UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
(Amendment No. 1)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number: 000-53223
MARIZYME, 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) |
(925)400-3123
(Registrant’s telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☐ | Large accelerated filer | ☐ | Accelerated filer |
| ☒ | Non-accelerated filer | ☒ | Smaller reporting company |
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable. |
As of November 22, 2021August 15, 2022, the registrant had shares of common stock ($0.001 par value) outstanding.
EXPLANATORY NOTE
Reason for this Amendment
This Amendment No. 1 to the Quarterly Report on Form 10-Q of Marizyme, Inc. (the “Company”) for the three and six months ended June 30, 2021 (the “Original Report”), originally filed on August 23, 2021 (the “Original Filing”) with the U.S. Securities and Exchange Commission (the “SEC”)is to restate the Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2021 and 2020 (the “Consolidated Financial Statements), and related note disclosure, as described in Notes 5 and 12 to the Consolidated Financial Statements. The amendment relates to the change in the valuation of assets purchased in the acquisition of Somahlution, LLC., Somahlution, Inc., and Somaceutica, LLC (collectively, “Somah”) in July 2020. The accounting for the Somah acquisition was not reviewed in compliance with SEC Rules by the external audit firm in the Original Filing. In addition, in Note 13 to the Consolidated Financial Statements the Company disclosed a subsequent event which occurred on November 1, 2021. Lastly, in this Amendment No. 1, the Company has amended language in the discussion of the Controls and Procedures; these changes were for accuracy only and did not change any conclusions reached in the Original Repot.
Description of Restatement
As reported in the Original Report, the Company had not fully completed the accounting for the July 2020 acquisition of Somah. The delay in the accounting was due to the valuation of certain assets purchased with the transaction, specifically valuation of the contingent consideration related to the future royalty payments, performance warrants and pediatric voucher warrants, future rare pediatric voucher sales, and liquidation preference.Subsequent to the Company’s Original Filing on August 23, 2021, the valuation of the transaction was finalized. See “Note 5 – Acquisitions” and “Note 12 – Restatement” for the detailed break-down of the changes resulted from the finalized valuation of the transaction.
The Company has also updated the report for subsequent events. On November 1, 2021, the Company entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to which the Company will acquire My Health Logic Inc., a wholly owned subsidiary of HLII. See “Note 13 – Subsequent Events” for the details on the transaction.
Items Amended in this Form 10-Q/A
This Form 10-Q/A presents the Original Report, amended and restated with modifications as necessary to reflect the restatements. The following items have been amended to reflect the restatement:
Part I – Item 1 – Financial Statements
Part I – Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I – Item 4 - Controls and Procedures
In addition, the Company’s Interim Chief Executive Officer has provided new certification dated as of the date of this filing in connection with this Form 10-Q/A.
In addition, an independent public accounting firm has reviewed the 10-Q/A in accordance with professional standards and in compliance with SEC Rules.
Except as described above, this Form 10-Q/A does not amend, update or change any other items or disclosures in the Original Report and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Form 10-Q/A speaks only as of the Original Report was filed, and we have not undertaken herein to amend, supplement or update any information contained in the Original Report to give effect to any subsequent events. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings.
MARIZYME, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
TABLE OF CONTENTSITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARIZYME, INC.
Condensed Consolidated Balance Sheets
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS: | ||||||||
| Current | ||||||||
| Cash | $ | 2,044,976 | $ | 4,072,339 | ||||
| Accounts receivable | 53,083 | 8,650 | ||||||
| Other receivables | 12,589 | 41,307 | ||||||
| Prepaid expenses | 235,382 | 257,169 | ||||||
| Inventory | 268,413 | 22,353 | ||||||
| Total current assets | 2,614,443 | 4,401,818 | ||||||
| Non-current | ||||||||
| Property, plant and equipment, net | 12,681 | 12,817 | ||||||
| Operating lease right-of-use assets, net | 1,667,151 | 1,158,776 | ||||||
| Intangible assets, net | 52,445,606 | 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 | 61,685,185 | 61,597,532 | ||||||
| Total assets | $ | 64,299,628 | $ | 65,999,350 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current | ||||||||
| Accounts payable and accrued expenses | $ | 617,041 | $ | 1,596,147 | ||||
| Notes payable | 241,392 | 127,798 | ||||||
| Due to related parties | 223,661 | 1,132,634 | ||||||
| Operating lease obligations | 418,330 | 277,142 | ||||||
| Total current liabilities | 1,500,424 | 3,133,721 | ||||||
| Non-current | ||||||||
| Operating lease obligations, net of current portion | 1,248,821 | 881,634 | ||||||
| Notes payable, net of current portion | — | 469,252 | ||||||
| Convertible notes | 842,946 | 26,065 | ||||||
| Derivative liabilities | 4,423,725 | 2,485,346 | ||||||
| Contingent liabilities | 14,935,000 | 11,313,000 | ||||||
| Total non-current liabilities | 21,450,492 | 15,175,297 | ||||||
| Total liabilities | 22,950,916 | 18,309,018 | ||||||
| Commitments and contingencies (Note 10) | — | — | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of June 30, 2022 and December 31, 2021 | — | — | ||||||
| Common stock, par value $, shares authorized, issued and outstanding shares - and at June 30, 2022 and December 31, 2021, respectively | 40,828 | 40,528 | ||||||
| Additional paid-in capital | 102,180,316 | 95,473,367 | ||||||
| Accumulated deficit | (60,872,432 | ) | (47,823,563 | ) | ||||
| Total stockholders’ equity | 41,348,712 | 47,690,332 | ||||||
| Total liabilities and stockholders’ equity | $ | 64,299,628 | $ | 65,999,350 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ITEM 1. FINANCIAL STATEMENTS
MARIZYME, INC.
and Subsidiaries
Condensed Consolidated Balance SheetsStatements of Operations
(Restated)(Unaudited)
| June 30, 2021 | December 31, 2020 | |||||||
| Restatement - Notes 5 and 12 | Unaudited and Restated | |||||||
| ASSETS: | ||||||||
| Cash | $ | 2,104 | $ | 2,902,762 | ||||
| Accounts receivable | 119,271 | 40,585 | ||||||
| Prepaid expense | 28,356 | 106,390 | ||||||
| Inventory | 16,740 | 56,340 | ||||||
| Total current assets | 166,471 | 3,106,077 | ||||||
| Fixed assets, net | 2,698 | 7,122 | ||||||
| Operating lease right-of-use assets, net | 1,228,648 | 1,317,830 | ||||||
| Intangible assets, net | 46,493,897 | 42,278,211 | ||||||
| Prepaid royalties, non-current | 340,969 | 344,321 | ||||||
| Deposits | 30,000 | 30,000 | ||||||
| Goodwill | 5,416,000 | - | ||||||
| Total non-current assets | 53,512,212 | 43,977,484 | ||||||
| Total assets | $ | 53,678,683 | $ | 47,083,561 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Accounts payable and accrued expenses | $ | 1,209,110 | $ | 478,103 | ||||
| Due to related party | 265,000 | - | ||||||
| Operating lease obligations, current portion | 243,070 | 243,292 | ||||||
| Total current liabilities | 1,717,180 | 721,395 | ||||||
| Operating lease obligations, non-current portion | 1,001,492 | 1,074,538 | ||||||
| Derivative liability | 24,982 | - | ||||||
| Warrant liability | 49,963 | - | ||||||
| Convertible promissory note, net of debt discount | 3,491 | - | ||||||
| Contingent liabilities | 9,648,000 | - | ||||||
| Total non-current liabilities | 10,727,928 | 1,074,538 | ||||||
| Total liabilities | 12,445,108 | 1,795,933 | ||||||
| Commitments and contingencies (see Note 6) | - | - | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | - | - | ||||||
| Common stock, par value $, shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 35,928 | 35,928 | ||||||
| Additional paid in-capital | 81,874,076 | 82,077,334 | ||||||
| Accumulated deficit | (40,676,429 | ) | (36,825,634 | ) | ||||
| Total stockholders’ equity | 41,233,575 | 45,287,628 | ||||||
| Total liabilities and stockholders’ equity | $ | 53,678,683 | $ | 47,083,561 | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 61,809 | $ | 160,785 | $ | 61,809 | $ | 234,737 | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct cost of revenue | 11,025 | 119,221 | 11,025 | 150,063 | ||||||||||||
| Professional fees (includes related party amounts of $163,200, $90,000, $266,400, and $180,000 respectively) | 873,865 | 455,552 | 1,417,905 | 984,625 | ||||||||||||
| Salary expenses | 902,106 | 683,197 | 1,817,746 | 1,567,238 | ||||||||||||
| Research and development | 1,371,470 | 244,686 | 2,589,766 | 636,190 | ||||||||||||
| Stock-based compensation | 676,242 | 194,657 | 1,392,674 | 562,375 | ||||||||||||
| Depreciation and amortization | 210,361 | 26,715 | 420,722 | (186,216 | ) | |||||||||||
| Other general and administrative expenses | 618,498 | 349,496 | 1,009,070 | 645,068 | ||||||||||||
| Total operating expenses | 4,663,567 | 2,073,524 | 8,658,908 | 4,359,343 | ||||||||||||
| Total operating loss | $ | (4,601,758 | ) | $ | (1,912,739 | ) | $ | (8,597,099 | ) | $ | (4,124,606 | ) | ||||
| Other income (expense) | ||||||||||||||||
| Interest and accretion expenses | (530,226 | ) | (4,189 | ) | (829,770 | ) | (4,189 | ) | ||||||||
| Change in fair value of contingent liabilities | (1,792,000 | ) | 278,000 | (3,622,000 | ) | 278,000 | ||||||||||
| Total other income (expense) | (2,322,226 | ) | 273,811 | (4,451,770 | ) | 273,811 | ||||||||||
| Net loss | $ | (6,923,984 | ) | $ | (1,638,928 | ) | $ | (13,048,869 | ) | $ | (3,850,795 | ) | ||||
| Loss per share – basic and diluted | $ | (0.17 | ) | $ | (0.05 | ) | $ | (0.32 | ) | $ | (0.11 | ) | ||||
| Weighted average number of shares of common stock outstanding – basic and diluted | 40,828,188 | 35,928,188 | 40,728,740 | 35,928,188 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
MARIZYME, INC.
and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited and Restated)Changes in Stockholders’ Equity
For the Three and Six Months Ended June 30, 2022 and 2021
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Restatement - Notes 5 and 12 | Restated | Restated | ||||||||||||||
| Revenue | $ | 160,785 | $ | - | $ | 234,737 | $ | - | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct costs of revenue | 119,221 | - | 150,063 | - | ||||||||||||
| Professional fees | 592,781 | 203,992 | 1,251,839 | 438,835 | ||||||||||||
| Salary expenses | 824,074 | - | 1,860,531 | - | ||||||||||||
| Stock-based compensation | 194,657 | 221,058 | 562,375 | 442,116 | ||||||||||||
| Other general and administrative expenses | 342,791 | 9,861 | 534,535 | 25,330 | ||||||||||||
| Total operating expenses | 2,073,524 | 434,911 | 4,359,343 | 906,281 | ||||||||||||
| Total operating loss | (1,912,739 | ) | (434,911 | ) | (4,124,606 | ) | (906,281 | ) | ||||||||
| Other expense | ||||||||||||||||
| Interest expense | (4,189 | ) | - | (4,189 | ) | - | ||||||||||
| Change in fair value of contingent liabilities | 278,000 | - | 278,000 | - | ||||||||||||
| Total other expense | 273,811 | - | 273,811 | - | ||||||||||||
| Net loss | $ | (1,638,928 | ) | $ | (434,911 | ) | $ | (3,850,795 | ) | $ | (906,281 | ) | ||||
| Loss per share – basic and diluted | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.05 | ) | ||||
| Weighted average number of shares of common stock outstanding – basic and diluted | 35,928,188 | 20,027,062 | 35,928,188 | 19,961,309 | ||||||||||||
(Unaudited)
| 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 | - | - | - | (2,211,867 | ) | (2,211,867 | ) | |||||||||||||
| Balance, March 31, 2021 | 35,928,188 | $ | 35,928 | $ | 82,411,719 | $ | (39,037,501 | ) | $ | 43,410,146 | ||||||||||
| 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 | 35,928,188 | $ | 35,928 | $ | 81,874,076 | $ | (40,676,429 | ) | $ | 41,233,575 | ||||||||||
| 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 | ||||||||||
| 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 | 40,828,188 | $ | 40,828 | $ | 102,180,316 | $ | (60,872,432 | ) | $ | 41,348,712 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
MARIZYME, INC.
and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ EquityCash Flows
(Unaudited and Restated)(Unaudited)
| 1 | ||||||||||||||||||||||||
| Additional Paid-in | Treasury | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
| Restatement - Notes 5 and 12 | Restated | Restated | ||||||||||||||||||||||
| Balance, December 31, 2020 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | - | $ | (36,825,634 | ) | $ | 45,287,628 | |||||||||||||
| Common stock issued for services | - | |||||||||||||||||||||||
| Common stock issued for services, shares | ||||||||||||||||||||||||
| Common shares issued in lieu of AP | ||||||||||||||||||||||||
| Common shares issued in lieu of AP, shares | ||||||||||||||||||||||||
| Exercise of options | ||||||||||||||||||||||||
| Exercise of options, shares | ||||||||||||||||||||||||
| Adjustment of warrants value in connection with finalizing the business combination | ||||||||||||||||||||||||
| Stock-based compensation | - | - | 334,385 | - | 334,385 | |||||||||||||||||||
| Net loss - restated | - | - | - | (2,211,867 | ) | (2,211,867 | ) | |||||||||||||||||
| Balance, March 31, 2021 | 35,928,188 | $ | 35,928 | $ | 82,411,719 | - | $ | (39,037,501 | ) | $ | 43,410,146 | |||||||||||||
| Stock-based compensation | - | - | 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 | 35,928,188 | $ | 35,928 | $ | 81,874,076 | - | $ | (40,676,429 | ) | $ | 41,233,575 | |||||||||||||
| Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
| Additional Paid-in | Treasury | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2019 | 19,858,939 | $ | 19,859 | $ | 59,319,594 | $ | (16,000 | ) | $ | (30,980,581 | ) | $ | 28,342,872 | |||||||||||
| Common stock issued for services | 125,000 | 125 | 124,875 | - | - | 125,000 | ||||||||||||||||||
| Stock-based compensation | - | - | 221,058 | - | - | 221,058 | ||||||||||||||||||
| Net loss | - | - | - | - | (471,370 | ) | (471,370 | ) | ||||||||||||||||
| Balance, March 31, 2020 | 19,983,939 | $ | 19,984 | $ | 59,665,527 | $ | (16,000 | ) | $ | (31,451,951 | ) | $ | 28,217,560 | |||||||||||
| Common shares issued in lieu of AP | 195,000 | 195 | 184,665 | - | - | 184,860 | ||||||||||||||||||
| Exercise of options | 5,000 | 5 | 5,045 | - | 5,050 | |||||||||||||||||||
| Stock-based compensation | - | - | 221,057 | - | - | 221,057 | ||||||||||||||||||
| Net loss | - | - | - | - | (434,911 | ) | (434,911 | ) | ||||||||||||||||
| Balance, June 30, 2020 | 20,183,939 | $ | 20,184 | $ | 60,076,294 | $ | (16,000 | ) | $ | (31,886,862 | ) | $ | 28,193,616 | |||||||||||
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (13,048,869 | ) | $ | (3,850,795 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Depreciation and amortization | 420,722 | (186,216 | ) | |||||
| Stock-based compensation | 1,392,674 | 529,042 | ||||||
| Stock-based compensation - restricted common stock | - | 33,333 | ||||||
| Interest and accretion on convertible notes and notes payable | 829,770 | - | ||||||
| Issuance of warrants for services | 1,850,533 | - | ||||||
| Change in fair value of contingent liabilities | 3,622,000 | (278,000 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts and other receivable | (15,715 | ) | (78,686 | ) | ||||
| Prepaid expense | 21,787 | 44,701 | ||||||
| Inventory | (246,060 | ) | 39,600 | |||||
| Accounts payable and accrued expenses | (973,544 | ) | 506,418 | |||||
| Due to related parties | (908,973 | ) | 265,000 | |||||
| Net cash used in operating activities | (7,055,675 | ) | (2,975,603 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from promissory notes, net of issuance cost | 5,120,743 | 74,945 | ||||||
| Repayment of notes payable | (95,431 | ) | - | |||||
| Proceeds from exercise of warrants | 3,000 | - | ||||||
| Net cash provided by financing activities | 5,028,312 | 74,945 | ||||||
| Net change in cash | (2,027,363 | ) | (2,900,658 | ) | ||||
| Cash at beginning of period | 4,072,339 | 2,902,762 | ||||||
| Cash at end of period | $ | 2,044,976 | $ | 2,104 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Derivative liabilities and debt discount issued in connection with convertible notes | $ | 1,938,379 | $ | 24,982 | ||||
| Warrants and debt discount issued in connection with convertible notes | $ | 3,461,042 | $ | 49,963 | ||||
| Settlement of notes payable with convertible notes | $ | 278,678 | $ | - | ||||
| Contingent liabilities | $ | - | $ | 9,648,000 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
MARIZYME, INC.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited and Restated)
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Restatement - Notes 5 and 12 | Restated | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,850,795 | ) | $ | (906,281 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Depreciation and amortization | (186,216 | ) | - | |||||
| Stock-based compensation | 529,042 | 567,115 | ||||||
| Stock-based compensation – restricted common stock | 33,333 | - | ||||||
| Change in fair value of contingent liabilities | (278,000 | ) | - | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (78,686 | ) | - | |||||
| Prepaid expense | 44,701 | - | ||||||
| Inventory | 39,600 | - | ||||||
| Accounts payable and accrued expenses | 506,418 | 152,620 | ||||||
| Due to related party | 265,000 | - | ||||||
| Net cash used in operating activities | (2,975,603 | ) | (186,546 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short term loan | - | 1,000 | ||||||
| Proceeds from convertible promissory note | 74,945 | - | ||||||
| Paid-in capital | - | 189,910 | ||||||
| Net cash provided by financing activities | 74,945 | 190,910 | ||||||
| Net (decrease)/ increase in cash | (2,900,658 | ) | 4,364 | |||||
| Cash at beginning of period | 2,902,762 | 90 | ||||||
| Cash at end of period | $ | 2,104 | $ | 4,454 | ||||
| Non-cash investing and financing activities: | ||||||||
| Derivative liabilities | $ | 24,982 | $ | - | ||||
| Warrant liabilities | $ | 49,963 | $ | - | ||||
| Contingent liabilities | $ | 9,648,000 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MARIZYME, INC.
