UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,March 31, 20222023
☐ 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 (Address of principal executive offices) (Zip Code) |
(561)935-9955
(Registrant’s telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☐ | Large accelerated filer | ☐ | Accelerated filer |
| ☒ | Non-accelerated filer | ☒ | Smaller reporting company |
| ☐ | Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable. |
As of November 14, 2022,May 15, 2023, the registrant had shares of common stock ($0.001 par value) outstanding.
Note Regarding Presentation of Capitalization in this Report
Unless indicated otherwise, all share amounts, share price amounts and amounts derived from share amounts and share price amounts contained in this report do not give effect to: (i) the filing of a Certificate of Change Pursuant to Nevada Revised Statutes (“NRS”) 78.209 (the “First Certificate of Change”) with the Secretary of State of the State of Nevada (the “Nevada Secretary of State”) on August 3, 2022, which provided for a decrease of the registrant’s authorized common stock from 75,000,000 shares to 18,750,000 shares and corresponding decrease of every four (4) shares of the registrant’s issued and outstanding shares of common stock into one (1) share (the “First Reverse Stock Split”), and which became effective upon filing (the “First Certificate of Change Effective Time”); (ii) the filing of a Certificate of Change Pursuant to NRS 78.209 (the “Second Certificate of Change”) with the Nevada Secretary of State on January 5, 2023, which provided for a decrease of the registrant’s authorized common stock from 75,000,000 shares to 20,000,000 shares and a corresponding change of every three-and-three-quarters (3.75) shares of the registrant’s issued and outstanding shares of common stock to one (1) share (the “Second Reverse Stock Split”), and which became effective upon filing (the “Second Certificate of Change Effective Time”); (iii) the filing of a Certificate of Change Pursuant to NRS 78.209 (the “Third Certificate of Change”) with the Nevada Secretary of State on January 13, 2023, which provided for the increase of the registrant’s authorized common stock from 20,000,000 shares to 75,000,000 shares and the corresponding increase of every issued and outstanding share of the registrant’s common stock to three-and-three-quarters (3.75) shares (the “First Forward Stock Split”), and which became effective at 4:45 PM Pacific Time on January 17, 2023 (the “Third Certificate of Change Effective Time”); (iv) the filing of a Certificate of Change Pursuant to NRS 78.209 (the “Fourth Certificate of Change”) with the Nevada Secretary of State on January 13, 2023, which provided for the increase of the registrant’s authorized common stock from 75,000,000 shares to 300,000,000 shares and the corresponding increase of every issued and outstanding share of the registrant’s common stock to three-and-three-quarters (3.75) shares (the “Second Forward Stock Split”), and which became effective at 5:00 PM Pacific Time on January 17, 2023 (the “Fourth Certificate of Change Effective Time”); and (v) the filing of a Certificate of Change Pursuant to NRS 78.209 (the “Fifth Certificate of Change”) with the Nevada Secretary of State on January 13, 2023, which provided for the decrease of the registrant’s authorized common stock from 300,000,000 to 20,000,000 and the corresponding change of every fifteen (15) shares of the registrant’s issued and outstanding common stock to one (1) share (the “Consolidated Reverse Stock Split”), and became effective at 5:15 PM Pacific Time on January 17, 2023 (the “Fifth Certificate of Change Effective Time”).
This report gives effect to the Company’s filing of a Certificate of Amendment Pursuant to NRS 78.380 & 78.390 (the “Certificate of Amendment”) with the Nevada Secretary of State on December 30, 2022, which provided for the increase of the number of authorized shares of the registrant’s common stock from 18,750,000 shares of common stock to 75,000,000 shares of common stock, on a post-First Reverse Stock Split basis (the “Authorized Capital Increase”), and which became effective at the time of such filing, 11:00 AM Pacific Time, on the same date (the “Certificate of Amendment Effective Time”).
The processing of the Consolidated Reverse Stock Split on the number of shares held by each stockholder according to transfer agent or brokerage firm records and the reported price of the registrant’s common stock will occur at the time that the Consolidated Reverse Stock Split is announced by the Financial Industry Regulatory Authority, Inc. (“FINRA”) on its Daily List in accordance with FINRA Rule 6490 (the “Public Adjustment Time”), which will be subject to the completion of FINRA’s issuer corporate action processing requirements. The outcome of this matter had not been determined as of the date of this report. Assuming that FINRA processes the Consolidated Reverse Stock Split, at the time of the Public Adjustment Time, the number of shares of the registrant’s common stock held by each stockholder as reflected in the records of the registrant’s transfer agent or the stockholder’s brokerage firm records will be reduced by 1,500% to reflect the processing of the Consolidated Reverse Stock Split. At market open the following trading day, the price of the registrant’s common stock will reflect a 1,500% increase as a result of the processing of the Consolidated Reverse Stock Split. The registrant also intends to file a Current Report on Form 8-K reporting FINRA’s announcement of the Consolidated Reverse Stock Split and related material matters.
No fractional shares will be issued, and no cash or scrip will be paid in connection with the First Reverse Stock Split, the Second Reverse Stock Split, the First Forward Stock Split, the Second Forward Stock Split, or the Consolidated Reverse Stock Split. One whole share of the registrant’s common stock is issuable to any stockholder who would otherwise receive a fractional share pursuant to the First Certificate of Change or the Second Certificate of Change. No fractional shares were anticipated to become issuable pursuant to the Third Certificate of Change, the Fourth Certificate of Change, or the Fifth Certificate of Change. At the Public Adjustment Time, certain stockholders whose shares of the registrant’s common stock are converted at the Consolidated Reverse Stock Split ratio may receive one fewer whole share in lieu of fractional shares than such stockholders would have received in lieu of fractional shares from the separate rounding at different effective dates and times of post-split fractional shares provided for by the First Certificate of Change and Second Certificate of Change as compared to the adjustment to shares held by such stockholders at the time of the Public Adjustment Time. Following the Public Adjustment Time, any claim to an additional whole share issuable pursuant to the First Certificate of Change and the Second Certificate of Change of any stockholder will be addressed on a case-by-case basis upon receipt of a written notice of such claim submitted by the stockholder with supporting documentation to the registrant at the following address: Attn: Secretary, Marizyme, Inc., 555 Heritage Drive, Suite 205, Jupiter, Florida 33458.
MARIZYME, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARIZYME, INC.
Condensed Consolidated Balance Sheets
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS: | ||||||||
| Current | ||||||||
| Cash | $ | 1,182,248 | $ | 4,072,339 | ||||
| Accounts receivable | 54,225 | 8,650 | ||||||
| Other receivables | 14,134 | 41,307 | ||||||
| Prepaid expenses | 839,818 | 257,169 | ||||||
| Inventory | 251,187 | 22,353 | ||||||
| Total current assets | 2,341,612 | 4,401,818 | ||||||
| Non-current | ||||||||
| Property, plant and equipment, net | 12,613 | 12,817 | ||||||
| Operating lease right-of-use assets, net | 1,576,445 | 1,158,776 | ||||||
| Intangible assets, net | 52,235,313 | 52,866,192 | ||||||
| Prepaid royalties, non-current | 339,091 | 339,091 | ||||||
| Deposits | 30,000 | 30,000 | ||||||
| Goodwill | 7,190,656 | 7,190,656 | ||||||
| Total non-current assets | 61,384,118 | 61,597,532 | ||||||
| Total assets | $ | 63,725,730 | $ | 65,999,350 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current | ||||||||
| Accounts payable and accrued expenses | $ | 848,345 | $ | 1,596,147 | ||||
| Note payable | 213,563 | 127,798 | ||||||
| Due to related parties | 123,266 | 1,132,634 | ||||||
| Operating lease obligations | 420,913 | 277,142 | ||||||
| Total current liabilities | 1,606,087 | 3,133,721 | ||||||
| Non-current | ||||||||
| Operating lease obligations, net of current portion | 1,155,532 | 881,634 | ||||||
| Note payable, net of current portion | - | 469,252 | ||||||
| Convertible notes | 1,648,795 | 26,065 | ||||||
| Derivative liabilities | 4,923,725 | 2,485,346 | ||||||
| Contingent liabilities | 13,444,000 | 11,313,000 | ||||||
| Total non-current liabilities | 21,172,052 | 15,175,297 | ||||||
| Total liabilities | 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 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 | 103,331,833 | 95,473,367 | ||||||
| Accumulated deficit | (62,425,070 | ) | (47,823,563 | ) | ||||
| Total stockholders’ equity | 40,947,591 | 47,690,332 | ||||||
| Total liabilities and stockholders’ equity | $ | 63,725,730 | $ | 65,999,350 | ||||
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS: | ||||||||
| Current | ||||||||
| Cash | $ | 329,805 | $ | 510,865 | ||||
| Accounts receivable | 78,169 | 87,801 | ||||||
| Other receivables | 35,226 | 15,310 | ||||||
| Prepaid expenses | 1,259,230 | 1,125,761 | ||||||
| Inventory | 176,527 | 215,566 | ||||||
| Total current assets | 1,878,957 | 1,955,303 | ||||||
| Non-current | ||||||||
| Property, plant and equipment, net | 12,500 | 12,545 | ||||||
| Operating lease right-of-use assets, net | 1,390,042 | 1,485,023 | ||||||
| Intangible assets, net | 27,464,727 | 27,675,020 | ||||||
| Prepaid royalties, non-current | 302,908 | 339,091 | ||||||
| Deposits | 30,000 | 30,000 | ||||||
| Goodwill | 7,190,656 | 7,190,656 | ||||||
| Total non-current assets | 36,390,833 | 36,732,335 | ||||||
| Total assets | $ | 38,269,790 | $ | 38,687,638 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current | ||||||||
| Accounts payable and accrued expenses | $ | 1,873,019 | $ | 1,365,443 | ||||
| Note payable | 2,123,211 | 1,132,829 | ||||||
| 89,016 | - | |||||||
| Convertible notes | 3,515,600 | - | ||||||
| Operating lease obligations | 426,142 | 423,495 | ||||||
| Total current liabilities | 8,026,988 | 2,921,767 | ||||||
| Non-current | ||||||||
| Operating lease obligations, net of current portion | 963,900 | 1,061,528 | ||||||
| Convertible notes, net of current portion | 792,210 | 2,751,633 | ||||||
| Derivative liabilities | 4,823,725 | 4,823,725 | ||||||
| Contingent liabilities | 8,431,000 | 9,707,000 | ||||||
| Total non-current liabilities | 15,010,835 | 18,343,886 | ||||||
| Total liabilities | 23,037,823 | 21,265,653 | ||||||
| Commitments and contingencies (Note 10) | - | - | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of March 31, 2023 and December 31, 2022 | - | - | ||||||
| Common stock, par value $, shares authorized, issued and outstanding shares - at March 31, 2023 and at December 31, 2022 | 40,768 | 40,528 | ||||||
| Additional paid-in capital | 103,735,216 | 103,370,890 | ||||||
| Accumulated deficit | (88,544,017 | ) | (85,989,433 | ) | ||||
| Total stockholders’ equity | 15,231,967 | 17,421,985 | ||||||
| Total liabilities and stockholders’ equity | $ | 38,269,790 | $ | 38,687,638 | ||||
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 | 2023 | 2022 | |||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
| Revenue | $ | 76,012 | $ | 37,215 | $ | 137,821 | $ | 271,952 | $ | 128,974 | $ | - | ||||||||||||
| Direct cost of revenue | 39,275 | - | ||||||||||||||||||||||
| Gross profit | 89,699 | - | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||
| Professional fees (includes related party amounts of $161,000 and $103,200 respectively) | 384,806 | 544,040 | ||||||||||||||||||||||
| Salary expenses | 330,221 | 517,192 | 2,147,967 | 2,084,430 | 266,968 | 915,640 | ||||||||||||||||||
| Research and development | 708,220 | 241,748 | 3,297,986 | 877,936 | 605,997 | 1,218,296 | ||||||||||||||||||
| Stock-based compensation | 271,517 | 64,074 | 1,664,191 | 626,449 | 210,966 | 716,432 | ||||||||||||||||||
| Depreciation and amortization | 210,361 | 1,425 | 631,083 | 5,849 | 210,338 | 210,361 | ||||||||||||||||||
| Royalty expense | 36,183 | - | ||||||||||||||||||||||
| Other general and administrative expenses | 469,656 | 489,820 | 1,478,726 | 944,248 | 507,324 | 390,572 | ||||||||||||||||||
| Total operating expenses | 2,309,052 | 1,792,993 | 10,967,960 | 6,152,335 | 2,222,582 | 3,995,341 | ||||||||||||||||||
| Total operating loss | $ | (2,233,040 | ) | $ | (1,755,778 | ) | $ | (10,830,139 | ) | $ | (5,880,383 | ) | $ | (2,132,883 | ) | $ | (3,995,341 | ) | ||||||
| Other income (expense) | ||||||||||||||||||||||||
| Interest and accretion expenses | (810,598 | ) | (70,221 | ) | (1,640,368 | ) | (74,410 | ) | (1,697,701 | ) | (299,544 | ) | ||||||||||||
| Change in fair value of contingent liabilities | 1,491,000 | 194,000 | (2,131,000 | ) | 472,000 | 1,276,000 | (1,830,000 | ) | ||||||||||||||||
| Total other income (expense) | 680,402 | 123,779 | (3,771,368 | ) | 397,590 | (421,701 | ) | (2,129,544 | ) | |||||||||||||||
| Net loss | $ | (1,552,638 | ) | $ | (1,631,999 | ) | $ | (14,601,507 | ) | $ | (5,482,793 | ) | $ | (2,554,584 | ) | $ | (6,124,885 | ) | ||||||
| Loss per share – basic and diluted | $ | (0.04 | ) | $ | (0.05 | ) | $ | (0.36 | ) | $ | (0.15 | ) | $ | (0.06 | ) | $ | (0.15 | ) | ||||||
| Weighted average number of shares of common stock outstanding – basic and diluted | 40,828,188 | 35,928,188 | 40,762,254 | 35,928,188 | 40,757,524 | 40,628,188 | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
MARIZYME, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 2021
(Unaudited)
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2020 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | $ | (36,825,634 | ) | $ | 45,287,628 | ||||||||||
| Stock-based compensation expense | - | - | 334,385 | - | 334,385 | |||||||||||||||
| Net loss - restated | - | - | - | (2,211,866 | ) | (2,211,866 | ) | |||||||||||||
| Balance, March 31, 2021 (unaudited) | 35,928,188 | 35,928 | 82,411,719 | (39,037,500 | ) | 43,410,147 | ||||||||||||||
| Stock-based compensation expense | - | - | 194,657 | - | 194,657 | |||||||||||||||
| Adjustment of warrants value in connection with finalizing the business combination | - | - | (732,300 | ) | - | (732,300 | ) | |||||||||||||
