UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xFORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2013
¨ TRANSITION[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number: 000-53223
GBS ENTERPRISES INCORPORATEDMARIZYME, INC.
(Exact name of registrant as specified in its charter)
Nevada | ||||
(State or Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||
| ||||
(Address of principal executive offices) (Zip Code) | ||||
(561) 935-9955 | ||||
( |
(404) 891-1711
(Registrant’s telephone number, including area code)
With a copy to:
Philip Magri, Esq.
The Magri Law Firm, PLLC
11 Broadway, Suite 615
New York, NY 10004
T: (646) 502-5900
F: (646) 826-9200
pmagri@magrilaw.com
www.MagriLaw.com
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrantregistrant: (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 x[X] No ¨[ ]
Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit and post such files).
Yes ¨[X] No x[ ]
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 the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange ct.Act. (Check one):
[ ] | Large accelerated filer | [ ] | Accelerated filer |
[X] | Non-accelerated filer | [X] | Smaller reporting company |
Indicate by checkmarkcheck mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No[X]
Yes ¨ No xIf 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. [X]
APPLICABLE ONLY TO CORPORATE REGISTRANTSSecurities registered pursuant to Section 12(b) of the Act:
Indicate the number of shares outstanding
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Not applicable. |
The number of the registrant’s classes of common stock, as of the latest practicable date. As of November 14, 2013, there were 30,837,624 shares of common stock par value $0.001 per share,outstanding was 35,928,188 as of the Registrant issued and outstanding.May 6, 2021.
MARIZYME, INC.
FORM 10-Q
TABLE OF CONTENTS
Page | |||
PART | |||
Consolidated Financial Statements (unaudited) | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Quantitative and Qualitative Disclosures About Market Risk | |||
Controls and Procedures | |||
PART | |||
Legal Proceedings | |||
Risk Factors | |||
Unregistered Sales of Equity Securities and Use of Proceeds | |||
Defaults Upon Senior Securities | 27 | ||
ITEM 4. | Mine Safety Disclosures | 27 | |
ITEM 5. | Other Information | 27 | |
ITEM 6. | Exhibits | 27 | |
Signatures | 29 |
2 |
PART I – FINANCIAL INFORMATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
3 |
Item
ITEM 1. Financial StatementsFINANCIAL STATEMENTS
GBS Enterprises IncorporatedMARIZYME, INC.
Interimand Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2013 (Unaudited) and December 31, 2012 (Audited and Restated)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 834,957 | $ | 2,902,762 | ||||
Accounts receivable | 35,783 | 40,585 | ||||||
Prepaid expense | 63,100 | 106,390 | ||||||
Inventory | 44,640 | 56,340 | ||||||
Total current assets | 978,480 | 3,106,077 | ||||||
Fixed assets, net | 4,122 | 7,122 | ||||||
Operating lease right-of-use assets, net | 1,257,929 | 1,317,830 | ||||||
Intangible assets, net | 41,927,293 | 42,278,211 | ||||||
Prepaid royalties, non-current | 340,969 | 344,321 | ||||||
Deposits | 30,000 | 30,000 | ||||||
Total assets | $ | 44,538,793 | $ | 47,083,561 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 445,069 | $ | 478,103 | ||||
Operating lease obligations, current portion | 304,114 | 243,292 | ||||||
Total current liabilities | 749,183 | 721,395 | ||||||
Non-current liabilities | ||||||||
Operating lease obligations, non-current portion | 978,148 | 1,074,538 | ||||||