AND SUBSIDIARIES
NOTES TO THEUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(Unaudited and Restated)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Overview
Marizyme,Maryzime, Inc., a Nevada corporation formerly known as GBS Enterprises Incorporated (the “Company” or “Marizyme”), conducted its primary business through its majority owned subsidiary, GBS Software AG (“GROUP”), is a German-based public-company.
By December 31, 2016,Nevada corporation originally incorporated on March 20, 2007, under the name SWAV Enterprises, Ltd. On September 6, 2010, the Company had sold the controlling interest in GROUPname was changed to GBS Enterprises Inc. and other subsidiaries, keeping only a minority interest in GROUP. On March 21,from 2010 to September 2018 the Company formed a wholly owned subsidiary named Marizyme, Inc., a Nevada corporation,was in the software products and merged with it, effectively changing the Company’s name to Marizyme, Inc. On June 1,advisory services business for email and instant messaging applications. The Company divested that business between December 2016 and September 2018 the Company exchanged the shares of GROUP and all the intercompany assets and liabilities for 100% of the shares of X-Assets Enterprises, Inc, a Nevada Corporation. As part of a type-D business restructuring on September 5, 2018, the Company then distributed the X-Assets shares to its stockholders on a 1 for 1 basis.
Beginning after the X-Assets share distribution, Marizyme refocusedfocused on the acquisition of life sciences and began to seek technologies to acquire.science technologies.
On September 12,March 21, 2018, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporationCompany’s name was changed to acquire all rights, title, and interest in their Krillase technology in exchange for million shares of Common Stock. Krillase is a naturally occurring enzyme that actsMarizyme, Inc., to break protein bonds and has applications in dental care, wound healing, and thrombosis.
On December 15, 2019,reflect the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on March 31, 2020 and May 29, 2020, with Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC, companies duly organized under the laws of Delaware (collectively, “Somah”) to acquire all of the assets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties. On July 30, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement which finalized this Agreement. Pursuant to the terms of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the EU.
On September 25, 2020, the Company formed Somaceutica, Inc., a Florida corporation.
On September 25, 2020, the Company formed Marizyme Sciences, Inc., a Florida corporation.
The Company’snew life sciences focus. Marizyme’s common stock $ par value per share (the “Common Stock”), is currently quoted on the OTC MarketsMarkets’ QB Tiertier under the ticker symbol “MRZM.”“MRZM”.
Change in Management and the Board of Directors
On January 16, 2021, Roger Schaller was appointed as the Company Executive Vice President of Commercial Operations.
On January 29, 2021, Amy Chandler was promoted to Executive Vice President of Regulatory and Quality Affairs.
On February 3, 2021, Julie Kampf was appointed as a Director on the Company’s board of directors.
On February 22, 2021, Dr. Vithal Dhaduk was appointed as a Director on the Company’s board of directors.
On March 18, 2021, Dr. Neil Campbell resigned as Chief Executive Officer, President and Director.
On March 19, 2021, James Sapirstein was appointed as Interim Chief Executive Officer.
On April 2, 2021, Dr. Satish Chandran was terminated as Chief Technology Officer.
On June 24, 2021, James Saperstein, our Interim Chief Executive Officer resigned, and Vithal Dhaduk was appointed as our Chairman of the Company’s board of directors.
On July 6, 2021, Vithal Dhaduk was appointed as Interim Chief Executive Officer.
On July 12, 2021, Bruce Harmon resigned as Interim Chief Financial Officer.
NOTE 2 -– GOING CONCERN
The accompanyingCompany’s unaudited condensed consolidated financial statements have beenare prepared onusing principles generally accepted in the United States of America applicable to a going concern, basis, which contemplates the realization of assets and the satisfactionliquidation of liabilities in the normal course of businessbusiness. However, the Company does not have an established source of revenues sufficient to cover its operating costs and the ability of the Companyto allow it to continue as a going concern for a reasonable period of time.concern. The Company, had a net loss of $3,850,795 since its inception, has incurred recurring operating losses and negative cash used in operating activities of $2,975,603 for the six months ended June 30, 2021flows from operations and has an accumulated deficit of $40,676,42960,872,432 at June 30, 2021. The Company’s continuation as a going concern is dependent upon its ability2022 (December 31, 2021 - $47,823,563). Additionally, the Company has working capital of $1,114,019 (December 31, 2021 - $1,268,097) and $2,044,976 (December 31, 2021 - $4,072,339) of cash on hand, which may not be sufficient to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations.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 clearance from the U.S. Food and Drug Administration (the “FDA”) to extend the selling of the products into the U.S. market which will allow the Company to attain profitable operations.
During the next twelve months, the Company’s foreseeable cash requirements will relate to continuous operations of its business, maintaining its good standing and making the required filing with the Securities and Exchange Commission (the “SEC”), and the payment of expenses associated with its product development. The Company ismay experience a cash shortfall and be required to raise additional capital. Management intends to raise additional funds by way of a private or public offerings. While the Company believes in the processviability of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assuranceits strategy to continue to develop and expand its products and generate sufficient revenue and in its ability to raise additional funds, there can be givenno assurances to that effect. The ability of the Company will be successful in these efforts. 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 relatingrelated 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
The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The unaudited condensed consolidated financial statements of the Company for the three and six month periods ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2020 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021. These financial statements should be read in conjunction with that report.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include all of the consolidated accounts of the Company and its wholly owned subsidiaries,subsidiaries: My Health Logic Inc (“My Health Logic” or “MHL”), Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”), (collectively – “Somah”), and Marizyme Sciences, Inc. (“Marizyme Sciences”). All significant intercompany balances and transactions have been eliminated on consolidation.
The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with generally accepted accounting principles 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, 2022 (the “2021 Form 10-K”). The balance sheet as of December 31, 2021 was derived from audited consolidated financial statements included in the 2021 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company’s significant accounting policies are described in Note 1 to those consolidated financial statements.
Interim results may not be indicative of the results that may be expected for the full year. 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.
| 7 |
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the allocation of the purchase price in a business combination to the underlying assets and liabilities, recoverability of long-term assets including intangible assets and goodwill, amortization expense, valuation of warrants, stock-based compensation, warrant liability, derivative liability,liabilities, contingent liabilities and deferred tax valuations.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805 — “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations.
Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At June 30, 2021 and December 31, 2020, the Company had $2,104 and $2,902,762 in cash, respectively, and 0 cash equivalents.
Reclassifications
Certain amounts in the prior year’s unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses, total assets, or stockholders’ equity as previously reported. The reclassifications were for the Statement of Operation which combined its expenses into two categories whereas, for comparison purposes for the six months ended June 30, 2021 to June 30, 2020, professional fees and stock-based compensation was segregated.
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to non-collectability. The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical experience, and other risk considerations. The Company did not have an allowance at June 30, 2021 or December 31, 2020. The Company did not record any bad debt expense in each of the three and six months ended June 30, 2021 and 2020.
Inventory
Inventory consisted of primarily finished goods and is valued at the lower of cost or net realizable value. Inventory is held in a third-party warehouse in foreign countries. Cost is determined using the FIFO method. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. The Company has determined that 0 inventory reserve was necessary as of June 30, 2021 and December 31, 2020.
Fair Value of Financial InstrumentsMeasurements
The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
| ● | Level 1 – Quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 – Quoted prices for identical or similar assets and liabilities in markets that are not active; or other model-derived valuations whose inputs are directly or indirectly observable or whose significant value drivers are observable. | |
| ● | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable and for which assumptions are used based on management estimates. |
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well asand considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain cashaccounts and cash equivalents, accountsother receivable, accounts payable and accrued expenses, notes payable, and amounts due to related parties approximate fair value due to the short-term nature of these instruments.
The fair value of lease obligations is determined using discounted cash flows based on the expected amounts and timing of the cash flows discounted using a market rate of interest adjusted for appropriate credit risk.
The contingent liabilities assumed on the acquisition of Somah in 2020 consist of present values of royalty payments, performance warrants and pediatric voucher warrants, future rare pediatric voucher sales, and liquidation preference. Management measured these contingencies in accordance with Level 3 of the fair value hierarchy.
| 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 |
| 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 |
| iii. | Rare pediatric voucher sales liability was valued based on the scenario-based methodology where the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset – | |
| iv. | The present value of liquidation preference liability, included in the contingent consideration, was determined using the Black-Scholes option pricing method and represents the fair value of the maximum payment amount according to the |
The derivative liabilities 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).
| 8 |
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.
TheMarizyme measures the following table summarizes our financial instruments that are measured at fair value on a recurring basis as ofbasis. As at June 30, 2021:2022, and December 31, 2021, the fair values of these financial instruments were as follows:
SCHEDULE OF FAIR VALUES OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
| Fair Value Hierarchy | ||||||||||||||||
| June 30, 2021 | Level 1 | Level 2 | Level 3 | December 31, 2020 | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liability | $ | - | $ | - | $ | 49,963 | $ | - | ||||||||
| Derivative liability | - | - | 24,982 | - | ||||||||||||
| Contingent liability | - | - | 9,648,000 | - | ||||||||||||
| Total | $ | - | $ | - | $ | 9,722,945 | $ | - | ||||||||
| Fair Value Hierarchy | ||||||||||||
| June 30, 2022 | Level 1 | Level 2 | Level 3 | |||||||||
| Liabilities | ||||||||||||
| Derivative liabilities | $ | - | $ | - | $ | 4,423,725 | ||||||
| Contingent liabilities | - | - | 14,935,000 | |||||||||
| Total | $ | - | $ | - | $ | 19,358,725 | ||||||
| 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 | ||||||
The following table provides a reconciliationroll forward of all liabilities measured at fair value using Level 3 significant unobservable inputs:
SCHEDULE OF RECONCILIATION OF ALL LIABILITIES MEASURED AT FAIR VALUE USING LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS
| June 30, 2021 | Contingent Liabilities | |||
| Balance at December 31, 2020 | - | |||
| Initial valuation of contingent liabilities assumed on Somah acquisition1 | $ | 9,926,000 | ||
| Change in fair value | (278,000 | ) | ||
| Balance at June 30, 2021 | $ | 9,648,000 | ||
Fixed Assets
Fixed assets are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life. Upon the sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in consolidated statements of operations.
SCHEDULE OF USEFUL LIFE OF FIXED ASSETS
Intangible Assets
Costs incurred to file patent applications and acquired intangibles are capitalized when the Company believes that there is a high likelihood that the patent will be issued and there will be future economic benefit associated with the patent. These costs will be amortized on a straight-line basis over a 20-year life from the date of patent filing. All costs associated with abandoned patent applications are expensed. In addition, the Company will review the carrying value of patents and other intangible assets for indicators of impairment at least annually and if it determines that the carrying value is impaired, it values the patent and any other intangible assets at fair value. As of June 30, 2021, $122,746 has been capitalized for patents which have not been amortized.
Impairment of Long-lived Assets
| Derivative and Contingent Liabilities | ||||
| Balance at December 31, 2021 | $ | 13,798,346 | ||
| Change in fair value of contingent liabilities | 3,622,000 | |||
| Derivative liabilities issued pursuant to Unit Purchase Agreement | 1,938,379 | |||
| Balance at June 30, 2022 | $ | 19,358,725 | ||
The Company follows ASC 360 for its long-lived assets. The Company’s long-lived assets, such as intellectual property, are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company determined that there were had $0Nil impairments of long-lived assetsin contingent liabilities and $24,982 in derivative liabilities as at June 30, 2021 and December 31, 2020.
Revenue Recognition
We recognize revenue under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
We have identified one performance obligation which is related to our DuraGraft product sales for our Distribution Partner channel, we recognize revenue for product sales at the time of delivery of the product to our Distribution Partner (customer). The customer is invoiced, and Payment Terms are Net 30. As our products have an expiration date, if a product expires before use, we will replace the product on the shelf at no charge. Revenue disaggregation for three months ended June 30, 2021 amounted to $2,586 in Spain, $1,920 in Singapore, and $17,313 in Switzerland and for the six months ended June 30, 2021 amounted to $80,180 in Spain, $8,650 in Singapore, $25,969 in Switzerland, $17,376 in Philippines, and $28,610 in Austria.2021.
Direct Cost of Revenue
Cost of sales includes the actual cost of merchandise sold; the cost of transportation of merchandise from our third-party vendor to our distributer.
The Company computes basic and diluted income (loss) per share amounts pursuant to ASC 260 of the FASB Accounting Standards Codification. Basic loss per share is computed by dividing net loss available to common stockholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share is computed by dividing net loss available to common stockholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. The Company has no liability for uncertain tax positions as of June 30, 2021 and December 31, 2020. Interest and penalties, if any, related to unrecognized tax benefits would be recognized as interest expense. The Company does not have any accrued interest or penalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the three and six months ended June 30, 2021 and 2020.
Segment Information
In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the Company is required to report financial and descriptive information about its reportable operating segments. The Company has 1 operating segment as of June 30, 2021 and December 31, 2020.
Value of Warrants Issued with Debt
The Company estimates the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option pricing model, or, if the terms are more complex - the Monte Carlo option lattice model. We record the amounts as interest expense or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions as deemed appropriate. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.
Derivative Liabilities
The Company records the estimated fair value of the warrants as of the date of issuance and at each balance sheet reporting date thereafter. As of June 30, 2021, none of the convertible notes or warrants that resulted in the recording of the related derivative liabilities had a change in estimated value as they were granted at the end of May 2021 and any change at June 30, 2021 was deemed immaterial.
Effect of Recent Accounting Pronouncements
Recently Issued Accounting Standards Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its consolidated financial statements.
Concentration of Credit Risk
The Company places its temporary cash investments with financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company has amounts over insured limits.
Amounts on deposit may at times exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts.
Customer Concentrations
For the three and six months ended June 30, 2021, four customers/distributors selling to end customers made up 100% of the revenues. As of June 30, 2021, three customers/distributors made up 100% of accounts receivable.