| Net loss - restated | - | - | - | (1,638,928 | ) | (1,638,928 | ) | |||||||||||||
| Balance, June 30, 2021 (unaudited) | 35,928,188 | 35,928 | 81,874,076 | (40,676,428 | ) | 41,233,576 | ||||||||||||||
| Stock-based compensation expense | - | - | 64,074 | - | 64,074 | |||||||||||||||
| Warrants issued in connection with convertible notes | - | - | 571,807 | - | 571,807 | |||||||||||||||
| Net loss | - | - | - | (1,631,999 | ) | (1,631,999 | ) | |||||||||||||
| Balance, September 30, 2021(unaudited) | 35,928,188 | $ | 35,928 | $ | 82,509,957 | $ | (42,308,427 | ) | $ | 40,237,458 | ||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | 40,528,188 | $ | 40,528 | $ | 95,473,367 | $ | (47,823,563 | ) | $ | 47,690,332 | ||||||||||
| Stock-based compensation expense | - | - | 716,432 | - | 716,432 | |||||||||||||||
| Issuance of warrants | - | - | 2,969,916 | - | 2,969,916 | |||||||||||||||
| Exercise of warrants | 300,000 | 300 | 2,700 | - | 3,000 | |||||||||||||||
| Net loss | - | - | - | (6,124,885 | ) | (6,124,885 | ) | |||||||||||||
| Balance, March 31, 2022 | 40,828,188 | $ | 40,828 | $ | 99,162,415 | $ | (53,948,448 | ) | $ | 45,254,795 | ||||||||||
| Balance | 40,828,188 | $ | 40,828 | $ | 99,162,415 | $ | (53,948,448 | ) | $ | 45,254,795 | ||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | 40,528,188 | $ | 40,528 | $ | 95,473,367 | $ | (47,823,563 | ) | $ | 47,690,332 | ||||||||||
| Stock-based compensation expense | - | - | 716,432 | - | 716,432 | |||||||||||||||
| Issuance of warrants | - | - | 2,969,916 | - | 2,969,916 | |||||||||||||||
| Exercise of warrants | 300,000 | 300 | 2,700 | - | 3,000 | |||||||||||||||
| Net loss | - | - | - | (6,124,885 | ) | (6,124,885 | ) | |||||||||||||
| Balance, March 31, 2022 (unaudited) | 40,828,188 | $ | 40,828 | 99,162,415 | (53,948,448 | ) | 45,254,795 | |||||||||||||
| Stock-based compensation expense | - | - | 676,242 | - | 676,242 | |||||||||||||||
| Issuance of warrants | - | - | 2,341,659 | - | 2,341,659 | |||||||||||||||
| Net loss | - | - | - | (6,923,984 | ) | (6,923,984 | ) | |||||||||||||
| Balance, June 30, 2022 (unaudited) | 40,828,188 | 40,828 | 102,180,316 | (60,872,432 | ) | 41,348,712 | ||||||||||||||
| Beginning balance, value | 40,828,188 | $ | 40,828 | $ | 102,180,316 | $ | (60,872,432 | ) | $ | 41,348,712 | ||||||||||
| Stock-based compensation expense | - | - | 271,517 | - | 271,517 | |||||||||||||||
| Issuance of warrants | - | - | 880,000 | - | 880,000 | |||||||||||||||
| Net loss | - | - | - | (1,552,638 | ) | (1,552,638 | ) | |||||||||||||
| Balance, September 30, 2022 (unaudited) | 40,828,188 | $ | 40,828 | $ | 103,331,833 | $ | (62,425,070 | ) | $ | 40,947,591 | ||||||||||
| Ending balance, value | 40,828,188 | $ | 40,828 | $ | 103,331,833 | $ | (62,425,070 | ) | $ | 40,947,591 | ||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2022 | 40,528,191 | $ | 40,528 | $ | 103,370,890 | $ | (85,989,433 | ) | $ | 17,421,985 | ||||||||||
| Balance | 40,528,191 | $ | 40,528 | $ | 103,370,890 | $ | (85,989,433 | ) | $ | 17,421,985 | ||||||||||
| Stock-based compensation expense | - | - | 210,966 | - | 210,966 | |||||||||||||||
| Issuance of shares | 240,000 | 240 | 153,360 | - | 153,600 | |||||||||||||||
| Net loss | - | - | - | (2,554,584 | ) | (2,554,584 | ) | |||||||||||||
| Balance, March 31, 2023 | 40,768,191 | $ | 40,768 | $ | 103,735,216 | $ | (88,544,017 | ) | $ | 15,231,967 | ||||||||||
| Balance | 40,768,191 | $ | 40,768 | $ | 103,735,216 | $ | (88,544,017 | ) | $ | 15,231,967 | ||||||||||
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 | 2023 | 2022 | |||||||||||||
| Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net loss | $ | (14,601,507 | ) | $ | (5,482,793 | ) | $ | (2,554,584 | ) | $ | (6,124,885 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||||||||||
| Depreciation and amortization | 631,083 | (76,013 | ) | 210,338 | 210,361 | |||||||||||
| Stock-based compensation | 1,664,191 | 593,116 | 210,966 | 716,432 | ||||||||||||
| Stock-based compensation - restricted common stock | - | 33,333 | ||||||||||||||
| Interest and accretion on convertible notes and notes payable | 1,637,951 | 74,410 | 1,697,701 | 299,544 | ||||||||||||
| Issuance of warrants for services | 1,850,533 | - | - | 568,679 | ||||||||||||
| Change in fair value of contingent liabilities | 2,131,000 | (472,000 | ) | (1,276,000 | ) | 1,830,000 | ||||||||||
| Shares issued for a legal settlement | 153,600 | - | ||||||||||||||
| Change in operating assets and liabilities: | ||||||||||||||||
| Accounts and other receivables | (18,402 | ) | (55,706 | ) | ||||||||||||
| Prepaid expenses | (582,649 | ) | 38,057 | |||||||||||||
| Accounts and other receivable | (10,284 | ) | 20,501 | |||||||||||||
| Prepaid expense | (133,469 | ) | (212,744 | ) | ||||||||||||
| Inventory | (228,834 | ) | 40,950 | 39,039 | 6,818 | |||||||||||
| Accounts payable and accrued expenses | (740,034 | ) | 721,078 | 453,521 | (767,187 | ) | ||||||||||
| Due to related parties | (1,009,368 | ) | 272,530 | 89,016 | (861,263 | ) | ||||||||||
| Net cash used in operating activities | (9,266,036 | ) | (4,313,038 | ) | (1,120,156 | ) | (4,313,744 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from promissory notes, net of issuance cost | 6,500,743 | 1,060,949 | ||||||||||||||
| Proceeds from promissory notes, due to related parties | - | 366,000 | ||||||||||||||
| Repayment of notes payable | (127,798 | ) | - | |||||||||||||
| Proceeds from exercise of warrants | 3,000 | - | ||||||||||||||
| Proceeds from financing, net of issuance cost | - | 3,411,372 | ||||||||||||||
| Shares issued for exercise of warrants | - | 3,000 | ||||||||||||||
| Proceeds from promissory notes, net of repayments | 939,096 | - | ||||||||||||||
| Net cash provided by financing activities | 6,375,945 | 1,426,949 | 939,096 | 3,414,372 | ||||||||||||
| Net change in cash | (2,890,091 | ) | (2,886,089 | ) | (181,060 | ) | (899,372 | ) | ||||||||
| Cash at beginning of period | 4,072,339 | 2,902,762 | 510,865 | 4,072,339 | ||||||||||||
| Cash at end of period | $ | 1,182,248 | $ | 16,673 | $ | 329,805 | $ | 3,172,967 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid for interest | $ | - | $ | - | $ | - | $ | - | ||||||||
| Cash paid for taxes | $ | - | $ | - | $ | - | $ | - | ||||||||
| Non-cash investing and financing activities: | ||||||||||||||||
| Derivative liabilities and debt discount issued in connection with convertible notes | $ | 2,438,379 | $ | 391,648 | $ | - | $ | 1,336,218 | ||||||||
| Warrants and debt discount issued in connection with convertible notes | $ | 4,341,042 | $ | 571,807 | $ | - | $ | 2,401,237 | ||||||||
| Settlement of notes payable with convertible notes | $ | 278,678 | $ | - | $ | - | $ | 326,083 | ||||||||
| 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
MARCH 31, 2023
SEPTEMBER 30, 2022
NOTE 1 – DESCRIPTION OF BUSINESS
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 OTCQB tier of OTC Markets’ QB tierMarkets Group, Inc. 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, which require the Company to rely on investing and to allow itfinancing activities in order 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 $62,425,07088,544,017 at September 30, 2022March 31, 2023 (December 31, 20212022 - $47,823,56385,989,433). Additionally, the Company has negative working capital of $735,5256,148,031 (December 31, 20212022 - $1,268,097966,464) and $1,182,248329,805 (December 31, 20212022 - $4,072,339510,865) 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 a clearancean approval from the U.S. Food and Drug Administration (the “FDA”(“FDA”) to extend the selling of the products into the U.S. market which will allowmay result in the Company to attainattaining profitable operations.
During the next twelve months from the date the unaudited condensed consolidated financial statements were issued, the Company’s foreseeable cash requirements will relate to continuous operations of its business, maintaining its good standing and making the required filing with the Securities and Exchange Commission (the “SEC”),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.offering. While the Company believes in the viability of its strategy to continue to develop and expand its products and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of the Company and its wholly owned subsidiaries: My Health Logic Inc (“My Health Logic” or “MHL”), Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”), (collectively – “Somah”“Somahlution”), 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 in the 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, 202224, 2023 (the “2021“2022 Form 10-K”). The condensed consolidated balance sheet as of December 31, 20212022 was derived from audited consolidated financial statements included in the 20212022 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 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 to fairly present the results of operations, financial condition, cash flows and stockholders’ equity for the periods 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,March 31, 2023, the Company had recorded deferred offering costs of $271,240549,795 (December 31, 2022 - $387,412) 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 unaudited 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 and contingent liabilities and deferred tax valuations.liabilities.
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 and considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain accounts and other receivables, accounts payable and accrued expenses, notesnote payable, and amounts due to related parties approximate fair value due to the short-term nature of these instruments.
| 8 |
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 SomahSomahlution 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.
| 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 %, expected volatility of %, expected dividend of $, and expected life of years. For the three | |
| 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 | |
| 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 | |
| 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 %, expected volatility of %, expected dividend of $, and expected life of |
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)convertible promissory notes and warrants transactions as described in 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.
| 9 |
Marizyme measures the following financial instruments at fair value on a recurring basis. As of September 30, 2022,March 31, 2023, and December 31, 2021,2022, the fair values of these financial instruments were as follows:
SCHEDULE OF FAIR VALUES OF FINANCIAL INSTRUMENTS
| Fair Value Hierarchy | ||||||||||||
| September 30, 2022 | Level 1 | Level 2 | Level 3 | |||||||||
| Liabilities | ||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 4,923,725 | ||||||
| Contingent liabilities | - | - | 13,444,000 | |||||||||
| Total | $ | - | $ | - | $ | 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 | ||||||
| March 31, 2023 | Level 1 | Level 2 | Level 3 | |||||||||
| Fair Value Hierarchy | ||||||||||||
| March 31, 2023 | Level 1 | Level 2 | Level 3 | |||||||||
| Liabilities | ||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 4,823,725 | ||||||
| Contingent liabilities | - | - | 8,431,000 | |||||||||
| Total | $ | - | $ | - | $ | 13,254,725 | ||||||
| December 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||
| Fair Value Hierarchy | ||||||||||||
| December 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||
| Liabilities | ||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 4,823,725 | ||||||
| Contingent liabilities | - | - | 9,707,000 | |||||||||
| Total | $ | - | $ | - | $ | 14,530,725 | ||||||
The following table provides a roll forward of all liabilities measured at fair value using Level 3 significant unobservable inputs:
RECONCILIATIONSCHEDULE OF LIABILITIES AT FAIR VALUE MEASURED
| 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 | ||
| Derivative and Contingent Liabilities | ||||
| Balance at December 31, 2022 | $ | 14,530,725 | ||
| Change in fair value of contingent liabilities | (1,276,000 | ) | ||
| Balance at March 31, 2023 | $ | 13,254,725 | ||
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits, for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of Duragraft,DuraGraft, and costs related to manufacturing DuragraftDuraGraft for clinical trials. The Company has entered into various research and development contracts with various organizations. Payments of these activities are based on the terms of the individual agreements which matches to the pattern of costs incurred. Payments made in advance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be required in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
Stock-based compensation expense for employees and 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, the Company estimates the grant date fair value using a Black-Scholes valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. The Company estimateestimates the expected future volatility based on the stock’s historical price volatility. The stock’s future volatility may differ from the estimated volatility at the grant date. For restricted stock unit (“RSU”) equity awards, the Company estimates the grant date fair value using it’sits closing stock price on the date of grant. The Company recognizes the effect of forfeitures in compensation expense when the forfeitures occur. The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. The Company recognizes the value of the awards over the awards’ requisite service or performance periods. The requisite service period is generally the time over which share-based awards vest.
Comparative InformationNew Accounting Standards and Updates from the Securities and Exchange Commission (“SEC”)
To conform withIn June 2016, the current period’s financial statement presentation,Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company reclassified certain professional fees, salaries, rentfor interim and repairsannual periods in fiscal years beginning after December 15, 2022. CECL estimates of expected credit losses on trade receivables over their life will be required to be recorded at inception, based on historical information, current conditions, and maintenance expenses related to researchreasonable and development activities forsupportable forecasts. The Company adopted the three and nine months ended September 30, 2021, into the research and development expenses line itemstandard in its first quarter of 2023. There was no material impact on the Condensed Consolidated Statementsresults of Operations. Such reclassifications were not considered material and did not have any effect on the Company’s net loss for the three- and nine- month periods ended September 30, 2021.operations.