978,148 | 1,074,538 | |||||||
Total liabilities | 1,727,331 | 1,795,933 | ||||||
Commitments and contingencies (see Note 5) | - | - | ||||||
Stockholders’ equity | ||||||||
Preferred stock, $0.001 par value, 25,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020 | - | - | ||||||
Common stock, par value $0.001, 75,000,000 shares authorized, 35,928,188 shares issued and outstanding as of March 31, 2021 and December 31, 2020 | 35,928 | 35,928 | ||||||
Additional paid in capital | 82,411,719 | 82,077,334 | ||||||
Accumulated deficit | (39,636,185 | ) | (36,825,634 | ) | ||||
Total stockholders’ equity | 42,811,462 | 45,287,628 | ||||||
Total liabilities and stockholders’ equity | $ | 44,538,793 | $ | 47,083,561 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
Restated | ||||||||
September 30, | December 31, | |||||||
2013 | 2012 | |||||||
$ | $ | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents - Note 6 | 259,614 | 1,154,602 | ||||||
Accounts Receivable - Note 7 | 3,528,260 | 4,143,448 | ||||||
Inventory - Note 3 | 21,684 | - | ||||||
Prepaid expenses - Note 8 | 207,811 | 84,304 | ||||||
Other current receivables - Note 9 | 276,856 | 676,976 | ||||||
Assets held for sale | - | 384,862 | ||||||
Total current assets | 4,294,224 | 6,444,192 | ||||||
Non-Current Assets | ||||||||
Assets held for sale | - | 1,846,645 | ||||||
Property, plant and equipment - Note 11 | 282,601 | 332,839 | ||||||
Other non-current receivables - Note 12 | 1,217 | 428,422 | ||||||
Deferred tax assets non-current - Note 10 | 1,076,010 | 1,132,103 | ||||||
Goodwill - Note 13 | 31,260,500 | 34,254,881 | ||||||
Software - Note 14 | 10,232,633 | 12,207,031 | ||||||
Other assets - Note 15 | 132,489 | 156,379 | ||||||
Total non-current assets | 42,985,450 | 50,358,300 | ||||||
Total assets | 47,279,675 | 56,802,492 | ||||||
Liabilities and stockholders' equity | ||||||||
Current liabilities | ||||||||
Notes payable | 1,775,010 | 2,313,572 | ||||||
Liabilities to banks - Note 16 | 3,887,764 | 6,774 | ||||||
Accounts payables and accrued liabilities - Note 17 | 3,946,070 | 6,241,733 | ||||||
Deferred income - Note 18 | 6,846,920 | 6,099,570 | ||||||
Other short term liabilities - Note 19 | 242,252 | 860,032 | ||||||
Due to related parties | - | 2,115,869 | ||||||
Liabilities held for sale | - | 589,634 | ||||||
Total current liabilities | 16,698,017 | 18,227,184 | ||||||
Non-Current liabilities | ||||||||
Liabilities to banks | - | 3,716,102 | ||||||
Retirement benefit obligation | 172,414 | 165,876 | ||||||
Liabilities held for sale | - | 159,898 | ||||||
Total non-current liabilities | 172,414 | 4,041,876 | ||||||
Total liabilities | 16,870,431 | 22,269,060 | ||||||
Stockholders' equity | ||||||||
Capital stock - Note 20 | ||||||||
Authorized: | ||||||||
75,000,000 common shares of $.001 par value each | ||||||||
25,000,000 preferred shares of $.001 par value each | ||||||||
Issued and outstanding: | ||||||||
30,837,624 shares of common stock | ||||||||
(29,461,664 shares of common stock at December 31, 2012) | 30,838 | 29,462 | ||||||
Additional paid in capital | 50,009,107 | 49,691,195 | ||||||
Subscription Receivable | 50,000 | - | ||||||
Accumulated deficit | (21,646,422 | ) | (18,974,582 | ) | ||||
Other comprehensive income | (299,034 | ) | 442,841 | |||||
28,144,489 | 31,188,916 | |||||||
Noncontrolling interest in subsidiaries | 2,264,754 | 3,344,516 | ||||||
Total stockholders' equity | 30,409,243 | 34,533,432 | ||||||
Total stockholders' equity and liabilities | 47,279,675 | 56,802,492 |
MARIZYME, INC.
