended September 30, 2022, the Company took the following steps in order to improve its internal controls over financial reporting:
| ● | The Board of Directors of the Company was increased to seven members, | |
| ● | A new Chair of the Audit Committee was appointed and the Board determined the new Chair to be an “audit committee financial expert” as defined under Item 407(d)(5)(ii) and (iii) of Regulation S-K, | |
| ● | The Company retained the services of multiple financial consultants, who provide their advice and expertise in audit, valuation, and financial reporting services. |
During the corporate restructuring and multiple changesnine months ended September 30, 2022, management of the Company will continue to our officers and management team, no significant steps have been takenwork on addressing to remediate the material deficiencyweaknesses in our internal controlcontrols over financial reporting during the three months ended March 31, 2022.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. Other than the legal proceedings described below, we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
DeVito Litigation
On August 19, 2021, Dr. Neil Campbell,June 7, 2022, Nicholas DeVito, a former President,Interim Chief Executive Officer and directorInterim Chief Financial Officer of the Company, and Bruce Harmon, former Chief Financial Officer and Secretary of the Company, each filed a Complaint and Demand for Jury Trial 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 allege 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 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 Campbell/Harmon Complaints demand 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. We intend to vigorously defend against these claims. As of March 31, 2022, these cases were in arbitration. Subsequently to the quarter end, in April 2022, both cases were dismissed with prejudice and without any financial impact on the Company.
On January 28, 2022, we 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 seekssought damages for breach of fiduciary duty, breach of contract, negligence, conversion, and civil theft. The Chandler Complaint alleged that, approximately two months beforeprior to her resignation in September 2021, Ms. Chandler intentionally and recklessly took affirmative 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, andUnion. The Chandler Complaint also alleged that Ms. Chandler disregarded her fiduciary duty to Marizyme and responsibilities as its former Executive Vice President for Regulatory Affairsthe top regulatory and Quality Management Systems.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 were required for essentialrelated 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.
| 32 |
On February 28, 2022, Ms. Chandler filed aan Answer, Affirmative Defenses and Counterclaim to Plaintiff’s Complaint with the Florida Circuit Court (the “Chandler Countercomplaint”“Answer”). The Chandler CountercomplaintAnswer denied the claims in the Chandler Complaint and most of the factual allegations regarding herMs. Chandler’s alleged actions. The Chandler CountercomplaintAnswer also includedasserted a counterclaim of defamation per se against the Company based on certain statements regarding this litigation that were included in the Registration Statement. Asfor defamation per se. The Answer sought to the claims in the Chandler Complaint, the Chandler Countercomplaint demanded an award ofrecover monetary damages, attorneys’ fees, and costs, court costs on all counts, and such further relief the court deems just and proper. As to the counterclaim of defamation, the Chandler Countercomplaint requested monetary damages, punitive damages, court costs, and any other relief the court deems just and proper.in connection with this litigation. The Chandler CountercomplaintAnswer 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 the Chandler CountercomplaintMs. Chandler’s Counterclaim for defamation per se should be dismissed with prejudice becauseprejudice. 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 has not made any statements about Chandler outsideexpects to retain a consultant to assist it with quantifying the allegationssubstantial 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 Chandler Complaint. The Motion to Dismiss statedCircuit 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 statements regarding this litigation that were included inCompany and Insperity violated Section 448.105 of the Registration Statement wereFlorida Private Whistleblower Act as a matterresult 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 false because they all accurately reproducedaddressing to their satisfaction. Both of the allegationsCampbell/Harmon Complaints demanded approximately $30,000-$50,000 in the Chandler Complaintback pay and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costs and attorney’s fees, and such statements were prefaced byother relief as the words “The Chandler Complaint alleged”. The Motioncourt deems equitable.
Pursuant to Dismiss further stated that allegationsa Joint Stipulation of Voluntary Dismissal With Prejudice filed in each of these cases, the litigation are subject to Florida’s litigation privilegearbitrator of these cases dismissed Dr. Campbell and cannot serve as a basis for a defamation claim as a matter of law. As of [*],Mr. Harmon’s actions with prejudice on April 18, 2022 this case was pending.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.
Not applicable.There have been no material changes to the risk factors disclosed in the 2021 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three-month period ended March 31,September 30, 2022, we did not conduct any unregistered sales of our equity securities that were not previously disclosed in a current report ofon Form 8-K and we did not repurchase any of our common stock, other than as described below.
On January 13, 2022, we conducted an additional closing of our unit private placement, in which we sold to a consultant 22,857 units at a price of $1.75 per unit in exchange for services, the units consisting of convertible notes in the aggregate principal amount of $40,000 and Class C warrants for the purchase of 45,714 shares of our common stock.
On January 24, 2022, we conducted an additional closing of our unit private placement, in which we sold to two investors a total of 159,245 units at a price of $1.75 per unit in exchange for the assumption, cancellation, and conversion of principal notes of our subsidiary My Health Logic, the units consisting of convertible notes in the aggregate principal amount of $278,678 and Class C warrants for the purchase of 218,490 shares of our common stock.
On January 24, 2022, we conducted an additional closing of our unit private placement, in which we sold to the representative and its designee Bradley Richmond a total of 171,429 units at a price of $1.75 per unit in exchange for services, the units consisting of convertible notes in the aggregate principal amount of $300,000 and Class C warrants for the purchase of 342,857 shares of our common stock.
On March 24, 2022, we conducted an additional closing of the unit private placement in which we issued a number of investors a total of 1,937,129 units at a price of $1.75 per unit for a total cash payment of $3,389,975, of which we received $3,118,777 after placement agent fees. The units consist of Convertible Notes in the aggregate principal amount of $3,389,975 and Class C Warrants for the purchase of 3,874,257 shares of common stock. The Convertible Notes in this and subsequent closings were also modified to provide that upon the occurrence of certain qualified financings of $10 million or more as described above, such Convertible Notes would be voluntarily, not automatically, convertible at the lower of 75% of the price per equity security in such financing and the otherwise applicable conversion price. The conversion provision was also modified to remove the requirement that an effective registration statement allow for the issuance or resale of shares of common stock into which the convertible notes may be converted in order for the conversion price of the Convertible Notes to be subject to the reduction to 75% of the price per equity security in a qualified financing.
The Company engaged Univest Securities, LLC as the Company’s placement agent for this private placement. The Company paid Univest a cash placement fee equal to 8.0% of the gross proceeds from the sale of the units and will pay Univest 8.0% of the gross proceeds from the exercise of the Class C warrants. In addition, in exchange for a $100 payment by Univest, the Company has agreed to issue warrants to Univest to purchase an aggregate of 8.0% of the total number of shares of common stock issuable upon conversion of the convertible notes issued in the private placement, with an exercise price equal to $1.75. These warrants, which may be exercised on a cashless basis, will be exercisable starting on the final closing date of this offering and will be exercisable for a period of five years from that date.
All of the securities issued in the private placement were sold pursuant to an exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
| 33 |
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report or incorporated by reference:
* Filed herewith
** Furnished herewith
+ Indicates management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: | MARIZYME, INC. | |
| /s/ David Barthel | ||
| Name: | David Barthel | |
| Title: | Chief Executive Officer | |
(Principal Executive Officer) | ||
| /s/ George Kovalyov | ||
| Name: | George Kovalyov | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) |