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 has provided Marizyme with access to MHL’s lab-on-chip technology platform and its patient-centric, digital point-of-care diagnostic device, MATLOC 1; and allowed for further growth and development of Marizyme’s portfolio of medical products.
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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 Accounting 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, the fair value, and the estimated useful life of identifiable assets and liabilities acquired, provided below, to change, the tax basis related to these intangible assets is not final 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, the Company acquired its lab-on-chip technology platform, its patient-centric, digital point-of-care diagnostic device - MATLOC 1 as well as patents rights and trademarks relating to it. In addition, the Company acquired ownership rights to MATLOC patents issued in the European Union, Canada, and the United States.
The intangible assets acquired include:
As part of the acquisition, Marizyme assumed an aggregate of $468,137 in notes payable, the notes were unsecured, bore interest at a rate of 9% per annum with no maturity date. For the three and nine months ended September 30, 2022, Marizyme recognized $4,538 and $15,124 of interest expense on the notes payable, respectively (September 30, 2021 - $Nil and $Nil, respectively). The Company settled an aggregate of $278,678 of these notes payable as part of Unit Purchase Agreement issuances during the nine months ended September 30, 2022 (Note 7). As of September 30, 2022, balance of the remaining note payable was $213,563 (December 31, 2021 - $469,252).
Goodwill is attributed to the workforce and profitability of the acquired business and is not deductible for tax purposes. A residual method methodology was used to estimate the fair market value goodwill. A pre-tax discount rate based on weighted average cost of capital of 37.5% was used in the fair value assumptions for the assembled workforce acquired.
Pro-forma revenue, net income/(loss), and earnings per share are not presented for this acquisition as they are not material.
NOTE 54 – LEASES
On December 11, 2020, the Company entered into a 5.5 - yearfive-and-a-half-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 would pay approximately $12,000 per month in operating expenses.
Effective April 1, 2022, the Company amended its lease agreement for administrative office and laboratories to add an 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 of September 30, 2022,March 31, 2023, the remaining lease term was 3.833.33 years. The lease hadhas been classified as an operating lease.
The assets and liabilities from the lease were recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the discount rate of 3.95%, which is the average commercial interest available at the time.
The total rent expense for the three and nine months ended September 30, 2022March 31, 2023 was $103,291154,828 and(March 31, 2022 – $324,544110,900, 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 September 30, 2022,March 31, 2023, and December 31, 2021:2022:
SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITIES
| September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
| Right-of-use assets | $ | 1,576,445 | $ | 1,158,776 | ||||||||||||
| Right-of-use asset | $ | 1,390,042 | $ | 1,485,023 | ||||||||||||
| Operating lease liabilities, current | $ | 420,913 | $ | 277,142 | $ | 426,142 | $ | 423,495 | ||||||||
| Operating lease liabilities, non-current | 1,155,532 | 881,634 | 963,900 | 1,061,528 | ||||||||||||
| Total operating lease liabilities | $ | 1,576,445 | $ | 1,158,776 | $ | 1,390,042 | $ | 1,485,023 | ||||||||
As of September 30, 2022,March 31, 2023, the maturities of the lease liabilities for the periods ending December 31, are as follows:
SCHEDULE OF MATURITIES OF THE LEASE LIABILITIES
| 2022 | $ | 103,291 | ||||||
| 2023 | 423,495 | $ | 317,621 | |||||
| 2024 | 434,082 | 434,082 | ||||||
| 2025 | 444,934 | 444,934 | ||||||
| 2026 | 266,034 | 266,034 | ||||||
| Total lease payments | 1,671,836 | $ | 1,462,671 | |||||
| Less: Present value discount | (95,391 | ) | (72,629 | ) | ||||
| Total | $ | 1,576,445 | $ | 1,390,042 | ||||
NOTE 65 – 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
At December 31, 2022, management determined that the carrying value of Krillase intoexceeded its recoverable amount. Impairment of $24,350,000 was recognized on Krillase intangible assets and recorded in the impairment of intangible assets in the consolidated statements of operations for the year ended December 31, 2022. However, for the three months ended March 31, 2023 and establish the first stream of revenue from the sale of the product in 2023.2022, no impairment has been recognized on Krillase intangible assets.
| 11 |
DuraGraft
As part of SomahSomahlution acquisition in 2020, Marizyme purchased $18,170,000 of intangible assets related to the DuraGraft® technology.No impairment has been recognized on DuraGraft intangible assets in the three months ended March 31, 2023 and 2022.
My Health Logic
As part of My Health Logic acquisition (see Note 4),completed on December 22, 2021, 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.No impairment has been recognized on My Health Logic intangible assets in the three months ended March 31, 2023 and 2022.
SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE
| September 30, 2022 | December 31, 2021 | March 31, 2023 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 4,250,000 | $ | - | $ | 4,250,000 | ||||||||||||||||||
| Patents in process | 122,745 | - | 122,745 | 122,745 | - | 122,745 | 122,745 | - | 122,745 | |||||||||||||||||||||||||||
| DuraGraft patent | 5,256,000 | (875,999 | ) | 4,380,001 | 5,256,000 | (572,768 | ) | 4,683,232 | 5,256,000 | (1,078,153 | ) | 4,177,847 | ||||||||||||||||||||||||
| Duragraft - Distributor relationship | 308,000 | (66,733 | ) | 241,267 | 308,000 | (43,633 | ) | 264,367 | ||||||||||||||||||||||||||||
| Duragraft IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | 12,606,000 | - | 12,606,000 | ||||||||||||||||||||||||||||||
| DuraGraft - Distributor relationship | 308,000 | (82,133 | ) | 225,867 | ||||||||||||||||||||||||||||||||
| DuraGraft IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | |||||||||||||||||||||||||||||||||
| My Health Logic - Trade name | 450,000 | (24,911 | ) | 425,089 | 450,000 | (804 | ) | 449,196 | 450,000 | (40,983 | ) | 409,017 | ||||||||||||||||||||||||
| My Health Logic - Biotechnology | 4,600,000 | (209,706 | ) | 4,390,294 | 4,600,000 | (6,765 | ) | 4,593,235 | 4,600,000 | (345,000 | ) | 4,255,000 | ||||||||||||||||||||||||
| My Health Logic - Software | 1,550,000 | (80,083 | ) | 1,469,917 | 1,550,000 | (2,583 | ) | 1,547,417 | 1,550,000 | (131,749 | ) | 1,418,251 | ||||||||||||||||||||||||
| Total intangibles | $ | 53,492,745 | $ | (1,257,432 | ) | $ | 52,235,313 | $ | 53,492,745 | $ | (626,553 | ) | $ | 52,866,192 | $ | 29,142,745 | $ | (1,678,018 | ) | $ | 27,464,727 | |||||||||||||||
| December 31, 2022 | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Impairment | Net Carrying Amount | |||||||||||||
| Krillase intangible assets | $ | 28,600,000 | $ | - | $ | (24,350,000 | ) | $ | 4,250,000 | |||||||
| Patents in process | 122,745 | - | - | 122,745 | ||||||||||||
| DuraGraft patent | 5,256,000 | (977,076 | ) | - | 4,278,924 | |||||||||||
| DuraGraft - Distributor relationship | 308,000 | (74,433 | ) | - | 233,567 | |||||||||||
| DuraGraft IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | - | 12,606,000 | ||||||||||||
| My Health Logic - Trade name | 450,000 | (32,947 | ) | - | 417,053 | |||||||||||
| My Health Logic - Biotechnology | 4,600,000 | (277,353 | ) | - | 4,322,647 | |||||||||||
| My Health Logic - Software | 1,550,000 | (105,916 | ) | - | 1,444,084 | |||||||||||
| Total intangibles | $ | 53,492,745 | $ | (1,467,725 | ) | $ | (24,350,000 | ) | $ | 27,675,020 | ||||||
SCHEDULE OF GOODWILL
| Goodwill | DuraGraft | My Health Logic | Total | |||||||||
| Balance, December 31, 2022 and March 31, 2023 | $ | 5,416,000 | $ | 1,774,656 | $ | 7,190,656 | ||||||
| Goodwill | DuraGraft | My Health Logic | Total | |||||||||
| Balance, December 31, 2020 | $ | - | $ | - | $ | - | ||||||
| Additions on acquisitions | 5,416,000 | 1,774,656 | 7,190,656 | |||||||||
| Impairment | - | - | ||||||||||
| Balance, December 31, 2021 and September 30, 2022 | $ | 5,416,000 | $ | 1,774,656 | $ | 7,190,656 |
The following changes to the Company’s intangible assets had taken place in the periods indicated:
SCHEDULE OF INTANGIBLE ASSETS
| Balance, December 31, 2020 | $ | 42,278,211 | ||
| Acquired in Somah Transaction | 4,022,271 | |||
| Acquired in My Health Logic Transaction | 6,600,000 | |||
| Additions | 2,775 | |||
| Amortization expense | (37,065 | ) | ||
| Balance, December 31, 2021 | $ | 52,866,192 | ||
| Amortization expense | (630,879 | ) | ||
| Balance, September 30, 2022 | $ | 52,235,313 |
| Balance, December 31, 2021 | $ | 52,866,192 | ||
| Impairment | (24,350,000 | ) | ||
| Amortization expense | (841,172 | ) | ||
| Balance, December 31, 2022 | $ | 27,675,020 | ||
| Amortization expense | (210,293 | ) | ||
| Balance, March 31, 2023 | $ | 27,464,727 |
| 12 |
Future amortizations for DuragraftDuraGraft and My Health Logic intangible assets for the next five years will be $841,172 for each year from 20232024 through 20272028 and $6,700,7066,280,120 for 20282029 and thereafter. Amortization related to the Krillase product and in process research and development will be determined upon the Company achieving commercialization.
NOTE 6 – NOTES PAYABLE
a) On October 23, 2022, the Company issued a note payable to Hub International for $204,050 bearing interest at the annual rate of 6.75% per annum, due September 23, 2023, payable monthly starting November 23, 2022. As of March 31, 2023, the balance of note payable due was $103,824 (December 31, 2022 - $164,729).
b) On December 28, 2022, the Company issued a promissory note for $750,000 bearing interest at the annual rate of 20% per annum, due June 28, 2023. For the three months ended March 31, 2023, the Company accrued $38,219 in interest on the promissory note (March 31, 2022 - $Nil). As of March 31, 2023, the balance of the note payable was $788,219 (December 31, 2022 - $750,000).
The Company agreed to issue to the lender warrants to purchase common stock equal to $1,500,000 with the same terms as any warrants issued in the Company’s next financing round and will be immediately exercisable. Default in the payment of principal or interest or other material covenant under the note triggers a default penalty equal to 0.666% of $750,000 per month during the period of default, and other lender rights, including the demand of immediate payment of all amounts due including accrued but unpaid interest, and recovery of all costs, fees including attorney’s fees and disbursements, and expenses relating to collection and enforcement of the promissory note. No liability has been recognized for the warrants as they have not been issued and their terms remain contingent upon the next financing.
c) On February 2, 2023, the Company issued an unsecured promissory note to Walleye Opportunities Master Fund Ltd. for $1,000,000 with a maturity date of May 7, 2023. The note has no interest and the principal amount shall be paid in full on the maturity date. In the event that the principal amount is not repaid in full on maturity date, the principal amount shall be increased to $1,250,000.
d) As part of the My Health Logic acquisition, Marizyme assumed an aggregate of $468,137 in notes payable, the notes were unsecured, bore interest at a rate of 9% per annum with no maturity date. The Company settled an aggregate of $278,678 of these notes payable as part of Unit Purchase Agreement issuances during the year ended December 31, 2022 (Note 7). For the three months ended March 31, 2023, the Company accrued $13,068 in interest on the notes payable (March 31, 2022 - $6,085). As of March 31, 2023, balance of the remaining note payable was $231,168 (December 31, 2022 - $218,100).
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’“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“Class A Warrant’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.
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.
| 13 |
September 2021 Amended Unit Purchase Agreement
On September 29, 2021, due to a lower common stock price, the Company, with the consent of all Unit holders, amended the May, 2021, Unit Agreements. By rescinding their investment, the Unit holders agreed to amend the Unit Purchase Agreement resulted in the following significant changes to the offering:
| (i) | Decreased the offering price under the Unit Purchase Agreement from $ 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 $2.50 per share to $2.25 per share for all current Unit holders and all future investors | |
| (iii) | Cancelled all Class A Warrants and Class B Warrants and replaced them with Class C Warrants. |
December 2021 Unit Purchase Agreement
On December 21, 2021, the Company entered into a Unit Purchase Agreement (the “December UPA”) to sell up to 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$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-ratapro rata Units.
During the nine months ended September 30,In 2022, the Company issued additional units under the New Securities agreement for the gross proceeds of $7,315,1386,500,743. Of net of issuance cost.
Additionally, on October 28, 2022, following a letter agreement entered into between the total Units issued: (i) Units were issued to settle notes payable assumed on acquisition of My Health Logic (see Note 4)Company, Bradley Richmond, and Univest Securities, LLC (“Univest”), (ii) Units were issued to settle accounts payable,dated October 28, 2022, addressed and (iii) Units were issued in exchange for services renderedsubmitted to the Corporate Financing Department of the Financial Industry Regulatory Authority, Inc. (the “October 2022 Letter Agreement”), the Company extinguished convertible promissory notes held by Univest and Mr. Richmond, as well as Class C Warrants, attached to them. The parties agreed to forgo compensation previously received for no consideration in exchange. As the result of extinguishment of these obligations, the Company recorded $338,181 gain on debt extinguishment in the nine monthscondensed consolidated statements of operations for the year ended September 30,December 31, 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 nine months ended September 30, 2022, of $4,341,042 (December 31, 2021 - $4,299,649) and the fair value of derivative liabilities of $2,438,379issued (December 31, 2021 - $2,485,346) have been recorded as debt discount and are being amortized to interest and accretion expense using the effective interest method over the term of the Convertible Notes.
During the three and nine months ended September 30, 2022,March 31, 2023, the Company recognized interest and accretion expense of $805,8491,556,177 and $1,622,730, respectively (September 30, 2021(March 31, 2022 - $70,221291,997 and $74,410, respectively)) in the condensed consolidated statements of operations.