Research and Development Expenses and Accruals
All research and development costs payments to laboratories and research consultants are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits, for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of Duragraft, and costs related to manufacturing Duragraft for clinical trials. The Company has entered into various research and development contracts with various organizations. Payments of these activities are based on the terms of the individual agreements which matches to the pattern of costs incurred. Payments made in advance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be required in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
Stock-based compensation expense for employees and directors is recognized in the Condensed Consolidated Statements of Operations based on estimated amounts, including the grant date fair value and the expected service period. For stock options, we estimate 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. We estimate the expected future volatility based on the stock’s historical price volatility. The stock’s future volatility may differ from the estimated volatility at the grant date. For restricted stock unit (“RSU”) equity awards, we estimate the grant date fair value using our closing stock price on the date of grant. We recognize the effect of forfeitures in compensation expense when incurred.the forfeitures occur. The estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. We recognize the value of the awards over the awards’ requisite service or performance periods. The requisite service period is generally the time over which our share-based awards vest.
NOTE 4 – LEASEComparative Information
Effective January 1, 2020,To conform with the current period’s financial statement presentation, the Company adopted the provision of Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842). The provisions of this ASU require the Company to record a right-of-use assetreclassified certain professional fees, salaries, rent and related lease liabilityrepairs and maintenance expenses related to their leases.
The Company leases its administrative officeresearch and laboratories under an operating lease agreement. The Company entered into an agreement in December 2020development activities for approximately 8,500 square feet which is for a five-and-one-half year period. The base rent is $10,817 per month. In addition, the Company is obligated to pay monthly operating expenses of approximately $12,000 per month. The lease included incentives of waived base rent for certain periods. The base rent will increase by 2.5% for the second year through the end of the term.
Right-Of-Use Asset and Lease Liability:
The Company’s consolidated balance sheets reflect the value of the right-of-use asset and related lease liability. This value was calculated based on the present value of the remaining base rent lease payments. The discount rate used was 3.95% which is the average commercial interest available at the time. As a result, the value of the right-of-use asset and related lease liability is as follows:
SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITY
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Right-of-use asset | $ | 1,228,648 | $ | 1,317,830 | ||||
| Total lease liability | $ | 1,244,562 | $ | 1,317,830 | ||||
| Less: Current portion | 243,070 | 243,292 | ||||||
| Lease liability, net of current portion | $ | 1,001,492 | $ | 1,074,538 | ||||
The maturities of the lease liabilities are as follows as of June 30, 2021 for the periods ended December 31:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| 2021 | $ | 104,498 | ||
| 2022 | 277,142 | |||
| 2023 | 277,142 | |||
| 2024 | 277,142 | |||
| 2025 | 277,142 | |||
| Thereafter | 130,950 | |||
| Total lease payments | 1,344,016 | |||
| Less: Present value discount | (99,454 | ) | ||
| Total | $ | 1,244,562 |
For the three and six months ended June 30, 2021, operating cash flows paid in connection with operating leases amounted to $12,008 and $47,576, respectively.
NOTE 5 – ACQUISITIONS
Krillase
On September 12, 2018, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporation to acquire all right, title and interest in their Krillase technology in exchange for million shares of common stock. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in wound debridement, would healing, dental care and thrombosis. The transaction was recorded at the fair value of the shares, $28,600,000. No amortization has been recorded as all of the patents are not yet in a position to produce cash flows. The Company anticipates Krillase being placed into service in 2023. The Company has evaluated this asset for impairment and has determined that due to COVID-19 delaying the next steps for this technology, along with the associated value of the research and development expenses line item on the statusCondensed Consolidated Statements of Operations. Such reclassifications were not considered material and did not have any effect on the clinical trials, and other pertinent proprietary technology, there is no impairment required.
During 2020, the Company incurred legal and filing fees of $17,801 associated with a patent application for pharmaceutical compositions and methodsCompany’s net loss for the treatment of thrombosis. The patents are pending.
DuraGraft®
On December 15, 2019, the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on March 31, 2020three- and May 29, 2020, with Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC, companies duly organized under the laws of Delaware (collectively, “Somah” or “Seller”) to acquire all of the assets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties.
On July 31, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement and the Agreement was finalized. Pursuant to the terms of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the EU. In Amendment No. 3, the Company agreed to assume certain payables of Somah related to clinical and medical expenses. It was agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties. As ofsix- month periods ended June 30, 2021 and December 31, 2020, prepaid royalties were $340,969 and $344,321, respectively, and were recorded as a non-current asset. See Note 9.2021.
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Pursuant to the Agreement and in consideration of the outstanding capital stock of Somahlution, Inc., the Company agreed to issue to Somah:NOTE 4 – ACQUISITION
My Health Logic Inc.
On July 30, 2020,November 1, 2021, Marizyme entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to which the Company completedwould 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.
On December 22, 2021, Marizyme received the necessary regulatory, court and stock exchange approval to complete the acquisition of Somah (the “Somah Transaction”). TheMHL resulting in a total of 4,600,000 Common Shares issued to HLII; 230,000 of these shares are being held and administered by Marizyme to be released to HLII, less any amounts claimed by Marizyme or its affiliates for any losses arising out of certain breaches as set out in the acquisition agreement. This resulted in HLII holding approximately 11.35% of Somah provides the Company with access to DuraGrafttotal number of issued and other related intangible assets, which upon approval by FDA, will further the Company’s continued growthoutstanding Marizyme Shares (based on Marizyme Shares issued and international-wide product rollout.outstanding immediately after closing).
In accordance with ASC 805-10 the substance of a transaction constitutes a business combination as the business of SomahMy Health Logic Inc. meets the definition of a business under the standard. TheAccordingly, the transaction was accounted for in accordance with the acquisition method of accounting, and the assets acquired, and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date. The purchase price iswas based on management’s estimate of fair value of the common shares issued.
According to ASC 805 the acquirer has a year from the date of acquisition to recognize measurement period adjustments. While Marizyme does not expect the carrying amount, the fair value, and warrants issued as well as contingent consideration and liquidation preference given up. The final allocationthe estimated useful life of the purchase price consideration to theidentifiable assets acquired and liabilities assumed has been completedacquired, provided below, to change, the tax basis related to these intangible assets is not final and finalized.remains preliminary at June 30, 2022.
Details of the carrying amount and the fair value of identifiable assets and liabilities acquired and purchase consideration paid iswere as follows:
SCHEDULE OF PRELIMINARY ALLOCATION OF CONSIDERATION
| As previously reported | Amendment | As restated | ||||||||||||||
| Consideration given up | ||||||||||||||||
| Common shares | $ | 12,500,000 | $ | - | $ | 12,500,000 | $ | 7,774,000 | ||||||||
| Warrants | 1,932,300 | (732,300 | ) | 1,200,000 | ||||||||||||
| Contingent consideration1 | - | 9,926,000 | 9,926,000 | |||||||||||||
| Total consideration given up | $ | 14,432,300 | $ | 9,193,700 | $ | 23,626,000 | $ | 7,774,000 | ||||||||
| Fair value of identifiable assets acquired, and liabilities assumed | ||||||||||||||||
| Net working capital | $ | 275,480 | $ | (244,572 | ) | $ | 30,908 | |||||||||
| Net working deficit | $ | (613,156 | ) | |||||||||||||
| Property, plant, and equipment | 9,092 | - | 9,092 | 12,500 | ||||||||||||
| Intangible assets | 14,147,728 | 4,022,272 | 18,170,000 | 6,600,000 | ||||||||||||
| Goodwill | - | 5,416,000 | 5,416,000 | 1,774,656 | ||||||||||||
| Total identifiable assets | $ | 14,432,300 | $ | 9,193,700 | $ | 23,626,000 | $ | 7,774,000 | ||||||||
As a result of the My Health Logic acquisition, we 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, we acquired ownership rights to MATLOC patents issued in the European Union, Canada, and the United States.
The intangible assets acquired include:
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See Note 8As part of the acquisition, Marizyme assumed an aggregate of $468,137 in notes payable, the notes are unsecured, bear interest at a rate of 9% per annum and mature on August 12, 2022. For the three and six months ended June 30, 2022, Marizyme recognized $4,501 and $10,586 of interest expense on the notes payable, respectively (June 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 six months ended June 30, 2022 (Note 7). As of June 30, 2022, balance of notes payable was $209,025 (December 31, 2021 - $469,252).
Goodwill is attributed to the workforce and profitability of the acquired business and is not deductible for a detailed descriptiontax 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 amortization recorded on DuraGraft related intangible assets.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.
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Dr. Vithal D. Dhaduk,NOTE 5 – LEASES
On December 11, 2020, the Company entered into a co-founder5.5 - year lease agreement for approximately 10,300 square feet of Somahlution, LLC (“Dhaduk”)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 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 June 30, 2022, the remaining lease term was 4.08 years. The lease had been classified as an operating lease.
The assets and liabilities from the lease were recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the discount rate of 3.95%, which is the subjectaverage commercial interest available at the time.
The total rent expense for the three and six months ended June 30, 2022 was approximately $110,353 and $221,253, respectively (June 30, 2021 - $55,812 and $91,412, respectively).
The following table summarizes supplemental balance sheet information related to the operating lease as of a complaint filed inJune 30, 2022, and December 31, 2021.
SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITIES
| June 30, 2022 | December 31, 2021 | |||||||
| Right-of-use asset | $ | 1,667,151 | $ | 1,158,776 | ||||
| Operating lease liabilities, current | $ | 418,330 | $ | 277,142 | ||||
| Operating lease liabilities, non-current | 1,248,821 | 881,634 | ||||||
| Total operating lease liabilities | $ | 1,667,151 | $ | 1,158,776 | ||||
As of June 30, 2022, the United States District Court, Middle Districtmaturities of Pennsylvania, Civil Action No. 3:17 cv 02243 inthe lease liabilities for the periods ending December 2017 by Mukeshkkumar B. Patel (“Patel”), a former business partner of Dhaduk, which complaint makes claims of breach of contract, promissory estoppel and unjust enrichment regarding a Memorandum of Understanding, dated July 16, 2015, between Patel and Dhaduk (“MOU”). The MOU provided that Dhaduk would pay Patel $9.45 million31 are as consideration for Patel’s agreement to, among other things, (i) exit certain legal entities that were purportedly jointly owned by certain affiliates of Dhaduk and Patel, including Somahlution LLC, and (ii) relinquish his ownership interests in such entities. On December 2, 2019, the court granted Patel’s motion for summary judgment on his breach of contract claim, which judgment Dhaduk is currently appealing (such legal proceedings, collectively referred to as the “Dhaduk Litigation”). The Company is not a named defendant in the Dhaduk Litigation, and the court’s summary judgment is against Dhaduk in his personal capacity.follows:
SCHEDULE OF MATURITIES OF THE LEASE LIABILITIES
| 2022 | $ | 206,583 | ||
| 2023 | 423,495 | |||
| 2024 | 434,082 | |||
| 2025 | 444,934 | |||
2026 | 266,034 | |||
| Total lease payments | 1,775,128 | |||
| Less: present value discount | (107,977 | ) | ||
| Total | $ | 1,667,151 |
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NOTE 6 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of June 30, 2021, there were no pending or threatened lawsuits.
Contingencies
On July 13, 2019, the Company signed a consulting agreement with an individual to advise the Board of Directors. The individual receives $30,000 per month through July 13, 2022 and received an 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. See Note 10. The agreement also provided for royalties derived directly from the assets related to wound healing, debridement, grafting, dental applications for both human and pet, and thrombosis (see Note 5 – Krillase). The royalties associated with the acquisition of Krillase will be calculated as follows:
Royalties on sales equal to:
10% on net sales
On December 15, 2019, the Company entered into the Agreement, as amended on March 31, 2020 and May 29, 2020, with Somah (see Note 5). The royalties associated with the Agreement will be calculated as follows:
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
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
2% on net sales over $200,000,000
The royalties are in perpetuity. As of June 30, 2021, there has been no revenue related to the above royalties.
The Company, after the acquisition of Somah, has been leasing the office space on a month-to-month basis with a monthly rate of $10,701. The Company maintained this office space through December 31, 2020.
Employment and Consulting Agreements
On September 1, 2020, Bruce Harmon executed a consulting agreement and was named as chief financial officer. He is compensated $120,000 annually, received shares of common stock vesting over . On October 22, 2020, Mr. Harmon received options for common stock vesting over three years with an exercise price of $. See Note 10. On November 1, 2020, Mr. Harmon became an employee of the Company thereby cancelling the consulting agreement. On March 5, 2021, Mr. Harmon executed a letter of understanding for employment. See Note 1.
On November 1, 2020, Dr. Neil J. Campbell executed an employment agreement and was named as chief executive officer, president and director. He is compensated $375,000 annually, received options for common stock vesting over years, with an exercise price of $. On March 18, 2021, Dr. Campbell resigned all positions. See Notes 1 and 12. We expect to enter into a settlement and release agreement with Dr. Campbell but as of the date of this report no such agreement has been finalized.
On November 30, 2020, Dr. Steven Brooks executed a letter of understanding for employment as chief medical officer.
On December 1, 2020, Dr. Donald Very executed a letter of understanding for employment as executive vice president of research and development.
On January 16, 2021, Roger Schaller executed a letter of understanding for employment as executive vice president of commercial operations.
Risks and Uncertainties
The outbreak of the coronavirus (COVID-19) resulted in increased travel restrictions, and shutdown of businesses, which may cause slower recovery of the economy. We may experience impact from quarantines, market downturns and changes in customer behavior related to pandemic fears and impact on our workforce if the virus continues to spread. In addition, one or more of our customers, partners, service providers or suppliers may experience financial distress, delayed or defaults on payment, file for bankruptcy protection, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. The extent to which the coronavirus impacts our results will depend on future developments and reactions throughout the world, which are highly uncertain and will include emerging information concerning the severity of the coronavirus and the actions taken by governments and private businesses to attempt to contain the coronavirus. It is likely to result in a potential material adverse impact on our business, results of operations and financial condition. Wider-spread COVID-19 globally could prolong the deterioration in economic conditions and could cause decreases in or delays in advertising spending and reduce and/or negatively impact our short-term ability to grow our revenues. Any decreased collectability of accounts receivable, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations.
NOTE 7 – FIXEDINTANGIBLE ASSETS
Fixed assets, stated at cost, less accumulated depreciation at June 30, 2021 and December 31, 2020 consistedKrillase
As part of the following:asset acquisition of ACB Holding AB, Reg. No. 559119-5762, completed on September 12, 2018, Marizyme acquired all rights, titles, and interest in the Krillase technology, a group of intangible assets worth $28,600,000. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in wound debridement, wound healing, dental care and thrombosis. The useful lives of the intangible assets are based on the life of the patent and related technology. The patents and related technology for Krillase have not been amortized since the acquisition, as they have not yet been put into operations. The Company expects to put Krillase into operations and establish the first stream of revenue from the sale of the product in 2023.
DuraGraft
As part of Somah acquisition in 2020, Marizyme purchased $18,170,000 of intangible assets related to the DuraGraft® technology.
My Health Logic
As part of My Health Logic acquisition (Note 4), Marizyme purchased MHL’s lab-on-chip technology platform and its patient-centric, digital point-of-care diagnostic device, MATLOC, fair valued at an aggregate amount of $6,600,000.
SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
| 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 | ||||||||||||
| Patents in process | 122,745 | - | 122,745 | 122,745 | - | 122,745 | ||||||||||||||||||
| DuraGraft patent | 5,256,000 | (774,922 | ) | 4,481,078 | 5,256,000 | (572,768 | ) | 4,683,232 | ||||||||||||||||
| Duragraft - Distributor relationship | 308,000 | (59,033 | ) | 248,967 | 308,000 | (43,633 | ) | 264,367 | ||||||||||||||||
| Duragraft IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | 12,606,000 | - | 12,606,000 | ||||||||||||||||||
| My Health Logic - Trade name | 450,000 | (16,875 | ) | 433,125 | 450,000 | (804 | ) | 449,196 | ||||||||||||||||
| My Health Logic - Biotechnology | 4,600,000 | (142,059 | ) | 4,457,941 | 4,600,000 | (6,765 | ) | 4,593,235 | ||||||||||||||||
| My Health Logic - Software | 1,550,000 | (54,250 | ) | 1,495,750 | 1,550,000 | (2,583 | ) | 1,547,417 | ||||||||||||||||
| Total intangibles | $ | 53,492,745 | $ | (1,047,139 | ) | $ | 52,445,606 | $ | 53,492,745 | $ | (626,553 | ) | $ | 52,866,192 | ||||||||||
SCHEDULE OF GOODWILL
| Goodwill | DuraGraft | My Health Logic | Total | |||||||||
| Balance, December 31, 2020 | $ | - | $ | - | $ | - | ||||||
| Additions on acquisitions | 5,416,000 | 1,774,656 | 7,190,656 | |||||||||
| Impairment | - | - | - | |||||||||
| Balance, December 31, 2021 and June 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 PROPERTY, PLANT, AND EQUIPMENTINTANGIBLE ASSETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Furniture and equipment | $ | 701 | $ | 701 | ||||
| Computer related | 7,220 | 7,220 | ||||||
| Machinery and equipment | 1,171 | 1,171 | ||||||
| Total | 9,092 | 9,092 | ||||||
| Less: accumulation depreciation | (6,394 | ) | (1,970 | ) | ||||
| Property and equipment, net | $ | 2,698 | $ | 7,122 | ||||
| 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 | (420,586 | ) | ||
| Balance, June 30, 2022 | $ | 52,445,606 |
Depreciation expenseFuture amortizations for Duragraft and My Health Logic intangible assets for the three months ended June 30, 2021 and 2020 wasnext five years will be $1,125841,172 for each year from 2023 through 2027 and $06,910,999, respectively, for 2028 and forthereafter. Amortization related to the six months ended June 30, 2021Krillase product and 2020 was $4,425in process research and $0, respectively.development will be determined upon the Company achieving commercialization.
