| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 accounts of the Company and its wholly owned subsidiaries,
Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”) and Marizyme Sciences, Inc. (“Marizyme
Sciences”). All significant intercompany balances and transactions have been eliminated on consolidation. 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 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, 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 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 2,902,762 no 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 no Fair Value
of Financial Instruments 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 as considers counterparty credit risk in its assessment of fair value. 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 consist of present values of royalty payments, performance warrants and pediatric voucher warrants,
future rare pediatric voucher sales, and liquidation preference. Management measured these contingencies in accordance with
Level 3 of the fair value hierarchy.
i. The performance warrants
and pediatric vouchers warrants liabilities were valued using a Monte Carlo simulation model utilizing the following weighted average
assumptions: risk free rate of 1.12 %,
expected volatility of 72.66 %,
expected dividend of $ 0 ,
and expected life of 6.46
years. In the six months ended June 30, 2021, changes in these assumptions resulted
in $ 1,296,000 decrease
in fair value of these liabilities. At June 30,
2021 the fair market value of performance warrants and pediatric vouchers warrants liabilities was $ 3,473,000
ii The present value of royalty payments
was measured using the scenario-based methodology. In assessing
the value attributed to the royalty payments, the estimated future cash flows were discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the revenue from
net sales of the product. The cash flows derived from the Company’s fifteen-year strategic plan are based on
managements’ expectations of market growth, industry reports and trends, and past performances. These projections are
inherently uncertain due to the evolving impact of the COVID-19 pandemic. The discounted cash flow model included projections
surrounding revenue, discount rates, and growth rates. The discount rates used to calculate the present value of royalty payments
reflect specific risks of the Company and market conditions and the mid-range was estimated at 20.8% . In
the six months ended June 30, 2021, changes in these assumptions resulted in $ 1,016,000 3,202,000
iii. Rare
pediatric voucher sales liability was valued based on the scenario-based methodology where the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset – 20.8 %.
In the six months ended June 30, 2021, changes in these assumptions resulted in $ 2,000
increase in fair value of this liability.
1,150,000
iv. The
present value of liquidation preference liability, included in the contingent consideration, was determined using the Black-Scholes
option pricing method and represents the fair value of the maximum payment amount according to the Agreement. The following assumptions
were used in the Black-Scholes option pricing model: risk free rate of 0.21 78.93 0 5 1,823,000 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. The following
table summarizes our financial instruments that are measured at fair value on a recurring basis as of June 30, 2021: SCHEDULE 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 $ - The
following table provides a reconciliation 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 acquisition 1 $ 9,926,000
Change
in fair value (278,000 )
Balance at June 30, 2021 $ 9,648,000
1 Measured as at Somah acquisition
date of July 31, 2020, see Note 5. 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
Classification Estimated
Useful Lives
Equipment 5 7
Furniture and fixtures 4 7 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 20 122,746 Impairment
of Long-lived Assets 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 no 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:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations
in the contract
Step 5: Recognize revenue when the company satisfies a performance
obligation 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 1,920 17,313 80,180 8,650 25,969 17,376 28,610 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. Net Income
(Loss) per Share 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 one 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% 100% Research
and Development All
research and development costs, payments to laboratories and research consultants are expensed when incurred. |