ForThe following table summarizes supplemental balance sheet information related to the months ended September 30, 2022 and December 31, 2021, the Company had the following convertible notes, net of debt discount outstanding:outstanding, as of March 31, 2023, and December 31, 2022:
SCHEDULE OF CONVERTIBLE NOTES
| Convertible Notes, Net of Debt Discount | ||||||||
| Balance, December 31, 2021 | $ | 26,065 | $ | 26,065 | ||||
| Convertible notes issued - new securities | 7,315,138 | 7,315,138 | ||||||
| Issuance costs | (535,717 | ) | (535,717 | ) | ||||
| Debt discount | (6,779,421 | ) | (6,479,421 | ) | ||||
| Debt accretion | 1,622,730 | 2,763,749 | ||||||
| Balance, September 30, 2022 | $ | 1,648,795 | ||||||
| Debt extinguishment | (338,181 | ) | ||||||
| Balance, December 31, 2022 | 2,751,633 | |||||||
| Debt accretion | 1,556,177 | |||||||
| Balance, March 31, 2023 | $ | 4,307,810 | ||||||
SCHEDULE OF CONVERTIBLE NOTES NET OF DEBT DISCOUNT
| March 31, 2023 | December 31, 2022 | |||||||
| Convertible notes - total principal | $ | 14,432,996 | $ | 14,432,996 | ||||
| Unamortized issuance costs and discount | (10,125,186 | ) | (11,681,363 | ) | ||||
| Convertible Notes, Net of Debt Discount | $ | 4,307,810 | $ | 2,751,633 | ||||
| September 30, 2022 | December 31, 2021 | |||||||
| Convertible notes - total principal | $ | 14,771,177 | $ | 7,482,104 | ||||
| Unamortized issuance costs and discount | (13,122,382 | ) | (7,456,039 | ) | ||||
| Convertible notes, net of debt discount | $ | 1,648,795 | $ | 26,065 | ||||
| March 31, 2023 | December 31, 2022 | |||||||
| Current portion | $ | 3,515,600 | $ | - | ||||
| Non-current portion | 792,210 | 2,751,633 | ||||||
| Convertible Notes, Net of Debt Discount | $ | 4,307,810 | $ | 2,751,633 | ||||
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). In the event the Company consummates, while the Convertible Note is outstanding, an equity financing with a gross aggregate amount of securities sold of not less than $10,000,000 (“Qualified Financing”), then all outstanding principal, together with all unpaid accrued interest under the Convertible Notes, shall automatically convert into shares of the equity financing at the lesser of (i) 75% of the cash price per share paid in the financing and the conversion price of $1.75 per unit.
In the event that the Company consummates, while the Convertible Note is outstanding, an equity financing with a gross aggregate amount of securities sold less than $10,000,000 (“Unqualified Financing”), then the equity offering price will be applicable to the conversion price and exercise price of such Convertible Notes and Class C Warrants. Moreover, in that event, the Class C Warrant holders may also apply a most-favored-nations clause in their warrants to request that their Class C Warrants provide that their warrant exercise rights should be further adjusted to allow them to purchase a proportionately higher number of additional shares equal to the initial number of shares which may be purchased by exercise of their Class C Warrants, multiplied by a fraction equal to the current exercise price divided by the adjusted exercise price, which would allow such Class C Warrant holders to purchase the same aggregate dollar amount of shares as initially provided such Class C Warrants. If the Convertible Notes and Class C Warrants’ conversion or exercise rights become so adjusted as a result of such an equity financing, then the Company would be required to register the additional shares of common stock that these securities may be converted into or exercised to purchase for resale. The Convertible Notes are secured by a first priority security interest in all assets of the Company.
New Class C Warrants Terms
| ● | Exercise price is the lower of (i) $2.25 per share, or (ii) the Automatic Conversion Price (the lesser of (i) 75% of the cash price per share paid by the other purchasers of next round securities in the Qualified Financing and (ii) the Conversion Price ($2.25, subject to Customary Antidilution Adjustments). | |
| ● | Exercisable for a period of 5 years from issuance. | |
| ● | Warrant Coverage: 200%. |
| 15 |
NOTE 8 – STOCKHOLDERS’ EQUITY
a) Preferred stock
| 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 September 30, 2022,March 31, 2023, and December 31, 2021,2022, there were shares of preferred stock issued or outstanding.
b) Common stock
| b) | Common stock |
The Company is authorized to issue a total number of shares of common stock with a par value of $.
On August 1, 2022, the Board of Directors (the “Board”) of Marizyme approved a reverse stock split of the Company’s authorized and outstanding common stock at a ratio of 1-for-4. On August 3, 2022, the Company effected the reverse stock split by filing a Certificate of Change with the Secretary of State of the State of Nevada. As a result, the total number of shares of common stock held by each stockholder was converted automatically into the number of whole shares of common stock equal to the number of issued and outstanding shares of common stock held by such stockholder immediately prior to the reverse stock split, divided by four, subject to rounding of fractional shares. The Company expects that the reverse stock split will be reflected in the trading price of the common stock after the Financial Industry Regulatory Authority, Inc. (“FINRA”) completes its processing of the reverse stock split, which is expected to be the date on which the common stock is listed on the Nasdaq Capital Market tier operated by Nasdaq in the event that the Company’s listing application to Nasdaq is approved.
As a result of the reverse stock split, there are approximately shares of common stock outstanding, not including the shares of common stock included in the units that the Company expects to issue in this public offering or upon any exercise of the Over-Allotment Option or of any warrants included in the units issued to investors or of the representative’s warrant. No fractional shares have been or will be issued, and no cash or other consideration has been or will be paid. Instead, the Company issued one whole share of the post-reverse stock split common stock to any stockholder who otherwise would have received a fractional share as a result of the reverse stock split. The Company’s existing shareholders’ percentage ownership interests in the Company remains the same following the reverse stock split (subject to rounding of fractional shares).
As of September 30, 2022, and DecemberMarch 31, 2021,2023, there were and(December 31, 2022 - ) shares of common stock issued and outstanding, respectively.outstanding. During the ninethree months ended September 30, 2022,March 31, 2023, the Company issued shares of common stock for exerciseto Nicholas DeVito as part of warrants.the Confidential Settlement Agreement, dated November 18, 2022 (Note 10).
c) Options
| c) | Options |
On May 18, 2021, the Company’s Board of Directors approved the Marizyme, Inc. Amended and Restated 2021 Stock Incentive Plan (“SIP”). The SIP incorporates stock options issued prior to May 18, 2021. The SIP authorized options for issuance. On December 27, 2022, the Board of Directors requested that stockholders ratify an amendment to the SIP to increase the maximum number of shares of common stock available for issuance pursuant to awards granted under the SIP by to , which was approved by the stockholders. As of September 30, 2022,March 31, 2023, there remains options available for issuance.issuance (December 31, 2022 – ).
During the ninethree months ended September 30,March 31, 2022, the Company granted (December 31, 20212022 – ) share purchase options to directors 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 | |||||||||||||||||||||||||||||
| Granted | 1,532,500 | 1.51 | ||||||||||||||||||||||||||||||
| Forfeited | (1,682,500 | ) | 1.36 | |||||||||||||||||||||||||||||
| Outstanding at December 31, 2021 | 3,650,943 | $ | 1.24 | $ | 1,951,117 | 3,650,943 | $ | 1.24 | ||||||||||||||||||||||||
| Granted | 400,000 | 2.20 | - | 400,000 | 2.20 | |||||||||||||||||||||||||||
| Expired | (62,502 | ) | 1.25 | - | (62,502 | ) | 1.25 | |||||||||||||||||||||||||
| Forfeited | (62,498 | ) | 1.25 | - | (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 | |||||||||||||||||||||||||||
| Outstanding at December 31, 2022 | 3,925,943 | $ | 1.33 | $ | - | |||||||||||||||||||||||||||
| Granted/forfeited | - | - | - | - | ||||||||||||||||||||||||||||
| Outstanding at March 31, 2023 | 3,925,943 | 1.33 | - | |||||||||||||||||||||||||||||
| Exercisable at March 31, 2023 | 3,336,775 | $ | 1.23 | $ | - | |||||||||||||||||||||||||||
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 | $ | 1,767,489 | 1.01 | 1,985,943 | 1,985,943 | $ | - | ||||||||||||||||||||||||||
| 1.25 | 540,000 | 524,721 | 351,000 | 1.25 | 540,000 | 530,832 | - | |||||||||||||||||||||||||||||
| 1.37 | 200,000 | 200,000 | 106,000 | 1.37 | 200,000 | 200,000 | - | |||||||||||||||||||||||||||||
| 1.75 | 800,000 | 280,000 | 120,000 | 1.75 | 800,000 | 440,000 | - | |||||||||||||||||||||||||||||
| 2.20 | 400,000 | 60,000 | - | 2.20 | 400,000 | 180,000 | - | |||||||||||||||||||||||||||||
| $ | 1.33 | 3,925,943 | 3,050,664 | $ | 2,344,489 | 1.33 | 3,925,943 | 3,336,775 | $ | - | ||||||||||||||||||||||||||
d) Restricted Share Units
As of September 30, 2022, the Company determined that the following performance condition attached to the restricted share awards granted in the fiscal 2021 were more likely than not to have been achieved:
| 16 |
| d) | ||
Therefore, compensationDuring the year ended December 31, 2021, the Company granted restricted share awards for an aggregate of shares of common stock to directors, senior officers and consultants of the Company, with underlying performance conditions. As of March 31, 2023, only two out of four performance conditions have been achieved. Compensation cost of $295,750Nil for the restricted share awards was recognized in stock-based compensation for the ninethree months ended September 30,March 31, 2023 (March 31, 2022 (September 30, 2021 - $Nil295,750).
| Warrants |
e) Warrants
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, there were 20,969,75120,048,487 and 12,144,838 warrants outstanding, respectively.
SCHEDULE OF WARRANTS OUTSTANDING
| Number | Weighted Average Price | Number | Weighted Average Price | |||||||||||||
| December 31, 2020 | 3,393,651 | $ | 4.63 | |||||||||||||
| Issued pursuant to Unit Purchase Agreement | 8,521,187 | 2.25 | ||||||||||||||
| Issued | 230,000 | 1.39 | ||||||||||||||
| December 31, 2021 | 12,144,838 | $ | 2.90 | 12,144,834 | $ | 2.90 | ||||||||||
| Issued pursuant to Unit Purchase Agreement | 8,360,152 | 2.25 | 8,360,147 | 2.25 | ||||||||||||
| Issued | 878,398 | 1.16 | 878,398 | 1.16 | ||||||||||||
| Exercised | (300,000 | ) | 0.01 | (300,000 | ) | 0.01 | ||||||||||
| Expired | (113,637 | ) | 3.00 | (113,637 | ) | 3.00 | ||||||||||
| September 30, 2022 | 20,969,751 | $ | 2.61 | |||||||||||||
| Cancelled pursuant to FINRA | (578,398 | ) | 1.75 | |||||||||||||
| Cancelled as part of debt extinguishment | (342,857 | ) | 2.25 | |||||||||||||
| December 31, 2022 and March 31, 2023 | 20,048,487 | $ | 2.64 | |||||||||||||
| Issued | - | - | ||||||||||||||
| December 31, 2022 and March 31, 2023 | 20,048,487 | $ | 2.64 | |||||||||||||
| f) | Stock-based compensation |
During the ninethree months ended September 30, 2022, the Company issued the following:
On January 26 and February 14, 2022, in exchange for services of Mr. Richmond, the Company granted him warrants to purchase an aggregate shares of Marizyme’s common stock at an exercise price of $0.01 per share. The warrants issued had an average term of 5 years, vested immediately, and were fair valued at $568,677 and recorded in salary expense in the condensed consolidated statements of operations for the nine months ended September 30, 2022. On March 15, 2022, Mr. Richmond exercised warrants issued to him.
On June 26, 2022, the Company issued additional 347,039 warrants to Mr. Richmond and 231,359 warrants to Univest Securities, LLC to purchase an aggregate shares of Marizyme’s common stock at an exercise price of $1.75 per share. The warrants issued had an average term of 5 years, vested immediately, and were fair valued at $1,281,854, of which $769,113 was recorded in salary expense and $512,471 in professional fees in the condensed consolidated statements of operations for the nine months ended September 30, 2022.
In the nine months ended September 30, 2022, pursuant to the Unit Purchase Agreement the Company issued an aggregate of 8,360,152 additional New Class C warrants with an exercise price of $2.25 share and a term of five years.
f) Stock-based compensation
During the three and nine months ended September 30, 2022,31, 2023, the Company recorded $ and $ in non-cash share-based compensation in the stock-based compensation line on the condensed consolidated statements of operations, respectively (September 30, 2021(March 31, 2022 - $ 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 September 30, 2022,March 31, 2023, the Company owed an aggregate of $123,26689,016 (December 31, 20212022 - $1,132,634Nil) to of the Company. The majority of the balance was owed to Mr. Frank Maresca, a related party and shareholder of the Company, and comprised of the following:
In the ninethree months ended September 30, 2022,March 31, 2023, the Company incurred and settled additional $133,79772,000 (March 31, 2022 - $60,000) in professional servicesservice rendered by of the Company and incurred and settled $149,1787,405 of various expenses incurred by these parties in relation to their services rendered to the Company. The services were provided by entities which are controlled by management and are pursuant to various consulting agreements.
The Company also incurred $332,750 and settled $243,750 in compensation to Directors and Executive Officers for their services rendered during the three months ended March 31, 2023 (March 31, 2022 - $43,200, respectively).
Additionally, as part of the SomahSomahlution acquisition in 2020, the Company recorded a prepaid royalty to the shareholders of Somahlution. The former primary beneficial owner is Dr. Vithal Dhaduk, currently a director, and significant shareholder of the Company. During the three months ended March 31, 2023, the Company accrued $36,183 in royalties payable incurred on sales of the DuraGraft product outside of the U.S. This amount was offset against the prepaid royalty receivable. As at September 30, 2022,March 31, 2023, the Company had $339,091302,908 in prepaid royalties (December 31, 20212022 - $339,091) which had been classified as non-current in the condensed consolidated balance sheets.