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NOTE 8 –7 - INTANGIBLE ASSETSCONVERTIBLE PROMISSORY NOTES AND WARRANTS
May 2021 Unit Purchase Agreement
On May 27, 2021, Marizyme entered into a Unit Purchase Agreement to sell up to units (the ‘Units’) at a price per Unit of $. Each Unit is comprised of (i) a convertible promissory note convertible into common stock of the Company, (ii) a warrant to purchase one share of common stock of the Company (the ‘Class A Warrant’); and (iii) a second warrant to purchase common stock of the Company (the “Class B Warrant”).
On September 12, 2018,In May 2021, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762,issued and sold Units at a Swedish corporation to acquire all right, titleprice 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 interest in their Krillase technology in exchangeClass B Warrants for the purchase of 16.9829,978 million shares of common stock. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in dental care, wound healing and thrombosis. The transaction was recorded atCompany incurred related issuance costs of $6,745 which will be amortized over the fair valueterm of the shares. No amortization has been recordedNotes.
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.
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 million investment, the patentsCompany and patent applications are not yetthe 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 position to produce cash flows.New Warrant (new Class C Warrants) in exchange for the original Class C Warrants. The Exchange of the Original Securities for the New Securities included the following significant changes:
| (i) | Decreased the offering price under the Unit Purchase Agreement from $ per Unit to $ per Unit. Outstanding principal and accrued interest were used to purchase Units at the new per unit price. | |
| (ii) | Extended the maturity date of the notes to December 21, 2023 for all existing notes. | |
| (iii) | Decreased the conversion price from $2.25 per share to $1.75 per share for the New Units. | |
| (iv) | Original Class C Warrants were exchanged for New Class C warrants with an exercise price of $2.25 per share (unchanged) and a five-year life measured from the date of the Exchange Agreement. The decrease in the Unit price also resulted in additional number of New Class C Warrants being issued in exchange for the Original Class C Warrants due to the 200% warrant coverage provided for in the Unit Purchase Agreement. |
The Company determined that the terms of the New Securities were substantially different from the Original Securities, and, as such the exchange of the Original Securities for the New Securities was accounted for as an extinguishment of debt on December 21, 2021, and the New Securities accounted for as a new debt issuance.
As a result of this substantial modification, the total of 621,087 Units previously issued were replaced with an aggregate of 832,022 pro-rata Units.
During 2020,the six months ended June 30, 2022, the Company incurred legal and filing feesissued additional units under the New Securities agreement for the gross proceeds of $17,8015,815,138. Of the total associated with a patent applicationUnits issued: (i) Units were issued to settle notes payable assumed on acquisition of My Health Logic (Note 4), (ii) Units were issued to settle accounts payable, and Units were issued in exchange for pharmaceutical compositions and methods forservices rendered to the treatment of thrombosis. The patents are pending. The Company capitalized these costs.in the six months ended June 30, 2022.
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On JulyThe 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.
The fair value of the warrants issued in the six months ended June 30, 2022, of $3,461,042 (December 31, 2020,2021 - $4,299,649) and the fair value of derivative liabilities of $1,938,379 issued (December 31, 2021 - $2,485,346) have been recorded as debt discount and are being amortized to interest and accretion expense using the effective interest method over the term of the Convertible Notes.
During the three and six months ended June 30, 2022, the Company completedrecognized interest and accretion expense of $524,884 and $816,881, respectively (June 30, 2021 - $4,189 and $4,189, respectively) in the Somah Transactioncondensed consolidated statements of operations.
SCHEDULE OF CONVERTIBLE NOTES
| Convertible Notes, Net of Debt Discount | ||||
| Balance, December 31, 2021 | $ | 26,065 | ||
| Convertible notes issued - new securities | 5,815,138 | |||
| Issuance costs | (415,717 | ) | ||
| Debt discount | (5,399,421 | ) | ||
| Debt accretion | 816,881 | |||
| Balance, June 30, 2022 | $ | 842,946 | ||
As of June 30, 2022 and acquired DuraGraft® technology in exchange for sharesDecember 31, 2021, the Company had the following convertible notes, net of common stock, 3,000,000 warrants and certain contingent considerations (Note 5). Somah is engaged in developing products to prevent ischemic injury to organs and tissues and DuraGraft® is a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties.debt discount outstanding:
SUMMARYSCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSECONVERTIBLE NOTES NET OF DEBT DISCOUNT
| June 30, 2021 | ||||||||||||||||||||||||
| Restated | December 31, 2020 | |||||||||||||||||||||||
| 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 | ||||||||||||
| DuraGraft, patent | 5,256,000 | (370,615 | ) | 4,885,385 | 14,147,729 | (589,489 | ) | 13,558,240 | ||||||||||||||||
| Distributor Relationship | 308,000 | (28,233 | ) | 279,767 | - | - | - | |||||||||||||||||
| IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | - | - | - | ||||||||||||||||||
| Patents in Process | 122,745 | - | 122,745 | 119,971 | - | 119,971 | ||||||||||||||||||
| Total Intangibles | $ | 46,892,745 | $ | (398,848 | ) | $ | 46,493,897 | $ | 42,867,700 | $ | (589,489 | ) | $ | 42,278,211 | ||||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Convertible notes - total principal | $ | 13,271,177 | $ | 7,482,104 | ||||
| Unamortized issuance costs and discount | (12,428,231 | ) | (7,456,039 | ) | ||||
| Convertible notes, net of debt discount | $ | 842,946 | $ | 26,065 | ||||
Convertible Notes Terms
SCHEDULE OF INTANGIBLE ASSETSThe Convertible Notes mature in 24 months from the initial closing date and accrue 10% of simple interest per annum on the outstanding principal 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. The Convertible Notes are secured by a first priority security interest in all assets of the Company.
| Balance, December 31, 2019 | $ | 28,613,000 | ||
| Acquired in asset purchase agreement | 14,147,729 | |||
| Additions | 106,971 | |||
| Amortization expense | (589,489 | ) | ||
| Balance, December 31, 2020 | 42,278,211 | |||
| Acquired in Somah Transaction (amended) | 4,022,271 | |||
| Additions | 2,775 | |||
| Amortization expense (amended) | 190,640 | |||
| Balance, June 30, 2021 | $ | 46,493,897 |
As a result of restatement to account for measurement period adjustments, described in Notes 5 and 12, the value of DuraGraft intangibles purchased with the Somah Transaction increased by $4,920,298. The intangible assets acquired included:New Class C Warrants Terms
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| ● | ||
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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 are not currently being amortized as they have not yet been put into operations.
Future amortizations for DuraGraft related intangible assets for the next five years will be $435,108 for each year from 2021 through 2026 and $2,989,613 for 2027 and thereafter. Amortization related to in process research and development will be determined upon the Company achieving commercialization.
NOTE 8 – STOCKHOLDERS’ EQUITY
| a) | Preferred stock |
The Company is authorized to issue a total number of shares of “blank check” preferred stock with a par value of $. As of June 30, 2022, and December 31, 2021, there were shares of preferred stock issued or outstanding.
| b) | Common stock |
The Company is authorized to issue a total number of shares of common stock with a par value of $.
As of June 30, 2022, and December 31, 2021, there were and shares of common stock issued and outstanding, respectively. During the six months ended June 30, 2022, the Company issued shares of common stock for exercise of warrants.
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| c) | Options |
On May 18, 2021, our 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. As of June 30, 2022, there remains options available for issuance (December 31, 2021 – ).
During the six months ended June 30, 2022, the Company granted (December 31, 2021 – ) 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 | |||||||||||||
| 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 | |||||||||||
| Granted | 400,000 | 2.20 | 196,000 | |||||||||||||
| Outstanding at June 30, 2022 | 4,050,943 | 1.33 | 5,505,984 | |||||||||||||
| Exercisable at June 30, 2022 | 2,970,111 | $ | 1.13 | $ | 4,629,586 | |||||||||||
SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE
| Exercise Price | Number of Options Outstanding | Number of Options Exercisable | Weighted Average Remaining Contractual Years | Intrinsic Value | ||||||||||||||
| $ | 1.01 | 1,985,943 | 1,985,943 | $ | 3,336,384 | |||||||||||||
| 1.25 | 665,000 | 584,168 | 957,600 | |||||||||||||||
| 1.37 | 200,000 | 200,000 | 264,000 | |||||||||||||||
| 1.75 | 800,000 | 200,000 | 752,000 | |||||||||||||||
| 2.20 | 400,000 | - | 196,000 | |||||||||||||||
| $ | 1.33 | 4,050,943 | 2,970,111 | $ | 5,505,984 | |||||||||||||
| d) | Restricted Share Units |
As of June 30, 2022, we determined that the following performance condition attached to the restricted share awards granted in the fiscal 2021 were more likely than not to be achieved:
| ● | The Company will raise financing for the gross proceeds that equal or exceed $5,000,000, and | |
| ● | The Company will complete valuation reports for acquisition of Somah and My Health Logic. |
Therefore, compensation cost of $295,750 for the restricted share awards was recognized in stock-based compensation for the six months ended June 30, 2022 (June 30, 2021 - $Nil).
| e) | Warrants |
As of June 30, 2022 and December 31, 2021, there are 19,255,465 and 12,144,838 warrants outstanding, respectively.
SCHEDULE OF WARRANTS OUTSTANDING
| Number | Weighted Average Price | |||||||
| December 31, 2020 | 3,393,651 | $ | 4.63 | |||||
| Issued pursuant to Unit Purchase Agreement | 8,521,187 | 2.25 | ||||||
| Issued | 230,000 | 1.39 | ||||||
| December 31, 2021 | 12,144,838 | $ | 2.90 | |||||
| Issued pursuant to Unit Purchase Agreement | 6,645,866 | 2.25 | ||||||
| Issued | 878,398 | 1.16 | ||||||
| Exercised | (300,000 | ) | 0.01 | |||||
| Expired | (113,637 | ) | 3.00 | |||||
| June 30, 2022 | 19,255,465 | $ | 2.64 | |||||
During the six months ended June 30, 2022, the Company issued the following:
On January 26 and February 14, 2022, in exchange for services of Mr. Richmond, we 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 six months ended June 30, 2022. On March 15, 2022, Mr. Richmond exercised warrants issued to him.
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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 six months ended June 30, 2022.
In the six months ended June 30, 2022, pursuant to the Unit Purchase Agreement the Company issued an aggregate of 6,645,866 additional New Class C warrants with an exercise price of $2.25 per share and a term of five years.
| f) | Stock-based compensation |
During the three and six months ended June 30, 2022, the Company recorded $ and $ in non-cash share-based compensation in the stock-based compensation line on the condensed consolidated statements of operations, respectively (June 30, 2021 - $ and $, respectively). As of June 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 June 30, 2022, the Company owed an aggregate of $223,661 (December 31, 2021 - $1,132,634) to related parties of the Company. The majority of the balance was owed to Mr. Frank Maresca, a related party and shareholder of the Company, hasand comprised of the following:
| ● | The Company received consulting services from Mr. Maresca and pursuant to the agreement incurred $180,000 in professional expenses in the six months ended June 30, 2022 (June 30, 2021 - $180,000). At June 30, 2022, the Company owes a total of $221,316 for consulting services provided and service-related expenses incurred by Mr. Maresca during the period ended June 30, 2022. |
In the six months ended June 30, 2022, the Company incurred and settled additional $86,400 in professional services rendered by related parties of the Company and settled $101,781 in various expenses incurred by these parties in relation to their services rendered to the Company.
Additionally, as part of the Somah acquisition in 2020, the Company recorded a prepaid royalty to the shareholders of Somahlution, LLC in regard to the acquisition (see Note 5).Somahlution. The primary beneficial owner is Dr. Vithal Dhaduk, currently the CEO (appointed in June 2021, and previously a director, appointed in 2021) and significant shareholder of the Company. Prepaid royalties were $340,969As at June 30, 2022, the Company had $339,091 in prepaid royalties (December 31, 2021 and- $344,321339,091 at December 31, 2020.) which had been classified as non-current in the condensed consolidated balance sheets.
DuringNOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal Matters
On August 19, 2021, Dr. Neil Campbell, former President, Chief Executive Officer and director of the threeCompany, and Bruce Harmon, former Chief Financial Officer and Secretary of the Company, each filed a Complaint and Demand for Jury Trial against the Company and Insperity Peo Services, L.P., a Delaware limited partnership (“Insperity”), a joint employer of Dr. Campbell and Mr. Harmon with the Company under a Client Service Agreement, dated November 30, 2020 (collectively, the “Campbell/Harmon Complaints”). Both Campbell/Harmon Complaints allege that the Company and Insperity violated Section 448.105 of the Florida Private Whistleblower Act as a result of the constructive terminations of Dr. Campbell and Mr. Harmon after the occurrence of violations federal and state law, including federal securities law, at the Company that exposed Dr. Campbell and Mr. Harmon to civil and criminal forms of liability and that the Company was not addressing to their satisfaction. Both Campbell/Harmon Complaints demand approximately $30,000 - $50,000 in back pay and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costs and attorney’s fees, and such other relief as the court deems equitable. In the six months ended June 30, 2021, a shareholder2022, both cases were dismissed with prejudice and consultant of the Company loaned the Company $ at an interest rate of , which is includedwithout any financial impact on the balance sheet at June 30, 2021 as Due to Related Party. The payment terms are undefined and as such the Company determined to classify the balance owed as a current liability.Company.
In June 2021, the former CEO loaned the Company $Contingencies
20,000 at an interest rate of
| a. | On July 13, 2019, the Company signed a consulting agreement, whereby the individual will receive: |
0%. Upon termination of the CEO’s employment in June 2021, the Company agreed to repay the loan
| ● | $30,000 per month through July 13, 2022, | |
| ● | 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 six months ended June 30, 2022, no revenues were derived from sales of Krillase product. |
20,000 plus an additional $
| b. | As part of the DuraGraft Acquisition, completed on July 31, 2020, the Company entered into the Agreement with Somah stockholders, whereby Marizyme is legally obligated to pay royalties on all net sales for Somah, Inc. The royalties associated with the Agreement are calculated as follows: |
30,000, for a total of $
50,000 included in Due to Related PartyRoyalties on the balance sheet at June 30, 2021. The Company paid the $50,000 in July 2021.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. |
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NOTE 10 - Royalties on sales outside of the U.S.:
CONVERTIBLE PROMISSORY NOTES AND WARRANTS
| ● | 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 six months ended June 30, 2022, the Company had not earned any revenues from Krillase and did not have any sales of the DuraGraft products in U.S., therefore no royalties have been accrued or paid in the period.
On May 27, 2021,Upon receiving FDA clearance for the Duragraft product, the Company will:
| ● | Issue performance warrants with a strike price determined based on the average of the closing prices of the Company’s common stock for the 30 calendar days following the date of the public announcement of the FDA approval; and | |
| ● | Upon liquidation of all or substantially all of the assets relating to DuraGraft, the Company will pay 15% of the net sale proceeds up to $20 million. |
| c. | The Company has entered into arrangements for office and laboratories spaces. As of June 30, 2022, minimum lease payments in relation to lease commitments are payable as described in Note 5. |
Risks and Uncertainties
Starting in late 2019, a Unit Purchase Agreement to sell up to units (the “Units”) at a price per Unit of $ (the “Price Per Unit”). Each Unit is comprised of (i) a convertible promissory note (the “Note”) convertible into common stocknovel strain of the Company, (ii)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 our 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 warrant to purchase one share of common stockresult, the COVID-19 pandemic may affect the operations of the Company (the “Class A Warrant”);FDA and (iii) a second warrantother 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 purchase common stockthe operations of the Company (the “Class B Warrant”).FDA, or of any foreign authority with which we might interact, might impact the approval of any applications we plan and will need to file in the future.
In May 2021, the Company issuedaddition, we are dependent upon certain contract manufacturers and sold Units atsuppliers and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers and suppliers. As a 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 stockresult, we have faced and Class B Warrants for the purchase of 29,978 shares of common stock. The Company incurred related issuance costs of $6,745may continue to face delays or difficulty sourcing certain products, which will be amortized over the term of the Notes.
In July 2021, the Company issuedcould negatively affect our business 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.financial results.
The Company madespread 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 our ability to access capital in the preliminary conclusion that the Notes had an embedded derivative related to the automatic conversion feature discountfuture, which requires bifurcation. The Company estimated the value of this derivative as $24,982 and recorded this derivative as a liability on the balance sheet as of June 30, 2021.could negatively affect our liquidity.
If the COVID-19 pandemic does not continue to slow and the spread of COVID-19 is not contained, our business operations, including those of contract manufacturers, could be further delayed or interrupted. The Companyduration of any business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs. It is not possible to reliably measure or quantify the valueimpact COVID-19 has had on the financial results of the Class A WarrantsCompany. If the COVID-19 pandemic continues for an extended period, it may materially adversely impact business operations and, Class B Warrants and ascribed this value to the remainder of the proceeds at the issuance date of the Units as this estimated value exceeded the remainder of the gross proceeds, recording the warrants as a liability on the balance sheet of $49,963 as of June 30, 2021.consequently, future financial results.
As all the Unit proceeds were allocated to the estimated values of the derivative and the warrants, the Company recorded the value of the Notes as $0 on issuance of the Units and will accrete to the face value of the Notes through maturity date. During the three and six months ended June 30, 2021, the Company recognized $3,491 of interest expense related to this accretion. At June 30, 2021, total future maturities of principal for the Notes was $74,945, all of which matures in May 2023. At June 30, 2021, this principal balance is reduced by the remaining debt discount ascribed to the derivative and warrants of $71,454, with a Note balance of $3,491 on the balance sheet at June 30, 2021.
Notes
The terms of the Notes are as follows:
Term - The Notes will mature 24 months from the initial closing date unless earlier converted or prepaid.
Interest - Interest shall accrue on the outstanding principal amount of the Notes at a simple rate of 10% per annum. Interest shall be paid at maturity or converted along with principal at the time of conversion of the Notes.
Optional Conversion - The outstanding principal amount of the Notes and all accrued, but unpaid interest shall be convertible at any time at the option of the holder at an initial conversion price of $2.50 (the “Conversion Price”).
Automatic Conversion - In the event the Company consummates, while the Note is outstanding, an equity financing with a gross aggregate amount of securities sold of not less than $10,000,000 (the “Qualified Financing”), then all outstanding principal, together with all unpaid accrued interest under the 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 Qualified Financing and
(ii) the conversion price of $2.50 per unit. If preferred stock is issued in the equity financing and the conversion price of the Notes is less than the cash price per share issued in the Qualified Financing, the Company may, solely elect to convert the Notes into shares of a newly created series of capital stock having the identical rights, privileges, preferences and restrictions as the preferred stock issued in the Qualified Financing, and otherwise on the same terms and conditions.
The Notes are secured by a first priority security interest in all assets of the Company.
Warrants
The Class A Warrants entitle the holder to the right, for a period of five (5) years from each closing date, to purchase shares of the Company’s Common stock at an exercise price equal to the lower of (i) $3.13 or (ii) the Automatic Conversion Price (initially $2.50); provided, however, that the exercise price shall not be less than $1.00 (except as the result of antidilution adjustments). Company may force the exercise of the Class A Warrants if, at any time following the sixty day anniversary of the final closing date or termination of the offering, (i) the shares issuable upon exercise of the Class A Warrants are registered or the purchasers otherwise have the ability to trade the underlying shares without restriction, (ii) the 20-day volume-weighted daily average price of the Company’s Common Stock exceeds $6 per share, and (iii) the average daily trading volume is at least $1,000,000 shares during such 20-day period. The Class A Warrants contain customary antidilution adjustments and additionally, if after the issuance date of the Class A Warrants, the Company issues or sells any shares of common stock (other than in the Qualified Financing or exempted securities) or issues any rights, warrants, or options, without consideration or for consideration per share less than the exercise price of the Warrants, then the exercise price of the Warrants shall be reduced to an exercise price equal to the consideration paid per share.
The Class B Warrants will entitle the Purchasers to the right, for a period of five (5) years from each closing date, to purchase shares of the Company’s common stock at an exercise price equal $5.00 per share. The Company may force the exercise of the Class B Warrants if, at any time following the sixty day anniversary of the initial closing date, (i) the shares issuable upon exercise of the Class B Warrants are registered or the purchasers otherwise have the ability to trade the underlying shares without restriction, (ii) the 20-day volume-weighted daily average price of the Company’s Common Stock exceeds $8 per share, and (iii) the average daily trading volume is at least $1,000,000 during such 20-day period. The Class B Warrants contain customary antidilution adjustments but do not contain price based antidilution protection.
NOTE 11 –- STOCKHOLDERS’ EQUITYSUBSEQUENT EVENTS
Preferred stockReverse Stock Split
Our ArticlesOn August 1, 2022, the Board of Incorporation authorizeDirectors (the “Board”) of Marizyme approved a reverse stock split of the issuanceCompany’s common stock at a ratio of 25,000,0001-for-4 shares of “blank check” preferred stock(the “Reverse Stock Split”) in connection with a par valueproposed Nasdaq listing. The Reverse Stock Split will become effective after the Financial Industry Regulatory Authority (“FINRA”) approval and the Nasdaq Stock Market LLC approval of $the Company’s listing application (the “Effective Date”). As of June 30, 2021, and December 31, 2020, there were shares issued and outstanding, respectively.
Common stock
Our ArticlesOn the Effective Date, the total number of Incorporation authorize the issuance of shares of common stock with a par valueheld by each stockholder will be 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.
As of June 30, 2021 and December 31, 2020,August 15, 2022, there were shares of common stock outstanding. As a result of the Reverse Stock Split, there will be approximately shares of common stock outstanding, not including the shares of common stock that the Company expects to issue in its anticipated public offering. No fractional shares will be issued, and outstanding.no cash or other consideration will be paid. Instead, the Company will issue 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.
OptionsFinal Closing of Unit Purchase Agreement
On January 13, 2021,August 12, 2022, the BoardCompany conducted the final closing of Directors approved the Marizyme, Inc. 2021 Stock Incentive Plan (“SIP”). The SIP incorporatesUnit Purchase Agreement, in which the Company issued to an investor Units consisting of a convertible note in the aggregate principal amount of $1,500,000, convertible into shares of common stock, options issued priorplus additional shares based on accrued interest, subject to January 13, 2021. The SIP authorized options for issuance. As of June 30, 2021, there remains options available for issuance.
SCHEDULE OF STOCK OPTION ACTIVITY
| Weighted | Weighted | |||||||||||||||
| Average | Average | Total | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Options | Price | Life | Value | |||||||||||||
| Outstanding at December 31, 2020 | 3,800,943 | $ | 1.36 | |||||||||||||
| Granted | 732,500 | $ | 1.25 | |||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Forfeited | (412,500 | ) | $ | 1.25 | ||||||||||||
| Outstanding at June 30, 2021 | 4,120,943 | $ | 1.36 | $ | 388,350 | |||||||||||
| Exercisable at June 30, 2021 | $ | 1.39 | �� | |||||||||||||
The fair valuepurchase of each shares of common stock option was estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging fromat $ to $ per share, in the first six months of 2021) and expected life of the stock option ( years in 2021), the current price of the underlying stock and its expected volatility (ranging from %subject to %) in the first six months of 2021), expected dividends (%) on the stock and the risk-free interest rate (%) for the term of the stock option. In addition, the Company recognizes forfeitures as they occur.adjustment.
The fair value of each stock option was estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging from $ to $ per share in 2020) and expected life of the stock option ( years in 2020), the current price of the underlying stock and its expected volatility (ranging from % to % in 2020), expected dividends (%) on the stock and the risk-free interest rate (%) for the term of the stock option. In addition, the Company recognizes forfeitures as they occur.
Warrants
As of June 30, 2021 and December 31, 2020, there are 3,393,651warrants outstanding, not including Class A Warrants or Class B Warrants issued in the March 2021 Unit Purchase Agreement (see Note 10).
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NOTE 12 – RESTATEMENTITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
According to ASC 805,This discussion covers the measurement period is a reasonable time period afterthree months (“Q2 2022” or the acquisition date when the acquirer may adjust the provisional amounts recognized for a business combination if the necessary information is not available by the end of the reporting period in which the acquisition occurs. Subsequent to the Original Filing, filed with the SEC on August 23, 2021, the valuation of the assets acquired with the Somah Transaction was finalized, therefore the management of Marizyme chose to amend the Original Filing to disclose the nature and amount of measurement-period adjustments.
As a result, the following items have been adjusted as at and for the three“Quarter”) and six months ended June 30, 2021:2022 and the subsequent period up to the date of issuance of this Quarterly Report on Form 10-Q. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, research and development plans and costs, the impact of COVID-19, the timing and likelihood of regulatory filings and approvals, commercialization plans, pricing and reimbursement, the potential to develop future product candidates, the timing and likelihood of success of the plans and objectives of management for future operations, and future results of anticipated product development efforts, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described 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 life science company dedicated to the acceleration, development and commercialization of medical technologies that promote patient health and present potential for rapid revenue growth.
Key elements of our strategy include:
| ● | ||
| ● | ||
| ● |
We have incurred losses for each period from inception. Our net loss was approximately $6.9 million and $13.0 million for the three and six months ended June 30, 2022, respectively ($1.6 million and $3.9 million for the three and six month ended June 30, 2021, 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.
Our Products
DuraGraft®
Through our acquisition of the Somah Assets in July 2020, we acquired key intellectual products based on a patent protected cytoprotective platform technology designed to reduce ischemic injury to organs and tissues in grafting and transplantation surgeries. These assets include DuraGraft, a one-time intraoperative vascular graft treatment, that is able to protect endothelial cells from ischemic damage and reperfusion injury, and reduce complications associated with Vein Graft Failure, or VGF, post-CABG, thereby reducing major adverse cardiac events such as repeat revascularization and myocardial infarction, reducing incidence and complications of graft failure, and improving clinical outcomes.
DuraGraft is an endothelial damage inhibitor, or EDI, indicated for cardiac bypass, peripheral bypass, and other vascular surgeries. It carries CE marking and is approved for marketing in 18 countries worldwide on three continents including, but not limited to, the European Union countries, such as Spain, Austria, and Germany, Switzerland, Philippines, Chile, and Turkey. Somah had also been focused on developing products to mitigate the effects of ischemia reperfusion injury in other grafting and transplantation surgeries and other indications in which ischemic injury can cause disease. Now, under our ownership, multiple products derived from the cytoprotective platform technology for several indications are under various stages of development.
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According to market analysis reports, the size of the coronary artery bypass graft (“CABG”) procedures market globally was approximately $16.7 billion as of 2020 (Expert Markets Research, 2020). This market is forecast to increase at a compound annual growth rate (“CAGR”) of 2.5% between 2021 and 2026 (Expert Markets Research, 2020). Globally, it is estimated that approximately 800,000 CABG procedures are performed each year (Grand View Research, March 2017), with procedures performed in the U.S. being a substantial percentage of the total global procedures performed. In the U.S., it is estimated that approximately 340,000 CABG surgeries are performed each year. The number of CABG procedures performed is predicted to decline at a rate of approximately 0.8% per year to less than 330,000 annually by 2026, primarily due to medical and technological advances in the use of percutaneous coronary intervention, also known as “angioplasty” (idata Research, September 2018).
In 2020, the U.S. peripheral vascular device market size was valued at $7.1 billion, with over 8.26 million peripheral vascular procedures performed each year with an expected market size of $10.4 billion by 2026. The vascular device market size globally was valued at $11.9 billion in 2020 with more than 16 million yearly peripheral vascular procedures performed. The market size is expected to increase at a CAGR of 5.2% and reach $16.9 billion in 2026. (idata Research, 2020).
For 2022, our main business priority is receiving FDA clearance of DuraGraft for CABG procedures through a De Novo classification request. We also plan to finalize the development of fat grafting procedures using DuraGraft for plastic surgery procedures in the U.S. It is reported that 22.4 million such surgeries take place annually in the U.S. (American Society of Plastic Surgeons, 2020).
Following the FDA approval of DuraGraft, which we expect to obtain in 2023, we will seek to commercialize DuraGraft in the U.S. through the assistance of a strategic partner who will be responsible for marketing and sales. We will continue our DuraGraft marketing efforts in Europe relying on our DuraGraft CE marking and our distribution partners. We also intend to develop additional applications for the U.S. marketplace including, but not limited to, fat grafting for plastic surgery. The CE marking signifies that DuraGraft may be sold in the EEA and that DuraGraft has been assessed as meeting safety, health, and environmental protection requirements. We intend to strive for rapid revenue growth using multiple strategic partners and revenue channels. We expect that we will market DuraGraft internationally, through multiple distribution partners with a focus on sales to cardiac surgeons and cardiologists. We are currently working with local distributors of cardiovascular disease-related products, in accordance with local regulatory requirements, to sell and increase the market share of DuraGraft in Spain, Austria, Switzerland, Philippines, Germany, Chile, and Turkey. In the U.S., we intend to enter into a commercialization arrangement with a strategic partner who will be responsible for the marketing and sales of DuraGraft. If we are not able to find an appropriate strategic partner, we will have to build our own marketing and sales capabilities which we expect would be time consuming and costly.
MATLOC 1
On December 22, 2021, we acquired My Health Logic, its lab-on-chip technology platform and its patient-centric, digital point-of-care screening device, MATLOC 1.
The excitement over microfluidics, also known as lab-on-a-chip technology, lies in its potential for producing revolutionary, timely, accessible, and practical point-of-care devices; devices that are patient-centric (one-to-many, rather than doctor centric, one-to-one) and support self-care and independence. Microfluidics is a technology for analyzing small volumes of fluids, with the potential to miniaturize complex laboratory procedures onto a small microchip, hence the term “lab-on-chip”.
Marizyme’s lab-on-chip technology is currently being developed for screening and diagnosis related to the three leading biomarkers for chronic kidney disease, a disease estimated to affect 37 million Americans – or one out of every seven people (National Kidney Foundation, 2019). If left untreated, many patients will advance to end stage renal disease (ESRD), often leading to kidney transplant, renal failure, or dialysis. Since 90% of those with CKD do not know they have it, the risk of progression in the disease is high and this creates massive burdens for CKD patients and healthcare systems (National Kidney Foundation, 2019). CKD and ESRD costs the U.S. public healthcare systems hundreds of billions of dollars a year. In 2018 Medicare alone spent $130 billion on CKD and ESRD-related costs (National Kidney Foundation, 2019). With the increase of diabetics and hypertension cases in the U.S., which make up roughly two-thirds of all CKD patients (National Kidney Foundation, 2022), CKD related healthcare costs are expected to increase significantly. Compounding this development is the fact that less than 50% of diabetic patients, the highest at-risk group, are annually screened or tested for CKD (Mayo Clinic Proceedings, 2021). This creates an unmet need for point-of-care technologies that facilitate CKD screening and diagnosis, which further facilitates earlier screening and diagnosis and detection to slow down or eliminate the CKD progression. By combining the lab-on-chip technology with Marizyme’s MATLOC 1 device, we 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 (“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 massively 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 MATLOC devices in development, we are striving to achieve earlier detection and slowing of the progression of CKD, allowing patients and healthcare systems to reduce the enormous costs of kidney failure, transplant, and/or dialysis. After completing the technology for CKD assessment, we plan to explore the commercial potential of other biomarkers for chronic diseases to be measured at point-of-care.
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We are currently preparing our MATLOC 1 device for the FDA submission process with clearance anticipated by the end of 2023. More specifically, we expect to continue the advancement of MATLOC 1 through the conclusion of a clinical trial in 2022 followed by the filing with the FDA of a 510(k) notification and an expected FDA clearance of a 510(k) application by the end of 2023. Upon FDA approval, we will seek rapid revenue growth using multiple strategic partners and revenue channels.
MATLOC 1, upon FDA clearance in the United States, is expected to be marketed and sold through an experienced medical device distribution partner network with a focus on nephrologists in hospitals, ambulatory surgery centers and private practices, to better assess patients and slow the progression of CKD.