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NOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal Matters
On August 19, 2021, Dr. Neil Campbell, former President, Chief Executive Officer and director ofUnder a Confidential Settlement Agreement, dated November 18, 2022, the Company and Bruce Harmon, former Chief Financial Officer and SecretaryNicholas DeVito agreed that Mr. DeVito would dismiss a Complaint that Mr. DeVito filed on June 7, 2022 in the Circuit Court of the Company, each filed a ComplaintFifteenth Judicial Circuit in 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 allegePalm Beach County, Florida, Case No. 50-2022-CA-005437. The parties also agreed 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 thatfollowing an anticipated reverse split, the Company was not addressingrequired to their satisfaction. Both Campbell/Harmon Complaints demand approximately $issue Mr. DeVito - $50,000“post-split” shares to be delivered in back paypaper certificate form within three (3) business days of the reverse split. The settlement agreement further provided that the delivered shares would be subject to normal and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costs and attorney’s fees, and such other relief ascustomary restrictions pursuant to Rule 144 of the court deems equitable.SEC. In the nine months ended September 30,event no split occurred by December 12, 2022, both cases were dismissed with prejudicethe Company was required to issue Mr. DeVito “pre-split” shares. In addition, the parties agreed that no further continuous service is required pursuant to Section 2 of the Mutual Release of Claims Agreement between Mr. DeVito and without any financial impactthe Company dated as of August 27, 2020. Pursuant to the agreement, on January 4, 2023, the Company.Company issued shares of common stock to Mr. DeVito (Note 8b).
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 |
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 ninethree months ended September 30, 2022,March 31, 2023, the Company had not earned any revenues from Krillase, andhowever the Company did not have anyincur sales of the DuraGraft products inoutside of the U.S., therefore noon which $36,183 in royalties have been accrued or paid inand offset against the period.prepaid royalties receivable (Note 9).
Upon receiving FDA clearance for the DuragraftDuraGraft 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 |
| c. | The Company has entered into arrangements for office and laboratories spaces. As of |
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Risks and Uncertainties
Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state in the United States. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact the Company’s business, operations and financial results.
Most states and cities have at various times instituted quarantines, restrictions on travel, “stay at home” rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. As a result, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, including such authorities in Europe, which could result in delays of reviews and approvals. While there have been no specific notices of delay from federal or foreign government authorities, potential interruptions, delays, or changes to the operations of the FDA, or of any foreign authority with which the Company might interact, might impact the approval of any applications the Company plans and will need to file in the future.
In addition, the Company is dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill its orders is critical to ourthe Company’s business success. The COVID-19 pandemic has impacted and may continue to impact certain of the Company’s manufacturers and suppliers. As a result, the Company has have faced and may continue to face delays or difficulty sourcing certain products, which could negatively affect itsthe Company’s business and financial results.
The spread of COVID-19 has also adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The pandemic has resulted, and may continue to result, in a significant disruption of global financial markets, which may reduce the Company’s ability to access capital in the future, which could negatively affect itsthe Company’s liquidity.
If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, the Company’s business operations, including those of contract manufacturers, could be further delayed or interrupted. The duration of any business disruption cannot be reasonably estimated at this time but may materially affect the Company’s ability to operate itsthe Company’s 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
The Financial Industry Regulatory Authority, Inc. (“FINRA”) Staff has determined that certain securities previously received by eachExercise of Univest Securities, LLC (“Univest”) and Bradley Richmond, a registered representativeSomahlution Warrants with Reduced Exercise Price
As part of Univest, in connection with the following transactions withSomahlution acquisition, completed on July 30, 2020, the Company constituted underwriting compensation in connection with the Company’s anticipated public offering pursuantissued a total of restricted shares of common stock and five-year warrants 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 that the Company entered into with Mr. Richmond in September 2020, and (d) a stock option exercisable forpurchase an additional 68,4372,999,955 shares of common stock received by Mr. Richmond from onewith an exercise price of the Company’s former executives in March 2022. Consequently, each of Univest and Mr. Richmond, pursuant to a letter agreement entered into with$5.00 per share. On April 13, 2023, the Company (the “October 2022delivered offer letter agreements (the “Somahlution Warrant Offer Letter Agreement”Agreements”), has agreed to forego their rights,the warrant holders which offered to an aggregateexercise the warrants to purchase the number of restricted shares of common stock beneficially ownedat the exercise price reduced by them collectively (includingthe Company from $5.00 to $0.10 per share on or prior to April 21, 2023 for maximum cash proceeds of $299,996. As of May 15, 2023, the warrant holders exercised their warrants to purchase 2,652,159 shares of common stock for gross proceeds of $265,216(the “Warrant Exercise”).
Adjustment to Conversion Price of Convertible Notes and Exercise Price of Class C Warrants
As described in Note 7, from May 2021 to August 2022, the Company conducted a series of Units Private Placements of units consisting of 10% secured convertible promissory notes and accompanying warrants, as were modified or amended from time to time.
At the time of the Warrant Exercise, the Convertible Notes were convertible at a conversion price of $1.75 per share and the Class C Warrants were exercisable at an exercise price of $2.25 per share. Outstanding Convertible Notes have underlying principal of $14,471,177, and outstanding Class C Warrants were exercisable to purchase a total of 16,538,473 shares of common stock. In connection with the transaction contemplated by the Somahlution Warrant Offer Letter Agreements and certain unrelated matters, the Company obtained exercise and conversion rights waivers and amendments from certain holders of the Convertible Notes and Class C Warrants, which reduced the principal underlying Convertible Notes’ with conversion rights to Convertible Notes with a total of $4,471,177 in principal, and reduced outstanding Class C Warrants with exercise rights to Class C Warrants having exercise rights to Class C Warrants exercisable to purchase 5,109,904 shares of common stock. As a result of the Warrant Exercise and pursuant to the adjustment provisions described above, the conversion price of the Convertible Notes and the exercise price of the Class C Warrants adjusted to $0.10 per share. As a result of these adjustment provisions and the conversion and exercise terms of the Convertible Notes and Class C Warrants, the number of shares into which the Convertible Notes may be converted adjusted from shares of common stock, issuable upon exercisenot including shares convertible from interest under the Convertible Notes, to shares of common stock, not including shares convertible from interest under the Convertible Notes, subject to rounding adjustments, and conversionthe number of warrants, convertible notes and ashares that the Class C Warrants may be exercised to purchase adjusted from 5,109,904 shares of common stock option), which were issued pursuantto 114,972,840 shares, subject to rounding adjustments.
Promissory Note Repayment Default
The Company did not repay the unsecured promissory note to Walleye Opportunities Master Fund Ltd. on the maturity date of May 7, 2023. Therefore, subsequently to the transactions listed above, not acceptquarter end, on May 7, 2023, the receipt ofprincipal amount was increased to $1,250,000 as stipulated in 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.agreement.
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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, 2022March 31, 2023 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, 20212022 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 (“20212022 (the “2022 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). 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 in the Part II, Item 1A under the heading “Risk 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 biomedical company dedicated to the accelerated development and commercialization of medical device technologies that improve patient health outcomes.
Currently, we are focused on developing three medical technology products – DuraGraft®, MATLOCTM and Krillase® – each of which is backed by a portfolio of patented or patent-pending assets. DuraGraft is a single-use intraoperative vascular graft treatment that protects against ischemic injury and reduces the incidence and complications of graft failure, therefore maintaining endothelial function and structure while improving clinical outcomes. MATLOC is a point-of-care, lab-on-chip digital screening and diagnostic device platform, initially being developed for quantitative chronic kidney disease, or CKD, assessment. Our Krillase protein enzyme provides a therapeutics opportunity for wound healing, thrombosis, and pet health.
Our three principal medical technologies – DuraGraft®, MATLOCTM and Krillase® – are expected to serve an unmet significant market need in several areas, including, cardiac surgery, CKD, and pet health. We are currently preparing DuraGraft, our endothelial damage inhibitor, or EDI, for the U.S. Food and Drug Administration, or FDA, De Novo classification process. We filed a pre-submission letter for DuraGraft with the FDA in November 2021 and we submitted the De Novo request for DuraGraft to the FDA in January 2023. Upon receiving FDA approval of DuraGraft, which we anticipate but cannot guarantee, we expect to quickly commercialize the product and build revenue rapidly utilizing multiple strategic partners and revenue channels. With our DuraGraft, MATLOC and Krillase technologies, we have the potential to bring three FDA-approved products to market.
For 2023, our primary business priority is achieving FDA approval of DuraGraft as a medical device for coronary bypass artery graft, or CABG, procedures, through the De Novo classification request process. Following FDA approval of DuraGraft, which we anticipate but cannot guarantee, we expect to begin to distribute and sell DuraGraft in the United States through the efforts of a strategic partner. If we are not able to find an appropriate strategic partner, we will have to build our own marketing and sales capabilities at a significant cost to us and with no guarantee of success. DuraGraft first received its CE marking in August 2014. CE marking signifies that DuraGraft may be sold in the European Economic Area, or EEA, and DuraGraft has therefore been assessed as meeting EEA safety, health, and environmental protection requirements. We will continue marketing efforts in Europe and in other countries that accept CE marking. In addition, we intend to fully develop and market DuraGraft in the U.S. for fat grafting procedures in plastic surgery procedures.
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In 2023, we also intend to continue the advancement of our MATLOC CKD point-of-care device, mainly through the development of our lab-on-chip technology under a Sponsored Research Agreement, or SRA. An SRA is an agreement (which may be classified as a grant, contract or cooperative agreement) under which one party (the “Sponsor”) provides funding to a second party to support the performance of a specified research project or related activity. The Sponsor may be a foundation, government agency, for-profit entity, research institute, or another university.
As we achieve FDA approvals, which we anticipate but cannot guarantee, we intend to prioritize the commercialization of our DuraGraft, MATLOC and Krillase platform products through multiple distribution and marketing channels in the U.S. We expect that once we enter the commercialization phase, we will be able to rapidly generate revenue growth. Additionally, in the near term we expect to generate revenue from the sale of DuraGraft through the expansion of our international marketing efforts by our distribution partners.
Key elements of our strategy include:
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| ● | ||
| ● | Develop MAR-FG-001 fat grafting technology and products. Continue with the development of MAR-FG-001 to validate its protective abilities and its improvements to the retention of fat volume. | |
| ● | Acquire more life science assets. Expand our |
We have incurred losses for each period from inception. Our net loss was approximately $1.6$2.6 million and $14.6$6.1 million for the three and nine months ended September 30,March 31, 2023 and 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 going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern. We will need to generate significant revenues to achieve profitability, and we may never do so.so.
Our Products
DuraGraft®Impact of COVID-19 Pandemic
Through our acquisition ofThe Company has been impacted by 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 organsCOVID-19 pandemic 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,related supply chain shortages and other vascular surgeries. It carries CE markingeconomic conditions, and is approved for marketing in 18 countries worldwidesome of its earlier plans to further diversify its operations and expand its operating subsidiaries were delayed as a result. During 2021 and the first two quarters of 2022, the impact of COVID-19 on three continents including, butthe Company’s supply chain and its ability to produce DuraGraft inventory was a primary reason that we did not limited to, the European Union countries, such as Spain, Austria,generate substantial revenue from sales of DuraGraft during 2021 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 surgeries2022. There can be no assurance that future supply chain 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, primarilyproblems due to medical and technological advances in the use of percutaneous coronary intervention, also known as “angioplasty” (idata Research, September 2018).COVID-19 outbreaks will not adversely impact our revenues.
In 2020,addition, 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 sizeCompany is dependent upon certain contract manufacturers and suppliers and their ability to reliably and efficiently fulfill its orders is critical to the Company’s business success. The COVID-19 pandemic has impacted and may continue to impact certain 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 expectedthe Company’s manufacturers and suppliers. As a result, the Company has faced and may continue to increase at a CAGR of 5.2%face delays or difficulty sourcing certain products, which could negatively affect the Company’s business 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”.financial results.
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Marizyme’s lab-on-chip technologyWhile it is currently being developed for screening and diagnosis relatednot possible at this time to estimate 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 theytotal impact that COVID-19 could have it, the risk of progressionon our business in the disease is highfuture, the continued spread of COVID-19 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 slowingvariants of the progressionvirus, the rate of CKD, allowing patientsvaccinations regionally and healthcare systems to reduceglobally and the enormousmeasures taken by the government authorities, and any future epidemic disease outbreaks, could: Disrupt the supply chain and the manufacture or shipment of products and supplies for use by us in our research activities and by strategic partners for their distribution and sales activities; delay, limit or prevent us in our research activities and strategic partners in their distribution and sales activities; impede our negotiations with strategic partners; impede testing, monitoring, data collection and analysis and other related activities by us; interrupt or delay the operations of the FDA or other regulatory authorities, which may impact review and approval timelines for initiation of clinical trials or marketing; or impede the launch or commercialization of any approved products; any of which could delay our strategic partnership plans, increase our operating costs, and have a material adverse effect on our business, financial condition and results 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.operations.
KrillasePrincipal Factors Affecting Our Financial Performance
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 producedOur operating results are primarily affected by microorganisms. As such, it may be useful in the mitigation or treatment of multiple disease states in humans. For example, Krillase may promote faster healing, support the grafting of skin for the treatment of chronic wounds and burns, and reduce bacterial biofilms associated with poor oral health in humans and animals.
We are currently focused on developing a Krillase-based product for the dissolving of plaque and biofilms on teeth for the pet health dental market. In addition, our Krillase platform team is planning a pet health study, and we expect that the results of this study may enable us to introduce our Krillase products into the pet health market in the United States. We believe that the U.S. pet health market presents a substantial opportunity for the marketing of our Krillase products. We expect to establish the first stream of revenue from the sale of Krillase-based pet health products in 2023.
Our strategic plan for Krillase is, first, to leverage and maximize near-term revenue generating opportunities with Krillase products for commercial or clinical applications with low regulatory risk, such as in the pet health market, and second, to develop products for applications of the Krillase platform that address unmet medical needs or address medical market needs better than existing products in the marketplace, in clinical applications with higher regulatory risk but significant commercial potential.