Krillase
Through our acquisition of ACB Holding AB in 2018, we acquired the Krillase technology, a European Union researched and evaluated protease therapeutic platform that has the potential for use in the treatment of chronic wounds and burns, and other clinical applications.
Krillase, derived from Antarctic krill, shrimp-like crustaceans, is a combination of endo- and exopeptidases that safely and efficiently breaks down organic material. As a “biochemical knife,” Krillase can potentially break down organic matter, such as necrotic tissue, thrombogenic material, and biofilms produced by microorganisms. As such, it may be useful in the mitigation or treatment of multiple disease states in humans. For example, Krillase may dissolve arterial thrombogenic plaque safely and efficiently, 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 focused on developing a Krillase-based product pipeline to address several conditions across the critical care market, including therapies for treating complex wounds and burns, acute ischemic stroke, deep vein thrombosis, and for dissolving plaque and biofilms on teeth.
In addition, our Krillase platform team is planning a pet health study for later in 2022. We expect the results of this study will 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 to first, 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, develop products for applications of the Krillase platform that address unmet medical needs or address medical market needs better than existing products in the marketplace, in clinical applications with higher regulatory risk but significant commercial potential.
Our Competitive Strengths
We believe that the following competitive strengths will enable us to compete effectively:
| ● | Superior, first-in-class vascular surgery graft solution. Management believes that the DuraGraft platform provides a significant and substantial competitive advantage. Having received CE marking in Europe, DuraGraft is a “first-in-class” product, certified for sale in Europe for vein graft preservation. | |
| ● | ||
| ● |
Our Growth Strategies
We will strive to grow our business by pursuing the following key growth strategies:
| ● | Commercialize DuraGraft and related products. | |
| ● | Commercialize MATLOC 1 and related products. | |
| ● | Commercialize Krillase and related products. | |
| ● | Acquire more life science assets. |
The restatements were madestrategic plans described above will require capital. We expect to raise a substantial portion of the required capital in accordanceour planned future offerings. There can be no assurances, however, that we will be able to raise the capital that we need to execute our plans or that capital, whether through securities offerings, either private or public, will be available to us on acceptable terms, if at all. An inability to raise sufficient funds could cause us to scale back our development and growth plans or discontinue them altogether.
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KEY HIGHLIGHTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
Financing
In 2021, the Company offered up to 4,000,000 units (the “Units Offering”), comprised of convertible notes and warrants, with the provisionsintent to raise up to $10,000,000 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 ASC topic 805the Units Offering. As the result:
.
| ● | In 2021 the Company issued an aggregate of 4,260,594 units for gross proceeds of $7,397,445. | |
| ● | During the first half of 2022, the Company issued additional 3,322,929 units for the gross proceeds of $5,815,138. | |
| ● | Subsequent to the Q2 2022 end, on August 12, 2022, the Company conducted the final closing of the Unit Offering and issued 857,142 units for the gross proceeds of $1,500,000. |
In aggregate, the Company received $14,712,583 in proceeds from the Unit Purchase Agreement. The disclosure provisionproceeds 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
Subsequent to the Q2 2022 end, on August 1, 2022, the Board of ASC 805 stipulates that acquirer must recognize measurement period adjustmentsDirectors of Marizyme approved a reverse stock split of the Company’s common stock at a ratio of 1-for-4 in connection with a proposed Nasdaq listing. The Reverse Stock Split will become effective after the FINRA approval and the Nasdaq Stock Market LLC approval of the Company’s listing application.
On the Effective Date, the total number of shares of common stock held by each stockholder will be 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. No fractional shares will be issued, and no cash or other consideration will be paid. Instead, the Company will issue 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.
Operational
In 2021 Marizyme had undergone 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 first half of 2022, the executive and management team has been 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, during the period in which they determinesix months ended June 30, 2022, the amounts, includingBoard of Directors of the effect on earningsCompany was increased from five to seven members and a new Chair of any amounts they would have recorded in previous periods if the accounting had been completedAudit Committee was elected.
FINANCIAL OPERATIONS REVIEW
Component of Results of Operations
Revenue
Revenue represents gross product sales less service fees and product returns. For our Distribution Partner channel, we recognize revenue for product sales at the acquisition date. As the valuationtime of delivery of the assets acquired,product to our Distribution Partner. As our products have an expiration date, if a product expires, we will replace the product at no charge. Currently, all of our revenue is generated from the sale of DuraGraft in European and Asian markets where the product has the required regulatory approvals.
Direct Cost of Revenue
Direct costs of revenue include primarily product costs, which include all costs directly related to the purchase of raw materials, charges from our contract manufacturing organizations, and manufacturing overhead costs, as well as shipping and distribution charges. Direct costs of revenue also include losses from excess, slow-moving or obsolete inventory and inventory purchase commitments, if any.
Professional Fees
Professional fees include legal fees relating to intellectual property development, due diligence and corporate matters, and consulting fees for accounting, finance, and valuation services. Professional fees paid to a related party relate to certain consulting services. See Note 9 to the financial statements accompanying this report for further related disclosures. We anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements.
Salaries and Stock-Based Compensation
Salaries consists of compensation and related personnel costs. Stock-based compensation represents the fair value of equity-settled share awards on stock options and restricted share awards granted by the Company to its employees, officers, directors, and consultants. The fair value of awards is calculated using the Black-Scholes option pricing model, which considers the following factors: exercise price, current market price of the underlying shares, expected life, risk-free interest rate, expected volatility, dividend yield, and forfeiture rate.
Research and Development
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of Duragraft, and costs related to manufacturing Duragraft for clinical trials. The Company has entered into various research and development contracts with various organizations and other companies.
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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) consists of mark-to-market adjustments on contingent liabilities assumed on the acquisition of Somah assets and consideration given up on completioninterest and accretion expenses related to our convertible notes issued pursuant to the Unit Purchase Agreement.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | $ | 61,809 | $ | 160,785 | $ | (98,976 | ) | |||||
| Operating expenses: | ||||||||||||
| Direct costs of revenue | 11,025 | 119,221 | (108,196 | ) | ||||||||
| Professional fees (includes related party amounts of $163,200 and $90,000, respectively) | 873,865 | 455,552 | 418,313 | |||||||||
| Salary expenses | 902,106 | 683,197 | 218,909 | |||||||||
| Research and development | 1,371,470 | 244,686 | 1,126,784 | |||||||||
| Stock-based compensation | 676,242 | 194,657 | 481,585 | |||||||||
| Depreciation and amortization | 210,361 | 26,715 | 183,646 | |||||||||
| Other general and administrative expenses | 618,498 | 349,496 | 269,002 | |||||||||
| Total operating expenses | 4,663,567 | 2,073,524 | 2,590,043 | |||||||||
| Total operating loss | $ | (4,601,758 | ) | $ | (1,912,739 | ) | $ | (2,689,019 | ) | |||
| Other income (expenses): | ||||||||||||
| Interest and accretion expense | (530,226 | ) | (4,189 | ) | (526,037 | ) | ||||||
| Change in fair value of contingent liabilities | (1,792,000 | ) | 278,000 | (2,070,000 | ) | |||||||
| Net loss | $ | (6,923,984 | ) | $ | (1,638,928 | ) | $ | (5,285,056 | ) | |||
Revenue
We recognized revenue of $0.06 million for the three months ended June 30, 2022 compared to $0.16 million for the three months ended June 30, 2021. The decrease in revenues was due to COVID-19 impact on the Company’s supply chain in the fiscal 2021 and its ability to produce Duragraft inventory. No revenue from Duragraft sales was generated in Q1 2022, but as anticipated, as the result of the 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.
Direct Costs of Revenue
Direct costs of revenue decreased by $0.11 million or 91% to $0.01 million for the second quarter of 2022 compared to $0.12 for the second quarter of 2021. This was predominantly due to fewer units of product produced in the current period because of the shortage of the raw materials as a result of COVID-19.
Professional Fees
Professional fees increased by $0.42 million or 92% to $0.87 million in Q2 2022 compared to $0.46 million in Q2 2021. The increase was mainly due to the compensation extended to Univest Securities, LLC for their services rendered in relation to the Unit Purchase Agreement financing. Related party professional fees increased by $0.07 million or 81% to $0.16 million from $0.09 million during the second quarter of 2022 compared to the second quarter of 2021 – the Company retained additional consulting services in order to advance development of its three medical technology platforms - DuraGraft, MATLOC and Krillase.
Salary Expenses
Salary expenses in Q2 2022, were $0.90 million, a $0.22 million or 32% increase from the comparative period. The increase in the cost is attributable to the restructuring and growth of the organization as the Company restructured its executive and management teams in the late 2021 and continues to expand into the new markets and working towards commercialization of the DuraGraft in the United States.
Research and Development
Research and development expenses in Q2 2022, were $1.37 million, a $1.13 million or 461% increase from the comparative period. The increase in the research and development expenses can be mainly attributed to the Company’s acquisition of MATLOC 1 product in late 2021 and its focus on development and advancement of all its products – DuraGraft, Krillase, and MATLOC 1 towards commercialization.
Stock-Based Compensation
The increase in the stock-based compensation can be explained by additional 400,000 stock options granted in 2022 and 350,000 restricted share awards granted in late 2021, fair value of which have increased significantly from the stock options granted and outstanding in the comparative period due to the increased stock price period over period.
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Other General and Administrative Expenses
Other general and administrative expenses increased $0.27 million or 77% to $0.62 million in Q2 2022. The increase was due to the Company’s non-legal fees related to the filing of S-1 form in the period, preparation toward the public offering, increased rent due to the lease of additional office and laboratory space, and expenses associated with running a public company. 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)
In Q2 2022, the Company incurred $0.53 million of interest and accretion costs associated with convertible notes issued at discount as part of the Units Offering Agreements. Additionally, the Company recognized $1.79 million of fair value loss from mark-to-market adjustments on the contingent liabilities assumed on the acquisition of Somah due to the change of the fair value of the contingent consideration.
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Revenue | $ | 61,809 | $ | 234,737 | $ | (172,928 | ) | |||||
| Operating expenses: | ||||||||||||
| Direct costs of revenue | 11,025 | 150,063 | (139,038 | ) | ||||||||
| Professional fees (includes related party amounts of $266,400, and $180,000, respectively) | 1,417,905 | 984,625 | 433,280 | |||||||||
| Salary expenses | 1,817,746 | 1,567,238 | 250,508 | |||||||||
| Research and development | 2,589,766 | 636,190 | 1,953,576 | |||||||||
| Stock-based compensation | 1,392,674 | 562,375 | 830,299 | |||||||||
| Depreciation and amortization | 420,722 | (186,216 | ) | 606,938 | ||||||||
| Other general and administrative expenses | 1,009,070 | 645,068 | 364,002 | |||||||||
| Total operating expenses | 8,658,908 | 4,359,343 | 4,299,565 | |||||||||
| Total operating loss | $ | (8,597,099 | ) | $ | (4,124,606 | ) | $ | (4,472,493 | ) | |||
| Other income (expenses): | ||||||||||||
| Interest and accretion expense | (829,770 | ) | (4,189 | ) | (825,581 | ) | ||||||
| Change in fair value of contingent liabilities | (3,622,000 | ) | 278,000 | (3,900,000 | ) | |||||||
| Net loss | $ | (13,048,869 | ) | $ | (3,850,795 | ) | $ | (9,198,074 | ) | |||
Revenue
We recognized revenue of $0.06 million for the six months ended June 30, 2022 compared to $0.23 million for the six months ended June 30, 2021. No revenue was generated in Q1 2022 due to COVID-19 impact on the Company’s supply chain in the fiscal 2021 and its ability to produce Duragraft inventory, but as anticipated, as the result of the 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.
Direct Costs of Revenue
Direct costs of revenue decreased by $0.14 million or 92.65% to $0.01 million for the first six months of 2022 compared to $0.15 million for the first six months of 2021. This was predominantly due to fewer units of product produced in the current period because of the shortage of the raw materials as a result of COVID-19.
Professional Fees
Professional fees increased by $0.43 million or 44% to $1.42 million for the six months ended June 30, 2022 compared to $0.98 million for the comparative period ended June 30, 2021. The increase in professional fees in the first half of 2022 can be attributed to legal support with preparation and filling of the S-1 form with the SEC, audit fees in connection with the audit of the 2021 10-K Form, and compensation costs incurred in connection with closing of the four rounds of the Unit Purchase Agreement financing. Related party professional fees increased by $0.09 million or 48% to $0.27 million from $0.18 million during the second quarter of 2022 compared to the second quarter of 2021 – the Company retained additional consulting services in order to advance development of its three medical technology platforms - DuraGraft, MATLOC and Krillase.
Salary Expenses
Salary expenses for the period ended June 30, 2022, were $1.82 million, a $0.25 million or 16% increase from the comparative period. The increase in the salary cost is attributable to the restructuring and growth of the organization as the Company restructured its executive and management teams in the late 2021 and continues to expand into the new markets and working towards commercialization of the DuraGraft in the United States.
Research and Development
Research and development expenses for the six months ended June 30, 2022, were $2.59 million, a $1.95 million or 307% increase from the comparative period. The increase in the research and development expenses can be mainly attributed to the Company’s acquisition had been finalizedof MATLOC 1 product in late 2021 and its focus on development and advancement of all its products – DuraGraft, Krillase, and MATLOC 1 towards commercialization.
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Stock-Based Compensation
Stock-based compensation for the first half of the 2022 increased by $0.83 million or 148% to $1.39 million if compared to the six months ended June 30, 2021. The increase in the stock-based compensation can be explained by additional 400,000 stock options granted in 2022 and 350,000 restricted share awards granted in late 2021, fair value of which have increased significantly from the stock options granted and outstanding in the comparative period due to the increased stock price period over period.
Other General and Administrative Expenses
Other general and administrative expenses increased $0.36 million or 56% to $1.01 million in the six months ended June 30, 2021, only2022. The increase was due to the currentCompany’s non-legal fees related to the filing of S-1 form in the period, results were restatedpreparation toward the public offering, increased rent due to reflect the measurement period adjustments.lease of additional office and laboratory space, and expenses associated with running a public company. 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 six months ended June 30, 2022, the Company incurred $0.83 million of interest and accretion costs associated with convertible notes issued at discount as part of the Units Offering Agreements. Additionally, the Company recognized $3.62 million of fair value loss from mark-to-market adjustments on the contingent liabilities assumed on the acquisition of Somah due to the change of the fair value of the contingent consideration.
LIQUIDUTY AND CAPITAL RESOURCES
To date, we have incurred significant net losses and negative cash flows from operations. As of June 30, 2022, we had available cash of $2,044,976 and accumulated deficit of $60,872,432. We fund our operations through capital raises.
Private Placements
Unit Purchase Agreement
During the six months ended June 30, 2022, the Company issued additional 3,322,929 units under the New Securities Unit Purchase Agreement for the gross proceeds of $5,815,138. Of the total 3,322,929 Units issued: (i) 159,245 Units were issued to settle notes 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 rendered to the Company in the six months ended June 30, 2022. The remaining proceeds from this offering will be used to sustain the Company’s growth and meet its capital obligations.
Subsequent to the Q2 2022 end, on August 12, 2022, the Company conducted the final closing of the Unit Purchase Agreement, in which the Company issued to an investor Units consisting of a convertible note in the aggregate principal amount of $1,500,000, convertible into 857,142 shares of common stock, plus additional shares based on accrued interest, subject to adjustment, and a Class C Warrant for the purchase of 1,714,285 shares of common stock at $2.25 per share, subject to adjustment.
Public Offering
On February 14, 2021, Marizyme completed a preliminary prospectus with intention to raise up to $17,250,000. As at the end of Q2 2022, the final prospectus has not yet been filed and the final amount of the offering will be dependent on market conditions. The proceeds from the offering will be used by the Company (i) to develop its DuraGraft, MATLOC, and Krillase platforms; (ii) to commercialize and produce its products, and (iii) for general working capital and other corporate purposes. The management anticipates the offering to close in Q3 2022.
Funding Requirements and Other Liquidity Matters
Marizyme expects to continue to incur expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase as a result of the following operational and business development efforts:
| ● | Increase our expertise and knowledge through hiring and retaining qualified operational, financial and management personnel, who will build efficient infrastructure to support development and commercialization of therapies and devices, | |
| ● | Increase in research and development and legal expenses as we continue to develop our products, conduct clinical trials and pursue FDA clearances, | |
| ● | Expand our product portfolio through the identification and acquisition of additional life science assets, and | |
| ● | Seek to increase awareness about our products to boost sales and distributions internationally. |
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, the Company will continue to have to raise funds beyond its current working capital balance in order to finance future development of products, potential acquisitions, and meet its debt obligations until such time as future profitable revenues are achieved.