Our Competitive Strengths
We believe that the following competitive strengths will enable us to compete effectively:factors:
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Our Growth Strategies
We will strive to grow our business by pursuing the following key growth strategies:
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| ● | the average price for our products that will be paid by consumers; | |
| ● | the number of our products ordered per quarter; | |
| ● | costs to manufacture our products; | |
| ● | the costs of compliance with any unforeseen regulatory obstacles or governmental mandates in any states or countries in which we seek to operate; and | |
| ● | the costs of any additional clinical studies which are deemed necessary for us to remain viable and competitive in any region of the world. |
The strategic plans described aboveSmaller Reporting Company
We are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will require capital. We expect to raiseremain a substantial portionsmaller reporting company until the last day of the required capitalfiscal year in which (1) the market value of our planned future offerings. There can be no assurances, however, that we will be able to raiseshares held by non-affiliates equals or exceeds $250 million as of the capital that we need to executeprior June 30th, or (2) our plansannual revenues equaled or that capital, whether through securities offerings, either privateexceeded $100 million during such completed fiscal year and the market value of our shares held by non-affiliates equals 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.exceeds $700 million as of the prior June 30th.
KEY HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022MARCH 31, 2023
Financing
In 2021 and 2022, the Company offered units (the “Units Offering”) comprised of convertible notes and warrants, with the intent to raise up to $17,000,000 on a rolling basis. In 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. As a result:February 2023 Unsecured Subordinated Promissory Note
In aggregate, the Company received $14.8 million in proceeds from the units 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.
Reverse Stock Split
On August 1, 2022, the Board of Directors (the “Board”) of Marizyme approved a reverse stock split of the Company’s authorized and outstanding common stock at a ratio of 1-for-4. On August 3, 2022, the Company effected the reverse stock split by filing a Certificate of Change with the Secretary of State of the State of Nevada. As a result, the total number of shares of common stock held by each stockholder was converted automatically into the number of whole shares of common stock equal to the number of issued and outstanding shares of common stock held by such stockholder immediately prior to the reverse stock split, divided by four, subject to rounding of fractional shares. The Company expects that the reverse stock split will be reflected in the trading price of the common stock after the Financial Industry Regulatory Authority, Inc. (“FINRA”) completes its processing of the reverse stock split, which is expected to be the date on which the common stock is listed on the Nasdaq Capital Market tier operated by Nasdaq in the event that the Company’s listing application to Nasdaq is approved.
As a result of the reverse stock split, there are approximately 10,207,212 shares of common stock outstanding, not including the shares of common stock included in the units that the Company expects to issue in this public offering or upon any exercise of the Over-Allotment Option or of any warrants included in the units issued to investors or of the representative’s warrant. No fractional shares have been or will be issued, and no cash or other consideration has been or will be paid. Instead,February 2, 2023, the Company issued one whole sharean unsecured subordinated promissory note to Walleye Opportunities Master Fund Ltd. (“Walleye”) for the principal amount of $1,000,000 bearing no interest, due on May 7, 2023. Under the terms of the post-reverse stock split common stock to any stockholder who otherwise would have received a fractional share as a result ofpromissory note, if the reverse stock split. The Company’s existing shareholders’ percentage ownership interests inprincipal amount was not repaid by the Company remainsby such date, then the same followingprincipal amount shall be increased to $1,250,000. The Company did not repay the reverse stock split (subjectnote upon its maturity, and as of date of this report, the principal outstanding under the note had been increased to rounding of fractional shares). $1,250,000.
As of November 14, 2022, the approval from Nasdaq is still pending and FINRA has not yet completed the processing of the reverse stock split for purposes of the trading price of the common stock.
Operational
In 2021 Marizyme undertook a corporate restructuring, whereby the key officers, directors, and management team changed in order to accelerate Company’s progress toward meeting its key objectives and deliver on its strategy. In the nine months ended September 30, 2022, the executive and management team was focused on meeting and delivering on the Company’s objectives to commercialize its products and advance in its search for more life science assets. Additionally, the Board of Directors of the Company was increased to seven members and a new Chair of the 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 Partnerdistribution partner channel, we recognize revenue for product sales at the time of delivery of the product to our Distribution Partner.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 costscost 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 costscost 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 certain related party relate to certain consulting services - see Note 9 to the financial statements accompanying this report for further related party disclosures.services. We anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchangeSecurities and Exchange Commission, or SEC, requirements, and with listing and SECmaintaining compliance with securities exchange requirements.
Salaries and Stock-Based Compensation
Salaries consistsconsist 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, forthose 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,DuraGraft, and costs related to manufacturing DuragraftDuraGraft for clinical trials. The Company has entered into various research and development contracts with various organizations and other companies.
Depreciation and Amortization
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. Intangible assets acquired as a result of an acquisition or in a business combination are measured at fair value at the acquisition date. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the estimated useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis.
Royalty Expenses
As part of the Somahlution Acquisition (as defined in “—Recent Developments – Exercise of Somahlution Warrants with Reduced Exercise Price”), the Company entered into the Somahlution Agreement (as defined in “—Recent Developments – Exercise of Somahlution Warrants with Reduced Exercise Price”), under which the Company became legally obligated to pay royalties on all net sales of certain products. Royalty expenses consists of royalty payable accrued on net sales of DuraGraft product within and outside of the U.S.
Other General and Administrative Expenses
Other general and administrative expenses consist principally of marketing and selling expenses, facility costs, administrative and office expenses, director and officer insurance premiums, and investor relations costs associated with operating a public company.
Other Income (Expenses)
Other income (expenses) consistsand expenses consist of mark-to-market adjustments on contingent liabilities assumed on the acquisition of Somah assetsthe Somahlution Assets (as defined in “—Liquidity and Capital Resources – Recent Developments – Exercise of Somahlution Warrants with Reduced Exercise Price”) and interest and accretion expenses related to our convertible notes issued pursuantConvertible Notes (as defined in “—Liquidity and Capital Resources – Recent Developments – Adjustment to the units private placement.Conversion Price of Convertible Notes and Exercise Price of Class C Warrants”).
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RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30,March 31, 2023 and 2022 and 2021
The following table summarizes our results of operations for the three months ended September 30, 2022March 31, 2023 and 2021:2022:
| Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
| Revenue | $ | 76,012 | $ | 37,215 | $ | 38,797 | $ | 128,974 | $ | - | $ | 128,974 | ||||||||||||
| Direct cost of revenue | 39,275 | - | 39,275 | |||||||||||||||||||||
| Gross profit | 89,699 | - | 89,699 | |||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| 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 | ) | ||||||||||||||||||||
| Professional fees | 384,806 | 544,040 | (159,234 | ) | ||||||||||||||||||||
| Salary expenses | 330,221 | 517,192 | (186,971 | ) | 266,968 | 915,640 | (648,672 | ) | ||||||||||||||||
| Research and development | 708,220 | 241,748 | 466,472 | 605,997 | 1,218,296 | (612,299 | ) | |||||||||||||||||
| Stock-based compensation | 271,517 | 64,074 | 207,443 | 210,966 | 716,432 | (505,466 | ) | |||||||||||||||||
| Depreciation and amortization | 210,361 | 1,425 | 208,936 | 210,338 | 210,361 | (23 | ) | |||||||||||||||||
| Royalty expense | 36,183 | - | 36,183 | |||||||||||||||||||||
| Other general and administrative expenses | 469,656 | 489,820 | (20,164 | ) | 507,324 | 390,572 | 116,752 | |||||||||||||||||
| Total operating expenses | 2,309,052 | 1,792,993 | 516,059 | 2,222,582 | 3,995,341 | (1,772,759 | ) | |||||||||||||||||
| Total operating loss | $ | (2,233,040 | ) | $ | (1,755,778 | ) | $ | (477,262 | ) | $ | (2,132,883 | ) | $ | (3,995,341 | ) | $ | 1,862,458 | |||||||
| Other income (expenses): | ||||||||||||||||||||||||
| Interest and accretion expense | (810,598 | ) | (70,221 | ) | (737,960 | ) | (1,697,701 | ) | (299,544 | ) | (1,398,157 | ) | ||||||||||||
| Change in fair value of contingent liabilities | 1,491,000 | 194,000 | 1,297,000 | 1,276,000 | (1,830,000 | ) | 3,106,000 | |||||||||||||||||
| Net loss | $ | (1,552,638 | ) | $ | (1,631,999 | ) | $ | 81,778 | $ | (2,554,584 | ) | $ | (6,124,885 | ) | $ | 3,570,301 | ||||||||
Revenue and Direct Cost of Revenue
We recognized revenue of approximately $0.08$0.1 million for the three months ended September 30, 2022March 31, 2023 compared to approximately $0.04 millionnone for the three months ended September 30, 2021. The increaseMarch 31, 2022. No revenue was generated in revenues wasthe three months ended March 31, 2022 due to the impact of the COVID-19 pandemic on the Company’s supply chain in fiscal 2021 and its ability to produce DuragraftDuraGraft inventory. The Company’s inventory during 2021 and the resumption of production of DuraGraft returned to its pre-pandemic level at the Company’s DuraGraft inventory and sales in Q2 2022.
Direct Costsend of Revenue
The higher direct coststhe second quarter of revenue in2022, but lingering effects of the comparative Q3 2021 quarter was predominantly duepandemic continued to the COVID-19 interruptions to the Company’s supply chain and limited access to raw materialsdepress demand for DuraGraft product. Duringand cause revenues from DuraGraft during the three months ended September 30, 2022, our executive and management teams’ effortsfirst quarter of 2023 to re-establish the Company’s business relationships with its trusted manufacturing and distribution partners, and the loosening of COVID-19 restrictions, led to a decrease in direct costs of revenue.be minimal.
Professional Fees
Professional fees decreased by approximately $0.2$0.1 million or 34%29.3% to approximately $0.3$0.4 million in Q3 2022the three months ended March 31, 2023 compared to approximately $0.5 million in Q3 2021.the three months ended March 31, 2022. The decrease relates to higher professional fees incurred in the prior comparative period due to legal fees incurred in connection with the acquisitioninitial filing of a registration statement on Form S-1 with the Somah assets.SEC for a public offering during the quarter ended March 31, 2022 .
Salary Expenses
Salary expenses in Q3 2022the three months ended March 31, 2023 were approximately $0.3 million, an approximately $0.2$0.6 million or 36%70.8% decrease from the comparative period. The decrease in the cost is attributable to reductions in employee salaries as part of efforts to streamline the restructuring in the prior comparative period as the Company restructured its executive and management teams in 2021.Company’s operations.
Research and Development
Research and development expenses in Q3 2022,the three months ended March 31, 2023 were approximately $0.7$0.6 million, an approximately $0.5a $0.6 million or 193% increase50.3% decrease from the comparative period. The increasedecrease in research and development expenses can be mainly attributed to the Company’s acquisitionreduction of MATLOC 1 assetsexpenses in late 2021the later period and itsprimary focus on progressing its De Novo FDA submission for DuraGraft approval, compared to higher expenses incurred in the quarter ended March 31, 2022 due to the simultaneous development and advancement of several projects, including the commercialization of DuraGraft, Krillase, and MATLOC 1 towards commercialization.1.
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Stock-Based Compensation
Stock-based compensation increaseddecreased to approximately $0.2 million for the three quarters ended March 31, 2023 from approximately $0.06$0.7 million in the comparative quarter ended March 31, 2022, which represents 70.6% decrease period over period. The decrease in stock-based compensation was due to approximately $0.27the relative absence in the first quarter of 2023 of expense recognition of restricted stock award compensation in comparison to $0.3 million duringof such expense recognized for 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.March 31, 2022.
Depreciation and Amortization
Depreciation and amortization increased approximately $0.21remained consistent at $0.2 million or 324% in Q3 2022.the current and comparative period. The increase was due to the acquisition of My Health Logic in December 2021 and itsCompany did not acquire any new tangible or intangible capital assets and acquisitionin any of the Somah assetsperiods indicated.
Royalty Expense
During the three months ended March 31, 2023, the Company accrued $0.04 million in July 2020 where key intellectual productsroyalties payable incurred on sales of DuraGraft outside of the U.S. No royalties were acquired.accrued in the comparative period as no sales of DuraGraft occurred in the three months ended March 31, 2022.
Other General and Administrative Expenses
Other general and administrative expenses decreasedincreased approximately $0.02$0.1 million or 4%29.9% to approximately $0.47$0.5 million in Q3 2022.the three months ended March 31, 2023. The majority of the increased expenses in Q3 2022the three months ended March 31, 2023 were due to the Company’s lower non-legal professional fees related to the filing of an amendmentincurred in connection with amendments to a Registration Statementregistration statement on Form S-1 inthat were filed with the period and preparationSEC for the Company’sa 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.offering.
Other Income (Expenses)
In Q3 2022,the three months ended March 31, 2023, the Company incurred approximately $0.8$1.7 million of interest and accretion costs associated with convertible notes issued at discount as part of its units private placement Units Private Placement (as defined in “—Liquidity and Capital Resources – Recent Developments – Adjustment to Conversion Price of Convertible Notes and Exercise Price of Class C Warrants”) compared to $0.3 million, a $1.4 million or 466.7% increase in the comparative quarter ended March 31, 2022.
Additionally, the Company recognized $1.5$1.3 million of fair value gain from mark-to-market adjustments on the contingent liabilities assumed on the acquisition of the Somah assetsSomahlution Assets due to the change of the fair value of the contingent consideration.
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, 2022consideration 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 84% to approximately $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.
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 nine months ended 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 public offering, increased rent due to the lease of additional office and laboratory space, and expenses associated with running a public 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 Income (Expenses)
During the nine months ended September 30, 2022, the Company incurred approximately $1.6 million of interest and accretion costs associated with convertible notes issued at discount as part of the Company’s units private placement. Additionally, the Company recognized approximately $2.1$1.8 million of fair value loss, an increase of $3.1 million from mark-to-market adjustmentsadjustment on the contingent liabilities assumed onliability in the acquisition of Somah due to the change of the fair value of the contingent consideration.comparative quarter ended March 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have incurred significant net losses and negative cash flows from operations. As of September 30, 2022,March 31, 2023, we had available cash of approximately $1.2$0.3 million and accumulated deficit of approximately $62$88.5 million. We fundhave funded our operations throughprimarily from capital raises.
Recent Developments
Units Private Placement
Exercise of Somahlution Warrants with Reduced Exercise Price
During
As previously reported in Current Reports on Form 8-K filed by the nine months ended SeptemberCompany on December 19, 2019 and August 5, 2020, on December 15, 2019, the Company entered into an asset purchase agreement (the “Somahlution Agreement”), as amended on March 31, 2020, May 29, 2020, and July 30, 2022,2020, with Somahlution. Pursuant to the terms of the Somahlution Agreement, as amended, the Company agreed to purchase (the “Somahlution Acquisition”) all of the assets and none of the liabilities of Somahlution, provided that the Company agreed to acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. (the “Somahlution Assets”). On August 4, 2020, the Somahlution Acquisition closed. As consideration for the Somahlution Acquisition, the Company issued 4,180,071 units in its units private placementto certain designees of Somahlution (the “Warrant Holders”) a total of 10,000,000 restricted shares of common stock and five-year warrants to purchase an additional 2,999,955 shares of common stock with an exercise price of $5.00 per share (the “Somahlution Warrants”).
On April 13, 2023, the Company delivered offer letter agreements (the “Somahlution Warrant Offer Letter Agreements”) to the Warrant Holders, which offered to allow the Warrant Holders to exercise the Somahlution Warrants to purchase the number of restricted shares of common stock issuable under their Somahlution Warrants at an exercise price reduced by the Company from $5.00 per share to $0.10 per share, on or prior to April 21, 2023, for maximum total cash proceeds of $299,995.50. As of the conclusion of this offer period, four of the Warrant Holders had entered into Somahlution Warrant Offer Letter Agreements and had exercised their Somahlution Warrants to purchase a total of 2,652,159 shares of common stock for gross proceeds of approximately $7.3 million. Of$265,216 (the “Warrant Exercise”). Univest Securities, LLC (“Univest”), as the total 4,180,071 units issued: (i) 159,245 units were issued to settle notesCompany’s placement agent, which facilitated the Warrant Exercise, waived any fees or reimbursable expenses that would otherwise have been payable assumed on acquisition of My Health Logic, (ii) 22,857 units were issued to settle accounts payable, and 171,428 units were issued in exchange for services renderedwith respect to the Warrant Exercise pursuant to the Placement Agency Agreement, dated as of December 21, 2021, between Univest and the Company.
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The foregoing description of the Somahlution Warrant Offer Letter Agreements is qualified in its entirety by reference to the form of such documents which is filed as Exhibit 10.1 to the Current Report on Form 8-K filed on April 20, 2023.
Adjustment to Conversion Price of Convertible Notes and Exercise Price of Class C Warrants
As previously reported in a Current Report on Form 8-K filed by the Company on January 17, 2023 (the “January 2023 Form 8-K”), from May 2021 to August 2022, the Company conducted a private placement of units (the “Units Private Placement”) consisting of 10% secured convertible promissory notes (the “Convertible Notes”) and accompanying warrants (the “Class C Warrants”), as were modified or amended from time to time, with Univest, the terms of which were described in detail in the nine months ended September 30, 2022. The remaining proceeds from this offeringJanuary 2023 Form 8-K. As reported in the January 2023 Form 8-K, among their other terms, the Convertible Notes and Class C Warrants provide that a lower price per share, or more favorable terms, respectively, under subsequent equity issuances, not including qualified financings and certain other exempt issuances, will be usedapplicable to sustain the Company’s growthconversion or exercise rights under the Convertible Notes and meet its capital obligations.Class C Warrants, respectively. In addition, as reported in the January 2023 Form 8-K, under a Letter Agreement between the Company and Univest as placement agent for the investors in the Units Private Placement, dated January 12, 2023 (the “Univest Letter Agreement”), the parties agreed that simultaneously with any adjustment to the exercise price under the Class C Warrants as a result of any equity issuances, not including qualified financings and certain other exempt issuances, the number of shares of common stock that may be purchased under the Class C Warrants will be increased such that the aggregate exercise price of such shares will be the same as the same as the aggregate exercise price in effect immediately prior to the adjustment, without regard to any limitations on exercise contained in the Class C Warrants, including the beneficial ownership limitation described above.
At the time of the Warrant Exercise, the Convertible Notes were convertible at a conversion price of $1.75 per share and the Class C Warrants were exercisable at an exercise price of $2.25 per share. Outstanding Convertible Notes have underlying principal of $14,471,177, and outstanding Class C Warrants were exercisable to purchase a total of 16,538,473 shares of common stock. In connection with the transaction contemplated by the Somahlution Warrant Offer Letter Agreements and certain unrelated matters, the Company obtained exercise and conversion rights waivers and amendments from certain holders of the Convertible Notes and Class C Warrants, which reduced the principal underlying Convertible Notes’ with conversion rights to Convertible Notes with a total of $4,471,177 in principal, and reduced outstanding Class C Warrants with exercise rights to Class C Warrants having exercise rights to Class C Warrants exercisable to purchase 5,109,904 shares of common stock. As a result of the Warrant Exercise and pursuant to the adjustment provisions described above, the conversion price of the Convertible Notes and the exercise price of the Class C Warrants adjusted to $0.10 per share. As a result of these adjustment provisions and the conversion and exercise terms of the Convertible Notes and Class C Warrants, the number of shares into which the Convertible Notes may be converted adjusted from 2,554,944 shares of common stock, not including shares convertible from interest under the Convertible Notes, to 44,711,770 shares of common stock, not including shares convertible from interest under the Convertible Notes, subject to rounding adjustments, and the number of shares that the Class C Warrants may be exercised to purchase adjusted from 5,109,904 shares of common stock to 114,972,840 shares, subject to rounding adjustments.
The foregoing description of the Univest Letter Agreement, the Convertible Notes and the Class C Warrants is qualified in its entirety by reference to the description of these and related documents and transactions in “Item 1.01 Entry into a Material Definitive Agreement.” of the January 2023 Form 8-K.
Public Offering
On February 14, 2021,2022, Marizyme filed a Registration Statementthe initial registration statement on Form S-1 relating to the Company’s proposed public offering to raise up to $17,250,000. As at the end of Q3 2022, the final prospectus had not yet been filed and the final amount of the offering will be dependent on market conditions. The proceeds from the offering will be used byOn April 21, 2023, the Company (i)withdrew the registration statement on Form S-1 as it does not intend 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 thatpursue the contemplated public offering will close in Q4 2022.at this time .
Promissory Note Repayment Default
On February 2, 2023, the Company issued an unsecured promissory note to Walleye for $1,000,000 with a maturity date of May 7, 2023. The note has no interest and the principal amount shall be paid in full on the maturity date. In the event that the principal amount is not repaid in full on maturity date, the principal amount shall be increased to $1,250,000. The Company did not repay the note upon its maturity, and as of the date of this report, the principal outstanding under the note had been increased to $1,250,000.
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 | |
| ● | Increase in research and development and legal | |
| ● | 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.
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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.arrangements. 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 rightsthe interests 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 stockholders’ 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.our products.
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:
| Nine Months Ended September 30, | Three months ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | 2023 | 2022 | $ Change | |||||||||||||||||||
| Net cash provided by/(used in): | ||||||||||||||||||||||||
| Net Cash provided by/(used in): | ||||||||||||||||||||||||
| Operating activities | $ | (9,266,036 | ) | $ | (4,313,038 | ) | $ | (4,952,998 | ) | $ | (1,120,156 | ) | $ | (4,313,744 | ) | $ | 3,193,588 | |||||||
| Investing activities | - | - | - | |||||||||||||||||||||
| Financing activities | 6,375,945 | 1,426,949 | 4,948,996 | 939,096 | 3,414,372 | (2,475,276 | ) | |||||||||||||||||
| Net change in cash | $ | (2,890,091 | ) | $ | (2,886,089 | ) | $ | (4,002 | ) | $ | (181,060 | ) | $ | (899,372 | ) | $ | 718,312 | |||||||
Operating Activities
Net cash used in operating activities was approximately $9.3$1.1 million and approximately $4.3 million infor the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The net cash used in operating activities duringfor the ninethree months ended September 30, 2022March 31, 2023 was due to approximately $1.7$0.6 million spent on professional fees,research and development, approximately $2.1$0.3 million spent on salaries and related compensation expenses, $0.5 million in other general and administrative expenses and approximately $3.3$0.4 million spent on professional fees. The net cash used in operating activities for the three months ended March 31, 2022 was due to approximately $1.2 million spent on research and development, activities . The net change in operating assets and liabilities primarily related to approximately $0.4$0.5 million spent on the manufacturing of DuraGraft productprofessional fees and $0.9 million spent on salaries and related compensation expenses. The decrease in net cash used in operating activities in the period and an approximately $1.8 million increase in accounts payable, accrued expenses, and amountsthree months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to related partiesthe decrease in support of the growth of ourCompany’s research and development expenses, salaries and other operating activities.compensation, and professional fees.
Financing Activities
Net cash provided by financing activities for the ninethree months ended September 30,March 31, 2023 was due to $1.0 million of funds raised from the issuance of an unsecured promissory note to Walleye. During the three months ended March 31, 2023 the Company also repaid approximately $0.1 million in notes payable. Net cash provided by financing activities for the three months ended March 31, 2022 was due to approximately $6.5$3.7 million of funds raised from the issuance of convertible promissory notes in connection with the Company’s units private placement, net of issuance costs. During the nine months ended September 30, 2022, theUnits Private Placement. The Company also repaid notes payablesettled an aggregate of approximately $0.1$0.3 million in notes payable as part of the units private placement issuances and repaid approximately $0.1 million in notes payable assumed onUnits Private Placement during the acquisition of My Health Logic.three months ended March 31, 2022.
Contractual Obligations and Commitments
Other than disclosed below, there were no material changes outside the ordinary course of our business during the ninethree months ended September 30, 2022March 31, 2023 to the information regarding our contractual obligations that was disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Contractual Obligations and Commitments” contained in our 2021the 2022 Form 10-K.
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Royalties and Other Commitments
Upon receiving the FDA clearance for the DuraGraft and other key intellectual products,On December 15, 2019, the Company will:entered into the Somahlution Agreement to acquire the Somahlution Assets, including DuraGraft®. The Somahlution Agreement was amended on March 31, 2020 and May 29, 2020 to extend the termination date. On July 30, 2020, the Company and Somahlution entered into Amendment No. 3 to the Somahlution Agreement (“Amendment No. 3”). Pursuant to the terms of this amendment, it was agreed that, as part of the Somahlution Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc., in addition to the Somahlution Assets. This change to the Somahlution Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the EU. In Amendment No. 3, the Company agreed to assume certain payables of Somahlution related to clinical and medical expenses. The parties also orally agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties.
Pursuant to the Somahlution Agreement and in consideration of the outstanding capital stock of Somahlution, Inc., the Company agreed to pay to certain beneficial owner designees of Somahlution, among other consideration:
| ● |
| ■ | Royalties to be paid on all net sales of the product | |
| ■ | Upon the sale of DuraGraft products, the Company will pay pro rata the Somahlution designees 15% of the net sale proceeds towards the liquidation preference maximum amount of $20 million described below; |
| ○ | Somahlution derived solid organ transplant products: |
| ■ | Royalties to be paid on all net sales of the product of 6% on the first $50 million of international net sales, 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million; | |
| ■ | Upon the sale of DuraGraft products, the Company will pay pro rata the Somahlution designees 15% of the net sale proceeds towards the liquidation preference maximum amount of $20 million described below; |
| ○ | Somahlution Assets-derived over-the-counter products: |
| ■ | Royalties to be paid on all net sales of the product of 6% on the first $50 million of international net sales, 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million; |
| ○ | Other Somahlution Assets-derived products from existing Somahlution pipelines: |
| ■ | Royalties to be paid on all net sales of the product of 1%; and |
| ● |
For additional discussion of this transaction, see “Item 13. Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons” of the 2022 Form 10-K.
Office and Laboratories Space Lease Commitments
The Company has entered into arrangements for office and laboratories spaces. As at September 30, 2022,March 31, 2023, minimum lease payments in relation to lease commitments were payable as outlined in Note 5“Note 4 – Leases”, included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.
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Promissory Notes
On October 23, 2022, the Company issued a note payable to Hub International Limited for $204,050 bearing interest at the annual rate of 6.75% per annum, due September 23, 2023, payable monthly starting November 23, 2022. As of March 31, 2023, the balance of note payable due was $103,824 (December 31, 2022 - $164,729).
On December 28, 2022, the Company issued a promissory note to Hexin Global Ltd. for the principal amount of $750,000 bearing interest at the annual rate of 20% per annum, due June 28, 2023. Pursuant to the interimpromissory note, the Company agreed to issue warrants to purchase common stock equal to $1,500,000 with the same terms as any warrants issued in the Company’s next financing round and which will be immediately exercisable. Default in the payment of principal or interest or other material covenant under the note triggers a default penalty equal to 0.666% of $750,000 per month during the period of default, and other lender rights, including the demand of immediate payment of all amounts due including accrued but unpaid interest, and recovery of all costs, fees including attorney’s fees and disbursements, and expenses relating to collection and enforcement of the promissory note. As of March 31, 2023, the balance due under this note was $750,000.
On February 2, 2023, the Company issued an unsecured promissory note to Walleye for $1,000,000 with a maturity date of May 7, 2023. The note has no interest and the principal amount shall be paid in full on the maturity date. In the event that the principal amount is not repaid in full on maturity date, the principal amount shall be increased to $1,250,000. The Company did not repay the note upon its maturity, and as of the date of this report, the principal outstanding under the note had been increased to $1,250,000.
As part of the My Health Logic acquisition, Marizyme assumed an aggregate of $468,137 in notes payable, the notes were unsecured, bore interest at a rate of 9% per annum with no maturity date. The Company settled an aggregate of $278,678 of these notes payable as part of Units Private Placement during the year ended December 31, 2022 (see “Note 7 – Convertible Promissory Notes and Warrants”, included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q ). For the three months ended March 31, 2023, the Company accrued $13,068 in interest on the notes payable (March 31, 2022 - $6,085). As of March 31, 2023, the balance of the remaining note payable was $231,168 (December 31, 2022 - $218,100).
Changes in Capitalization
As previously reported, on August 3, 2022, the Company filed the First Certificate of Change with the Nevada Secretary of State, which provided for the First Reverse Stock Split. Pursuant to NRS Section 78.209(3), the First Certificate of Change became effective at the First Certificate of Change Effective Time. On December 30, 2022, the Company filed the Certificate of Amendment with the Nevada Secretary of State, which provided for the Authorized Capital Increase, and which became effective at the Certificate of Amendment Effective Time. On January 5, 2023, the Second Certificate of Change was filed with the Nevada Secretary of State, which provided for the Second Reverse Stock Split. Pursuant to NRS Section 78.209(3), the Second Certificate of Change became effective at the Second Certificate of Change Effective Time.