We expect to finance our cash needs through a combination of private and public equity offerings, debt financings, government or other third-party funding, and collaborations arrangements or acquisitions. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development or acquisition of product.
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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 reconciles previously reportedsets forth a summary of the net income to restated amounts:cash flow activity for each of the periods indicated:
SCHEDULE OF RECONCILES PREVIOUSLY REPORTED STATEMENTS
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2021 | 2021 | |||||||
| Net loss, as previously reported | $ | (2,460,842 | ) | $ | (5,271,393 | ) | ||
| Adjustment to other general and administrative expenses | 244,572 | 244,572 | ||||||
| Adjustment to amortization expense on intangible assets | 299,342 | 898,026 | ||||||
| Change in fair value of contingent liabilities | 278,000 | 278,000 | ||||||
| As restated | $ | (1,638,928 | ) | $ | (3,850,795 | ) | ||
| Net loss | $ | (1,638,928 | ) | $ | (3,850,795 | ) | ||
| Restated loss per share – basic and diluted | $ | (0.05 | ) | $ | (0.11 | ) | ||
| Six Months Ended June 30, | ||||||||||||
| 2022 | 2021 | $ Change | ||||||||||
| Net Cash provided by/(used in): | ||||||||||||
| Operating activities | $ | (7,055,675 | ) | $ | (2,975,603 | ) | $ | (4,080,072 | ) | |||
| Financing activities | 5,028,312 | 74,945 | 4,953,367 | |||||||||
| Net change in cash | $ | (2,027,363 | ) | $ | (2,900,658 | ) | $ | 873,295 | ||||
Selected Consolidated Balance Sheet information as ofOperating Activities
Net cash used in operating activities was approximately $7.06 million and $3.0 million in the six months ended June 30, 2021:2022 and 2021, respectively. The net cash used in operating activities in the first half of 2022, was due to approximately $1.42 million spent on professional fees, $1.82 million spent on salaries and related compensation expenses and $2.59 million spent on research and development activities. The net change in operating assets and liabilities primarily related to $0.25 million spent on the manufacturing of Duragraft product in the period and a $1.88 million increase in accounts payable, accrued expenses, and amounts due to related parties in support of the growth of our research and development and other operating activities.
| Previously Reported | Increase (Decrease) | Restated | ||||||||||
| Assets: | ||||||||||||
| Intangible assets, net | $ | 41,573,599 | $ | 4,920,298 | $ | 46,493,897 | ||||||
| Goodwill | - | 5,416,000 | 5,416,000 | |||||||||
| Total Assets | $ | 43,342,385 | $ | 10,336,298 | $ | 53,678,683 | ||||||
| Liabilities: | ||||||||||||
| Contingent liabilities | - | 9,648,000 | 9,648,000 | |||||||||
| Total Liabilities | $ | 2,797,108 | $ | 9,648,000 | $ | 12,445,108 | ||||||
| Stockholders’ equity: | ||||||||||||
| Additional paid in capital | $ | 82,606,376 | $ | (732,300 | ) | $ | 81,874,076 | |||||
| Accumulated deficit | (42,097,027 | ) | 1,420,598 | (40,676,429 | ) | |||||||
| Total liabilities and stockholders’ equity | $ | 43,342,385 | $ | 10,336,298 | $ | 53,678,683 | ||||||
Financing Activities
Selected Shareholders’ equity information
Net cash provided by financing activities for the six months ended June 30, 2021:
| Six Months Ended June 30, | ||||
| 2021 | ||||
| Balance, June 30, 2021, as reported previously | $ | 40,545,277 | ||
| Adjustment to net loss | 1,420,598 | |||
| Adjustment to fair value of warrants issued on acquisition of Somah | (732,300 | ) | ||
| As restated | $ | 41,233,575 | ||
As a result of all adjustments herein, the total assets increased by $10,336,298, predominately2022 was due to $5.12 million of funds raised from the valuationissuance of the intangible assets and goodwill recognized on the Somah acquisition and the total liabilities increased by $9,648,000, mainly duepromissory notes pursuant to the recognitionUnit Purchase Agreement, net of $9,926,000 of contingent liabilities assumed on the Somah acquisition and decrease in contingent liabilities fair value inissuance costs. During the six months ended June 30, 2021 by $278,000. The fair market value of warrants given up was revalued and decreased by $732,300. Additionally,2022, the Company overestimatedalso settled an aggregate of $0.33 million in notes payable as part of the amortization expense by $898,026Unit Purchase Agreement issuances and repaid $0.1 million in notes payable assumed on the period ended June 30, 2021.
NOTE 13 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the condensed consolidated financial statements, except as stated below:acquisition of My Health Logic.
Convertible Promissory NotesContractual Obligations and Warrants
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. See Note 10 for the terms and features of the Units.
Acquisition of My Health Logic Inc.Commitments
On November 1,Other than disclosed below, there were no material changes outside the ordinary course of our business during the six months ended June 30, 2022 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Marizyme entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to which the Company will acquire My Health Logic Inc., a wholly-owned subsidiary of HLII (the “Transaction”).Form 10-K.
Royalties and Other Commitments
Upon receiving the FDA clearance for the DuraGraft and other key intellectual products, the Company will:
| ● | Grant of performance warrants to Somah, for 4,000,000 restricted common shares of the Company, with a strike price determined based on the average of the closing prices of the common shares for the 30 calendar days following the date of the public announcement of FDA clearance; | |
| ● | Pay royalties on all net sales of the product acquired from Somah of 6% on the first $50 million of international net sales (and 5% on the first $50 million of U.S. net sales), 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million; | |
| ● | Pay 10% of cash value of the rare pediatric voucher sales following the FDA clearance and subsequent sale to an unaffiliated third party of a rare pediatric voucher based on Somah’s DuraGraft product; | |
| ● | Grant of rare pediatric voucher warrants to purchase an aggregate of 250,000 commons shares with a term of five years and a strike price determined based on the average of the closing prices of the common shares for the 30 calendar days following the date of the public announcement of FDA clearance, and | |
| ● | Pay a liquidation preference, up to a maximum of $20 million upon the sale by the Company of all or substantially all of the assets relating to the Somah products. Upon the sale of either or both of the DuraGraft or Somah derived solid organ transplant products, the Company will pay 15% of the net sale proceeds towards the liquidation preference maximum amount. |
Lease Commitments
The Transaction will be effected by wayCompany has entered into arrangements for office and laboratories spaces. As at June 30, 2022, minimum lease payments in relation to lease commitments were payable as outlined in Note 5 to the interim consolidated financial statements.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of a planour financial condition and results of arrangementoperations 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 Business Corporations Act (British Columbia). In connection withcircumstances, the planresults of arrangement, Marizyme will issue an aggregatewhich form the basis for making judgments about the carrying value of shares of its common stock to HLII, which will be subject to certain termsassets and restrictions. Upon closing, My Health Logic Inc. will be a wholly-owned subsidiary of Marizyme.liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The acquisition is subjectFor a description of our critical accounting policies, please see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” contained in our 2021 Form 10-K. There have not been any material changes to among other things, the approvalcritical accounting policies discussed therein during the six months ended June 30, 2022.
Off-Balance Sheet Arrangements
As of June 30, 2022, the Supreme CourtCompany 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 British Columbia, the approval of the NEX board of the TSX Venture Exchange, and requires the approval of at least two-thirds of the votes cast by HLII shareholders at the upcoming annual and special meeting of HLII shareholdersoperations, liquidity, capital expenditures or capital resources.
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SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.Not applicable.
Company Overview
We are a Nevada corporation originally incorporated on March 20, 2007, under the name SWAV Enterprises, Ltd. On September 6, 2010, we changed our name to GBS Enterprises Incorporated and from 2010 to September 2018 we were in the software products and advisory services business for email and instant messaging applications. We divested that business between December 2016 and September 2018 and, since that time, we have begun to focus on the acquisition of life science technologies.
We changed our name to Marizyme, Inc. on March 21, 2018, to reflect our new life sciences focus, and our common stock is currently quoted on the OTC Markets’ QB tier under the symbol “MRZM.” We may also examine our options with respect to the listing of our common stock on the Nasdaq Stock market or the NYSE.
In the second half of 2018, we acquired the protease-based therapeutic platform called Krillase® from ACB Holding AB.
Recent Events
Somahlution Asset Acquisition
Pursuant to the terms of the Acquisition, the majority shareholder of Somah is entitled to appoint two members to our board of directors, one of whom must be independent. Additionally, Dr. Satish Chandran, Somah’s co-founder and Chief Executive Officer, has become our Chief Technical Officer and Dr. Catherine Pachuk, Somah’s Chief Science Officer, has become our Chief Science Officer.
Pursuant to the terms of the Acquisition, Somah is entitled to appoint two members to our board of directors, one of whom must be independent. Additionally, Dr. Satish Chandran, Somah’s co-founder and Chief Executive Officer, has become our Chief Technical Officer and Dr. Catherine Pachuk, Somah’s Chief Science Officer, has become our Chief Science Officer.
Private Placement
On August 3, 2020, we conducted an initial closing of a private placement (the “Private Placement”) in which we sold to a number of accredited investors an aggregate of 4,609,984 shares of our common stock, par value $0.001 per share, at a purchase price of $1.25 per share for an aggregate amount of $5,762,480. On September 25, 2020, we conducted a second closing of the Private Placement and sold an additional 990,208 shares of our common stock for an aggregate amount of $1,237,760, for a total Private Placement offering amount of $7,000,240. The offering costs were $725,176, leaving net proceeds of $6,275,064.
Unit Purchase Agreement
On May 27, 2021, we sold 29,978 Units at a price of $2.50 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. In July 2021, we sold 440,000 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.
Our Products
Krillase
Through our acquisition of the Krillase technology from ACB Holding AB, we have purchased a European Union researched and evaluated protease therapeutic platform that has the potential for use in the treatment of chronic wounds/burns, and other clinical applications. Krillase may be classified as a biological drug, however, it has been classified as a Class III medical device in Europe for treating chronic wounds.
Krillase, derived from Antarctic krill, shrimp-like crustaceans, is a combination of endo and exopeptidases that safely and efficiently breaks down organic material. The mix of proteinases and peptidases in Krillase helps the Antarctic krill digest and break down its food in the extremely cold Antarctic environment. As a result, this specialized collection of enzymes provides a unique biochemical “cutting” capability. As a “biochemical knife,” Krillase can potentially break down organic matter, such as necrotic tissue, thrombogenic material, and biofilms produced by microorganisms. As such, it may be useful in the mitigation or treatment of multiple disease states in humans. For example, Krillase may dissolve arterial thrombogenic plaque safely and efficiently, promote faster healing and 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 have acquired a Krillase-based product pipeline that is focused on developing products that treat several conditions across the critical care market.
Itemized below is a breakdown of our projected Krillase development pipeline:
Krillase received medical device status in the European Union for debridement of deep partial and full-thickness wounds in hospitalized patients, on July 19, 2005.
As of the date of this filing, the Company continues to evaluate commercial, clinical, research, and regulatory considerations involved in marketing our
Krillase-based product line. Our commercial strategy in developing this product line is two-fold:
We anticipate finalizing our development, operation and commercial strategy regarding the Krillase platform by 2022.
DuraGraft®
On July 31, 2020, Marizyme closed the acquisition of Somahlution’s product, DuraGraft.
The DuraGraft Product
Somahlution has been engaged in developing products based on its cytoprotective platform technology, to prevent ischemic injury to organs and tissues in grafting and transplantation surgeries. Its products and product candidates, which are referred to as the Somah Products, include DuraGraft, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, thereby reducing the incidence and complications of graft failure and improving clinical outcomes post bypass surgery.
DuraGraft Indications
DuraGraft is an “endothelial damage inhibitor” indicated for cardiac bypass, peripheral bypass, and other vascular surgeries. It is CE marked and is approved for marketing in 33 countries worldwide on 4 continents including, but not limited to the European Union, Turkey, Singapore, Hong Kong, India, the Philippines, and Malaysia. Somahlution has also been focused on developing products to mitigate the effects of ischemia reperfusion injury in other grafting and transplantation surgeries and other indications in which ischemic injury can cause disease. Multiple products derived from the cytoprotective platform technology for several indications are under various stages of development.
Unmet Clinical Needs
Commercial Considerations
According to market analysis reports, the size value of the coronary artery bypass graft market globally was approximately $16 billion. This market is forecasted to increase at a CAGR of 5.8% from 2017 to 2025 (Grand View Research, March 2017). Globally, it is estimated that approximately 800,000 CABG procedures are performed each year (Grand View Research, March 2017), with procedures performed in the U.S. being a substantial percentage of the total global procedures performed. In the U.S., it is estimated that approximately 340,000 CABG surgeries are performed each year. The number of CABG procedures performed is predicted to decline at a rate of approximately 0.8% per year to less than 330,000 annually by 2026, primarily due to medical and technological advances in the use of percutaneous coronary intervention, also known as “angioplasty” (idata Research, September 2018).
In 2017, the number of peripheral vascular surgeries, which include angioplasty and bypass of peripheral arteries, vein removal, thrombectomy, and endarterectomy operations, were approximately 3.7 million worldwide. The number of peripheral vascular procedures is forecasted to increase at a CAGR of 3.9% in years 2017 to 2022 and is expected to exceed 4.5 million procedures by 2022 (Research and Markets, October 2018).
The DuraGraft product addresses unmet medical needs in both of these clinical markets. DuraGraft is a CE-marked endothelial damage inhibitor that protects free vascular grafts and endothelium against ischemic injury. The product is approved for use in Europe for graft protection and preservation during bypass (cardiac and peripheral) and other vascular surgeries. The company is 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 Europe, South America, Australia, Africa, the Middle East, and the Far East. As of the date of this filing, the Company anticipates the submission of a de novo 510k application to the U.S. FDA for the use of DuraGraft in CABG procedures in the 4th quarter of 2021. In anticipation of the filing of the de novo 510k application for DuraGraft, the Company has submitted a pre-submission document in April 2021 to the FDA that describes the strategy for demonstrating the clinical safety and efficacy of the product.
Our Competitive Strength
We believe that the following competitive strengths will enable us to compete effectively:
Our Krillase platform provides a significant and substantial competitive advantage as:
Our Growth Strategy
Our growth strategy is premised on integrating the acquisition of the Somah assets and the engagement of the Somah personnel in connection with this acquisition and future capital raising offerings, either public or private.
We will strive to grow our business by pursuing the following key growth strategies:
The strategic plans described above will require capital. There can be no assurances that we will be able to raise the capital that we will need to execute our plans or that capital, in addition to the amount we raised in the Private Placement, whether through securities offerings, either private or public, will be available to us on acceptable terms, if at all. An inability to raise sufficient funds could cause us to scale back our development and growth plans or discontinue them altogether.
Impact of the Coronavirus
On January 30, 2020, the World Health Organization, or WHO, announced a global health emergency because of a new strain of coronavirus, COVID-19, originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The COVID-19 pandemic is affecting the United States and global economies and may affect our prospective future revenues, and our operations and those of third parties with whom we might interact, including by causing disruptions in the development of our product candidates, product marketing efforts and the conduct of current and expected future clinical trials.
In addition, 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, including with respect to our product candidates and our plans to submit a Q-sub clinical proposal to the FDA for supporting an additional clinical study if required for the DuraGraft product. 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 we might interact, might impact the approval of any applications we plan and will need to file in the future.
We have not developed a COVID-19 contingency plan to address the potential challenges and risks presented by this pandemic. If we were to prepare such a plan, there could be no assurance that it would be effective in mitigating the effects of the COVID-19 virus.
Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.
In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our shares of common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
GOING CONCERN
The accompanying unaudited condensed consolidated financial statements and the factors within it, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and the ability of the Company to continue as a going concern for a reasonable period of time. The Company had a net loss of $3.9 million and cash used in operating activities of $3.0 million for the six months ended June 30, 2021. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts. The financial statements do not include any adjustments relating 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.
FINANCIAL OPERATIONS OVERVIEW
As of June 30, 2021, our accumulated deficit is $40.7 million. We expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.
Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.
RESULTS OF OPERATIONS
Comparison of Three and Six Months Ended June 30, 2021 and 2020
Revenues
Our total revenue was $160,785 and $0 for the three months ended June 30, 2021 and 2020 and $234,737 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase in revenue is due to the acquisition of Somahlution, LLC and Somaceutica, LLC and the acquisition of Somahlution, Inc. on July 31, 2020 (the “Soma Acquisition”).
Direct Costs of Revenue
Our direct costs of revenue were $119,221 and $0 for the three months ended June 30, 2021 and 2020 and $150,063 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase in direct costs of revenue is due to the Soma Acquisition.
Operating Expenses
For the three months ended June 30, 2021, our operating expenses increased to $2,061,379 from $434,911 for the three months ended June 30, 2020. For the six months ended June 30, 2021, our operating expenses increased to $4,322,909 from $906,281 for the six months ended June 30, 2020. The increase was primarily due to the Soma Acquisition. The increase was primarily professional fees ($592,781 for the three months ended June 30, 2021 compared to $203,992 for the three months ended June 30, 2020) and ($1,251,839 for the six months ended June 30, 2021 compared to $438,835 for the six months ended June 30, 2020), salary expenses ($824,074 for the three months ended June 30, 2021 compared to $0 for the same period in 2020) and ($1,860,531 for the six months ended June 30, 2021 compared to $0 for the same period in 2020), stock-based compensation ($194,657 for the three months ended June 30, 2021 compared to $221,058 for the same period in 2020) and ($562,375 for the six months ended June 30, 2021 compared to $442,116 for the same period in 2020), and other general and administrative expenses ($342,791 for the three months ended June 30, 2021 compared to $9,861 for the same period in 2020) and ($534,535 for the six months ended June 30, 2021 compared to $25,330 for the same period in 2020).
Net Loss
For the three months ended June 30, 2021, we had a net loss of $1,638,928 as compared to $434,911 for the three months ended June 31, 2020. For the six months ended June 30, 2021, we had a net loss of $3,850,795 as compared to $906,281 for the six months ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2021, we had $2,104 in cash, compared to $2,902,762 at December 31, 2020. At June 30, 2021, our accumulated deficit was $40,676,429 compared to $36,825,634 at December 31, 2020. There is substantial doubt as to our ability to continue as a going concern.
We have generated minimal revenues to date and our cash balance as reported above is not sufficient to fund our current and planned operations for any period of time. To fully implement our plan of operations for the next 12-month period, we will need to raise a significant amount of capital through our Private Placement, of which we have conducted an initial closing, and through additional future offerings, either private or public. There can be no assurances, however, that we will be successful in these capital raising efforts.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, “Summary of Significant Accounting Policies” in our audited financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K as filed on April 15, 2021, for a discussion of our critical accounting policies and estimates.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of June 30, 2021 and December 31, 2020.
RECENT ACCOUNTING PRONOUNCEMENTS
None
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
EvaluationConclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Securities and Exchange Commission definesWe evaluated the term “disclosureeffectiveness of our disclosure controls and procedures”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 June 30, 2022, our disclosure controls and procedures were ineffective due to mean a company’sthe material weakness described below.
Disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’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 Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chiefprincipal executive and chiefprincipal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system ofA material weakness in disclosure controls and procedures includes a deficiency, or a combination of deficiencies, in an effortinternal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As previously reported in our annual report on Form 10-K for the year ended December 31, 2021, management concluded that, as of such date, our disclosure controls and procedures were not effective due to ensure that all information which it is required to disclosethe existence of a material weakness in the reports it files underdesign and operating effectiveness of internal controls related to inadequate internal technical staffing levels and lack of board or management oversight. In connection with our preparation of our interim condensed consolidated financial statements for the Securities Exchange Act of 1934 is recorded, processed, summarizedsix months ended June 30, 2022, we identified material weaknesses in our disclosure controls and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicatedprocedures due to the chief executive and interim chiefmaterial weaknesses in internal control over financial officerreporting related to allow timely decisions regarding disclosure.the following:
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Interim Chief Executive Officer and VP of Finance, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Interim Chief Executive Officer and VP of Finance have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Interim Chief Executive Officer and VP of Finance have determined that the Company continues to have the following deficiencies which represent a material weakness:
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| ● | In addition, we did not have proper segregation of duties in certain areas of our financial reporting process. The areas where we had a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. | ||
| ● | |||
| ● | We did not have an independent audit committee to oversee the financial reporting |
To remediate the material weaknesses described above, in addition the measures that management has taken as described under “Changes in Internal Control Over Financial Reporting” below, management will continue to add controls to further enhance and revise the design of the existing controls including:
| ● | ||
| certain financial instruments. | ||
| ● | ||
| statements. | ||
| ● | ||
| statements. | ||
| ● | Maintaining adequate internal qualified personnel to properly supervise and review the information provided by the outside consulting technical experts to ensure certain significant complex transactions and technical matters were properly accounted for. |
We believe these measures will remediate the material weakness in internal control over financial reporting and disclosure controls and procedures described above by the fourth quarter of 2022.
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 six months ended June 30, 2022, the Company took the following steps in order to improve its internal controls over financial reporting:
| ● | The Board of Directors of the Company was increased from five to seven members, | |
| ● | A new Chair of the Audit Committee was appointed that the Board determined to be an “audit committee financial expert” as defined under Item 407(d)(5)(ii) and (iii) of Regulation S-K, | |
| ● | The Company |
Additional hiring is contingent uponDuring the Company’s efforts to obtain additional funding through equity or debt and the results of its operations.
Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d)second half of the Exchange Act, ourfiscal 2022, management including our Interim Chief Executive Officer, and our VP of Finance conducted an evaluation of the Company will continue to work on addressing to remediate the material weaknesses in internal controlcontrols over financial reporting to determine whether any changes occurred duringdescribed above by the fourth quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our Interim Chief Executive officer and VP of Finance concluded that there were changes during the quarter ended June 30, 2021. The Company hired an VP of Finance and additional accounting staff to facilitate increased internal controls.2022.
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Limitations on the Effectiveness of Controls
The Company’s management, including the Interim Chief Executive Officer and VP Finance, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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. WeOther 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, against the Company (the “DeVito Complaint”). The DeVito Complaint claimed breach of contract, breach of an implied covenant of good faith and fair dealing, and unjust enrichment against the Company with respect to the Company’s alleged breach of the common stock issuance requirements of an Incentive Stock Option Agreement between Mr. DeVito and the Company, dated as of July 13, 2019 (the “DeVito ISO”). Under the DeVito ISO, on July 13, 2019, the Company issued an option to Mr. DeVito to purchase 600,000 shares of common stock at $1.01 per share, subject to certain vesting terms. The DeVito ISO provided that it would terminate twelve (12) months after the end of Mr. DeVito’s “Continuous Service,” which was not defined by the DeVito ISO. On August 27, 2020, as part of a Mutual Release of Claims Agreement between Mr. DeVito and the Company dated as of that date (the “DeVito Release”), the Company agreed to immediately vest the unvested portion of the DeVito ISO such that the DeVito ISO became fully vested. Under the DeVito Release, Mr. DeVito agreed, among other things, to resign from his positions as Interim Chief Executive Officer and Interim Chief Financial Officer effective September 1, 2020, and provide certain transitional services for the month of September 2020. The DeVito Release also recited that the Company requested that Mr. DeVito be available for additional consulting going forward as the needs of the business dictate. The DeVito Complaint alleged that Mr. DeVito continued his role as an advisor and consultant to the Company. However, the Company believes that, pursuant to the DeVito ISO’s forfeiture terms and Mr. DeVito’s resignations from his officer positions on September 1, 2020 and end of transitional services as of September 30, 2020, the option expired unexercised one year after September 30, 2020, or on September 30, 2021. Due to the Company’s alleged nonperformance of Mr. DeVito’s exercise rights under the DeVito ISO, the DeVito Complaint seeks 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. The Company denies any liability and believes the Complaint is without merit. The response to the Complaint is due by July 25, 2022. As of August 2022, this case is pending.
Chandler Litigation
On January 28, 2022, we filed a Complaint in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida (the “Florida Circuit Court”), case number 50-2022-CA-000859-XXX-MB, against Amy Chandler (the “Chandler Complaint”). The Chandler Complaint seeks damages for breach of fiduciary duty, breach of contract, negligence, conversion, and civil theft. The Chandler Complaint alleged that, approximately two months before her resignation in September 2021, Ms. Chandler intentionally and recklessly took affirmative actions to cancel the CE certificate required by European Union regulations in order for Marizyme and its subsidiary, Somahlution, LLC, to ship and distribute certain products to/within the European Union, and disregarded her fiduciary duty to Marizyme and responsibilities as its former Executive Vice President for Regulatory Affairs and Quality Management Systems. As a result, the Chandler Complaint alleged that Ms. Chandler’s actions caused significant disruption and damage to Marizyme’s business, including, but not limited to, financial damages and damage to Marizyme’s reputation and business relationships. The Chandler Complaint further alleged that prior to her last day, Ms. Chandler stole confidential, proprietary files governing Marizyme’s quality management system, which were required for essential internal business operations, and that Marizyme incurred significant costs to recreate these files. The Chandler Complaint alleged damages in excess of thirty thousand dollars ($30,000), exclusive of interest, attorneys’ fees, and costs.
On February 28, 2022, Ms. Chandler filed an Answer, Affirmative Defenses and Counterclaim to Plaintiff’s Complaint with the Florida Circuit Court (the “Chandler Countercomplaint”). The Chandler Countercomplaint denied the claims in the Chandler Complaint and most of the factual allegations regarding her alleged actions. The Chandler Countercomplaint also included a counterclaim of defamation per se against the Company based on certain statements regarding this litigation that were included in the Registration Statement. As to the claims in the Chandler Complaint, the Chandler Countercomplaint demanded an award of attorneys’ fees and costs, court costs on all counts, and such further relief the court deems just and proper. As to the counterclaim of defamation, the Chandler Countercomplaint requested monetary damages, punitive damages, court costs, and any other relief the court deems just and proper. The Chandler Countercomplaint also demanded trial by jury on all triable issues.
On March 18, 2022, the Company filed a Motion to Dismiss Counterclaim with the Florida Circuit Court (the “Motion to Dismiss”). The Motion to Dismiss stated that the Chandler Countercomplaint for defamation per se should be dismissed with prejudice because the Company has not made any statements about Chandler outside the allegations in the Chandler Complaint. The Motion to Dismiss stated that the statements regarding this litigation that were included in the Registration Statement were as a matter of law not false because they all accurately reproduced the allegations in the Chandler Complaint and such statements were prefaced by the words “The Chandler Complaint alleged”. The Motion to Dismiss further stated that allegations in the litigation are subject to Florida’s litigation privilege and cannot serve as a basis for a defamation claim as a matter of law. On July 11, 2022, the court ruled that the counterclaim of defamation was dismissed with prejudice. As of August 2022, the remaining matters under litigation in this case are pending.
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Campbell/Harmon Litigation
On August 19, 2021, Dr. Neil Campbell, former President, Chief Executive Officer and director of the Company, and Bruce Harmon, former Chief Financial Officer and Secretary of the Company, each filed a Complaint and Demand for Jury Trial in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, case numbers No. 50-2021-CA-009938 and No. 50-2021-CA-009954, respectively, against the Company and Insperity Peo Services, L.P., a Delaware limited partnership (“Insperity”), a joint employer of Dr. Campbell and Mr. Harmon with the Company under a Client Service Agreement, dated November 30, 2020 (collectively, the “Campbell/Harmon Complaints”). Both Campbell/Harmon Complaints alleged that the Company and Insperity violated Section 448.105 of the Florida Private Whistleblower Act as a result of the constructive terminations of Dr. Campbell and Mr. Harmon after the occurrence of violations of federal and state law, including federal securities law, at the Company that exposed Dr. Campbell and Mr. Harmon to civil and criminal forms of liability and that the Company was not addressing to their satisfaction. Both of the Campbell/Harmon Complaints demanded approximately $30,000-$50,000 in back pay and benefits, interest on back pay, front pay and/or lost earning capacity, compensatory damages, costs and attorney’s fees, and such other relief as the court deems equitable.
Pursuant to a Joint Stipulation of Voluntary Dismissal With Prejudice filed in each of these cases, the arbitrator of these cases dismissed Dr. Campbell and Mr. Harmon’s actions with prejudice on April 18, 2022 and April 14, 2022, respectively, and the court subsequently dismissed Dr. Campbell and Mr. Harmon’s actions with prejudice on April 22, 2022 and April 14, 2022, respectively.
ITEM 1A. RISK FACTORS.
For information regardingThere have been no material changes to the various risk factors that may affect our business, please refer to ourdisclosed in out Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC on April 15, 2021,March 31, 2022, which may be accessed via EDGAR through the Internet at www.sec.gov.www.sec.gov.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the six-monththree-month period ended June 30, 2021,2022, we did not conduct any unregistered sales of our equity securities that were not previously disclosed in a current report of Form 8-K and we did not repurchase any of our common stock, exceptother than as follows:described below.
On May 11, 2022, we conducted an additional closing of our units private placement in which we issued a number of investors units consisting of convertible notes in the aggregate principal amount of $1,306,485, convertible into 746,563 shares of common stock, plus additional shares based on accrued interest, and Class C Warrants for the purchase of 1,493,119 shares of common stock at $2.25 per share.
On June 17, 2022, we conducted an additional closing of our units private placement in which we issued an investor units consisting of a convertible note in the aggregate principal amount of $500,000, convertible into 285,714 shares of common stock, plus additional shares based on accrued interest, subject to adjustment, and a Class C Warrant for the purchase of 571,428 shares of common stock at $2.25 per share, subject to adjustment.
The convertible notes mature 24 months after the applicable closing date and accrue 10% of simple interest per annum on the outstanding principal amount. The convertible notes’ principal and accrued interest can be converted at any time at the option of each holder at the conversion price. The convertible notes are secured by a first priority security interest in all assets of the Company. The convertible notes and Class C Warrants have certain antidilution provisions. The convertible notes and Class C Warrants have certain registration requirements for the shares of common stock underlying the convertible notes and Class C Warrants upon the final closing under the Unit Purchase Agreement between the Company and the investors in the units private placement, subject to the expiration of lock-up agreements between the units private placement investors and the representative of the underwriters for the Company’s anticipated public offering. The current Placement Agency Agreement and form of Unit Purchase Agreement relating to this private placement provide that up to $18 million and $17 million of units may be sold, respectively.
The Company engaged Univest Securities, LLC as the Company’s placement agent for this private placement. The Company paid Univest a cash placement fee equal to 8.0% of the gross proceeds from the sale of the units and will pay Univest 8.0% of the gross proceeds from the exercise of the Class C warrants. In addition, in exchange for a $100 payment by Univest, the Company agreed to issue warrants to Univest to purchase an aggregate of 8.0% of the total number of shares of common stock issuable upon conversion of the convertible notes issued in the private placement, with an exercise price equal to $1.75. These warrants, which may be exercised on a cashless basis, will be exercisable starting on the final closing date of this offering and will be exercisable for a period of five years from that date.
On June 26, 2022, in anticipation of the final closing of our units private placement and pursuant to our Placement Agency Agreement with Univest dated December 10, 2021, we issued Univest, as placement agent, a warrant for the purchase of 231,359 shares of common stock, and a warrant to Bradley Richmond, Univest’s designee, a warrant for the purchase of 347,039 shares of common stock. In accordance with the placement agency agreement, the warrants were issued in exchange for a $100 payment by Univest, and are exercisable on a cash or cashless net exercise basis, in aggregate, to purchase a number of shares of common stock equal to approximately 8% of the units sold in the units private placement. The warrants’ exercise price per share is equal to the price per unit of the units sold in the units private placement, currently $1.75, subject to adjustment. The warrants expire on June 26, 2027.
All of the securities issued in the private placement were sold pursuant to an exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.
As provided to mike and subsequent financing
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
On April 16, 2021, the Board of Directors of the Company formed the following committees:None.
Audit Committee: Terry Brostowin (Chair), Dr. Vithal Dhaduk, and Dr. William Hearl
Compensation Committee: Julie Kampf (Chair), Dr. Vithal Dhaduk, and Terry Brostowin
Nomination and Board Governance Committee: Dr. William Hearl (Chair), and Julie Kampf
On June 24, 2021, and in connection with the termination of his employment, James Sapirstein was removed from the audit, compensation and nomination and board governance committees.
On July 12, 2021, and in connection with the termination of his consulting agreement, Bruce Harmon was removed from the audit committee.
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report or incorporated by reference:
* Filed herewith
** Furnished herewith
+ Indicates managementcontract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 15, 2022 | 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 | ||