Subsequently, the Company submitted a request to FINRA to process and announce each of the First Reverse Stock Split and Second Reverse Stock Split on FINRA’s Daily List of issuer corporate actions in accordance with FINRA Rule 6490. In order to address FINRA’s issuer corporate action processing requirements, the Third Certificate of Change, Fourth Certificate of Change and Fifth Certificate of Change was each filed by the Company with the Nevada Secretary of State. These filings provided for two forward stock splits of the authorized and issued and outstanding common stock at the same ratios as the First Reverse Stock Split and Second Reverse Stock Split followed by a reverse stock split at their combined ratio. The Fifth Certificate of Change provided for the decrease of the authorized common stock from 300,000,000 to 20,000,000 and corresponding change of every fifteen (15) shares of the issued and outstanding common stock to one (1) share, and became effective at the Fifth Certificate of Change Effective Time.
As of the date of this report, FINRA had not processed the Consolidated Reverse Stock Split. Unless indicated otherwise, all share amounts, share price amounts and amounts derived from share amounts and share price amounts contained in this report do not give effect to the First Reverse Stock Split, the Second Reverse Stock Split, the First Forward Stock Split, the Second Reverse Stock Split, or the Consolidated Reverse Stock Split. See “Note Regarding Presentation of Capitalization in this Report” of this report for additional information.
Going Concern
The Company, since its inception, has incurred recurring operating losses and negative cash flows from operations and has an accumulated deficit of $88,544,017 at March 31, 2023 (December 31, 2022 - $85,989,433). Additionally, the Company has negative working capital of $6,148,031 (December 31, 2022 - $966,464) and $329,805 (December 31, 2022 - $510,865) 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.
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The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its operations is dependent on the execution of management’s plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial statements.
There can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Based on the Company’s current resources, the Company will not be able to continue to operate without additional immediate funding. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
The Company has been impacted by the COVID-19 pandemic and related supply chain shortages and other economic conditions, and some of its earlier plans to further diversify its operations and expand its operating subsidiaries were delayed as a result. See “–Impact of COVID-19 Pandemic” above.
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 ofWhile our criticalsignificant accounting policies please seeare more fully described in “Note 3 – Summary of Significant Accounting Policies”, included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q, we believe that the section entitled “Management’s Discussionfollowing accounting policies are the most critical for fully understanding and Analysisevaluating our financial condition and results of operations.
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. As of March 31, 2023, the Company had recorded deferred offering costs of $549,795 (December 31, 2022 - $387,412) reported as a prepaid expense on the accompanying balance sheets.
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 and considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain accounts and other receivables, accounts payable and accrued expenses, note payable, and amounts due to related parties approximate fair value due to the short-term nature of these instruments.
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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 Somahlution 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.
| 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 5.96 years. For the three months ended March 31, 2023, changes in these assumptions resulted in a $624,000 decrease in fair value of these liabilities. At March 31, 2023, the fair market value of performance warrants and pediatric vouchers warrants liabilities was $803,000 (December 31, 2022 – $1,427,000). | |
| 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 months ended March 31, 2023, changes in these assumptions resulted in a $667,000 decrease in fair value of this liability. At March 31, 2023, the fair market value of royalty payments was $4,735,000 (December 31, 2022 – $5,402,000). | |
| 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 months ended March 31, 2023, changes in these assumptions resulted in a $15,000 increase in fair value of this liability. At March 31, 2023, the fair market value of rare pediatric voucher sales liability was $1,070,000 (December 31, 2022 – $1,055,000). | |
| 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 of 78.93%, 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 months ended March 31, 2023. At March 31, 2023, the fair market value of liquidation preference was $1,823,000 (December 31, 2022 – $1,823,000). |
The derivative liabilities consist of optional and automatic conversion features and the share redemption feature attached to the convertible notes, issued pursuant to certain convertible promissory notes and warrants transactions (see “Note 7 – Convertible Promissory Notes and Warrants”, included in “Item 1. Financial ConditionStatements” of this Quarterly Report on Form 10-Q).
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 of March 31, 2023, and ResultsDecember 31, 2022, the fair values of these financial instruments were as follows:
| Fair Value Hierarchy | ||||||||||||
| March 31, 2023 | Level 1 | Level 2 | Level 3 | |||||||||
| Liabilities | ||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 4,823,725 | ||||||
| Contingent liabilities | - | - | 8,431,000 | |||||||||
| Total | $ | - | $ | - | $ | 13,254,725 | ||||||
| Fair Value Hierarchy | ||||||||||||
| December 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||
| Liabilities | ||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 4,823,725 | ||||||
| Contingent liabilities | - | - | 9,707,000 | |||||||||
| Total | $ | - | $ | - | $ | 14,530,725 | ||||||
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The following table provides a roll forward of all liabilities measured at fair value using Level 3 significant unobservable inputs:
| Derivative and Contingent Liabilities | ||||
| Balance at December 31, 2022 | $ | 14,530,725 | ||
| Change in fair value of contingent liabilities | (1,276,000 | ) | ||
| Balance at March 31, 2023 | $ | 13,254,725 | ||
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits, for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of DuraGraft, and costs related to manufacturing DuraGraft for clinical trials. The Company has entered into various research and development contracts with various organizations. Payments of these activities are based on the terms of the individual agreements which matches to the pattern of costs incurred. Payments made in advance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be required in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
Stock-Based Compensation
Stock-based compensation expense for employees and directors is recognized in the Condensed Consolidated Statements of Operations - Critical Accounting Policiesbased on estimated amounts, including the grant date fair value and Estimates” containedthe expected service period. For stock options, the Company estimates the grant date fair value using a Black-Scholes valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. The Company estimates the expected future volatility based on the stock’s historical price volatility. The stock’s future volatility may differ from the estimated volatility at the grant date. For restricted stock unit (“RSU”) equity awards, the Company estimates the grant date fair value using its closing stock price on the date of grant. The Company recognizes the effect of forfeitures in our 2021 Form 10-K. There have not been any material changes tocompensation expense when the critical accounting policies discussed thereinforfeitures occur. The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the nine months ended September 30, 2022.period. The Company recognizes the value of the awards over the awards’ requisite service or performance periods. The requisite service period is generally the time over which share-based awards vest.
Off-Balance Sheet Arrangements
As of September 30, 2022,March 31, 2023, 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.
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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 September 30, 2022, our disclosure controls and procedures were ineffective due to the material weakness described below.
Disclosure controls and procedures meansare defined in Rule 13a-15(e) under the Exchange Act to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuerus in the reports that it fileswe file or submitssubmit 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
At the end of the period covered by this Quarterly Report on Form 10-Q an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of our disclosure controls and procedures includes(as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2023. This conclusion was based on the material weaknesses in our internal control over financial reporting as further described below.
Material Weaknesses
A material weakness is 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’sour annual or interim consolidated financial statements will not be prevented or detected and corrected on a timely basis by the company’s internal controls.
basis. As previously reported in our annual report onthe 2022 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 weaknessweaknesses in the design and operating effectiveness ofour internal controls related to inadequate internal technical staffing levels and lack of board or management oversight. control over financial reporting. These material weaknesses were as follows:
| ● | 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, and | |
| ● | We did not have sufficient resources with appropriate knowledge, experience and/or training commensurate with our financial reporting requirements to assist us in our timely and efficient preparation and review over our financial reporting. |
In connection with our preparation of our interim condensed consolidated financial statements for the three and nine months ended September 30, 2022,March 31, 2023, we identified material weaknesses in our disclosure controls and procedures due to the material weaknesses in internal control over financial reporting related to the following:
| ● | We did not | |
To remediate the material weaknessesweakness 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:
| ● | ||
| ● | ||
| ● | Appointing of qualified personnel to the key management roles to provide oversight and develop stronger controls, policies and procedures. | |
| ● | 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 believecannot assure you that these ongoing or planned measures will remediatein response to the material weakness in our internal control over financial reporting and disclosure controls and procedures described above.will be sufficient to remediate such material weakness or to avoid potential future material weaknesses.
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. In the ninethree months ended September 30, 2022,March 31, 2023, the Company took the following steps in order to improve its internal controls over financial reporting:
| ● | ||
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During the nine months ended September 30, 2022, management of the Company will continue to work on addressing to remediate the material weaknesses in internal controls over financial reporting described above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. 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 June 7, 2022, Nicholas DeVito, a former Interim Chief Executive Officer and Interim Chief Financial Officer of the Company, filed a Complaint in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, Case No. 50-2022-CA-005437 (the “Florida Circuit Court”), against the Company (the “DeVito Complaint”). The DeVito Complaint claimed breach of contract, declaratory relief, specific performance, breach of an implied covenant of good faith and fair dealing, and unjust enrichment against the Company with respect to the Company’s alleged breach of the common stock issuance requirements of an Incentive Stock OptionUnder a Confidential Settlement Agreement, between Mr. DeVito and the Company, dated as of July 13, 2019November 18, 2022 (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”“Confidential Settlement Agreement”), the Company and Nicholas De Vito 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. DeVitoDe Vito 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 todismiss 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 requestedComplaint 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,De Vito filed on June 7, 2022 the Company filed a motion to dismiss the claims of declaratory relief, specific performance, and breach of an implied covenant of good faith and fair dealing in the DeVito Complaint. On August 3, 2022, Mr. DeVito filed an amended complaint without a hearing (the “Amended DeVito Complaint”). The Amended DeVito Complaint includes two claims, for breach of contract and unjust enrichment, and otherwise realleges substantially all of the factual allegations of the DeVito Complaint. On August 26, 2022, the Company filed an Answer to the Amended DeVito Complaint denying substantially all of the allegations. The Company is determining whether to file a counterclaim. As of November 2022, this case is pending. [NTD: Please confirm/update]
Chandler Litigation
On January 28, 2022, the Company filed a Complaint in the Florida Circuit Court, case number 50-2022-CA-000859-XXX-MB, against Amy Chandler (the “Chandler Complaint”). The Chandler Complaint sought damages for breach of fiduciary duty, breach of contract, negligence, conversion, and civil theft. The Chandler Complaint alleged that, prior to her resignation in September 2021, Ms. Chandler intentionally and recklessly took actions to cancel the CE certificate required by European Union regulations in order for Marizyme and its subsidiary, Somahlution, LLC, to ship and distribute certain products to/within the European Union. The Chandler Complaint also alleged that Ms. Chandler disregarded her fiduciary duty to Marizyme and responsibilities as the top regulatory and compliance official of Marizyme. As a result, the Chandler Complaint alleged that Ms. Chandler’s actions caused significant disruption and damage to Marizyme’s business, including, but not limited to, financial damages and damage to Marizyme’s reputation and business relationships. The Chandler Complaint further alleged that prior to her last day, Ms. Chandler stole confidential, proprietary files governing Marizyme’s quality management system, which related to internal business operations, and that Marizyme incurred significant costs to recreate these files. The Chandler Complaint alleged damages in excess of thirty thousand dollars ($30,000.00), exclusive of interest, attorneys’ fees, and costs.
On February 28, 2022, Ms. Chandler filed an Answer, Affirmative Defenses and Counterclaim with the Florida Circuit Court (the “Answer”). The Answer denied the claims in the Chandler Complaint and most of the factual allegations regarding Ms. Chandler’s alleged actions. The Answer also asserted a counterclaim against the Company for defamation per se. The Answer sought to recover monetary damages, attorneys’ fees, and court costs in connection with this litigation. The Answer also demanded a trial by jury on all triable issues.
On March 18, 2022, the Company filed a Motion to Dismiss Ms. Chandler’s Counterclaim with the Florida Circuit Court (the “Motion to Dismiss”). The Motion to Dismiss stated that Ms. Chandler’s Counterclaim for defamation per se should be dismissed with prejudice. On July 13, 2022, the court ruled that the counterclaim of defamation was dismissed with prejudice. Ms. Chandler’s deposition is now scheduled for September 21, 2022. At that time, the Company’s counsel will attempt to obtain the admissions necessary to confirm Chandler’s liability and to potentially add James Sapirstein and his company, First Wave BioPharma, as defendants. In the coming months, the Company expects to retain a consultant to assist it with quantifying the substantial damages caused by Chandler’s actions. As of August 2022, the remaining matters under litigation in this case are pending.
Campbell/Harmon Litigation
On August 19, 2021, Dr. Neil Campbell, former President, Chief Executive Officer and director of the Company, and Bruce Harmon, former Chief Financial Officer and Secretary of the Company, each filed a Complaint and Demand for Jury Trial in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, case numbersCase 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 alleged50-2022-CA-005437. The parties also agreed that the Company and Insperity violated Section 448.105 of the Florida Private Whistleblower Act as a result of the constructive terminations of Dr. Campbell and Mr. Harmon after the occurrence of violations of federal and state law, including federal securities law, at the Company that exposed Dr. Campbell and Mr. Harmon to civil and criminal forms of liability and thatfollowing an anticipated reverse split, the Company was not addressingrequired to their satisfaction. Bothissue Mr. DeVito certain “post-split” shares to be delivered in paper certificate form within three (3) business days of the Campbell/Harmon Complaints demanded approximately $30,000-$50,000 in back payreverse split. The Confidential Settlement Agreement further provided that the delivered shares would be subject to normal and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costscustomary restrictions pursuant to Rule 144 under the Securities Act. In the event no split occurred by December 12, 2022, the Company was required to issue Mr. DeVito 240,000 “pre-split” shares. In addition, the parties agreed that no further continuous service is required pursuant to Section 2 of the Mutual Release of Claims Agreement between Mr. DeVito and attorney’s fees, and such other reliefthe Company dated as the court deems equitable.
of August 27, 2020. Pursuant to a Joint Stipulationthe agreement, on January 4, 2023, the Company issued 240,000 shares of Voluntary Dismissal With Prejudice filed in each of these cases, the arbitrator of these cases dismissed Dr. Campbell andcommon stock to Mr. Harmon’s actions with prejudice on April 18, 2022 and April 14, 2022, respectively, and the court subsequently dismissed Dr. Campbell and Mr. Harmon’s actions with prejudice on April 22, 2022 and April 14, 2022, respectively.DeVito.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors disclosed in the 20212022 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three-month period ended September 30, 2022,March 31, 2023, we did not conduct any unregistered sales of our equity securities that were not previously disclosed in a current report on Form 8-K and we did not repurchase any of our common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report or incorporated by reference:
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the 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) | ||