Subsequent events - Note 25and Subsidiaries
GBS Enterprises Incorporated
InterimCondensed Consolidated Statements of Operations and Comprehensive Income/(Loss)
For the three and nine month periods ended September 30, 2013 and September 30, 2012 (Restated)Three Months Ended March 31,
(Unaudited)(unaudited)
2021 | 2020 | |||||||
Revenue | $ | 73,952 | $ | - | ||||
Operating expenses | ||||||||
Direct costs of revenue | 30,842 | - | ||||||
Professional fees | 659,058 | 108,019 | ||||||
Salary expenses | 1,036,457 | - | ||||||
Stock-based compensation | 367,718 | 221,058 | ||||||
Depreciation and amortization | 416,595 | - | ||||||
Other general and administrative expenses | 373,833 | 142,293 | ||||||
Total operating expenses | 2,884,503 | 471,370 | ||||||
Total operating loss | (2,810,551 | ) | (471,370 | ) | ||||
Net loss | $ | (2,810,551 | ) | $ | (471,370 | ) | ||
Loss per share – basic and diluted | $ | (0.08 | ) | $ | (0.02 | ) | ||
Weighted average number of shares of common stock – basic and diluted | 35,928,188 | 19,887,021 |
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’ Equity
For the Three Months Ended March 31, 2021 and 2020
(unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
Restated | Restated | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenues - Note 21 | ||||||||||||||||
Products | 4,133,565 | 4,719,446 | 13,170,113 | 15,247,883 | ||||||||||||
Services | 932,091 | 990,333 | 2,442,935 | 3,516,745 | ||||||||||||
5,065,656 | 5,709,778 | 15,613,048 | 18,764,628 | |||||||||||||
Cost of goods sold | ||||||||||||||||
Products | 563,950 | 922,839 | 2,738,549 | 3,833,550 | ||||||||||||
Services | 1,709,105 | 2,289,927 | 4,951,817 | 6,616,975 | ||||||||||||
2,273,055 | 3,212,767 | 7,690,366 | 10,450,525 | |||||||||||||
Gross profit | 2,792,601 | 2,497,011 | 7,922,682 | 8,314,103 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling expenses | 2,033,242 | 2,625,773 | 6,627,311 | 9,990,170 | ||||||||||||
Administrative expenses | 1,145,304 | 1,229,281 | 3,922,440 | 3,940,092 | ||||||||||||
General expenses | 120,364 | 318,350 | 392,329 | 711,227 | ||||||||||||
3,298,910 | 4,173,403 | 10,942,080 | 14,641,489 | |||||||||||||
Operating income (loss) | (506,309 | ) | (1,676,392 | ) | (3,019,398 | ) | (6,327,386 | ) | ||||||||
Other Income (expense) - Note 22 | ||||||||||||||||
Other Income (expense) | 44,726 | 892,702 | 566,430 | 52,543 | ||||||||||||
Interest income | - | 209 | 420 | 2,866 | ||||||||||||
Interest expense | (140,213 | ) | (133,741 | ) | (546,333 | ) | (241,405 | ) | ||||||||
(95,487 | ) | 759,169 | 20,517 | (185,996 | ) | |||||||||||
Income (loss) before income taxes | (601,796 | ) | (917,223 | ) | (2,998,882 | ) | (6,513,382 | ) | ||||||||
Income tax (income) expense | 487 | (287,718 | ) | 13,807 | (1,409,759 | ) | ||||||||||
Income (loss) before discontinued operations | (602,283 | ) | (629,504 | ) | (3,012,689 | ) | (5,103,623 | ) | ||||||||
Discontinued operations - Note 4 | - | (33,125 | ) | - | 63,246 | |||||||||||
Net income (loss) | (602,283 | ) | (662,629 | ) | (3,012,689 | ) | (5,040,377 | ) | ||||||||
Net Loss Attributable to noncontrolling Interest | 535,588 | (271,574 | ) | (340,849 | ) | (1,699,550 | ) | |||||||||
Net income (loss) attributable to stockholders | (1,137,871 | ) | (391,055 | ) | (2,671,840 | ) | (3,340,827 | ) | ||||||||
Net earnings (loss) per share, basic and diluted | $ | (0.0373 | ) | $ | (0.0137 | ) | $ | (0.0879 | ) | $ | (0.1168 | ) | ||||
Weighted average number of common stock outstanding, basic and diluted | 30,492,650 | 28,611,701 | 30,379,612 | 28,611,701 | ||||||||||||
Statement of Comprehensive Income (Loss): | ||||||||||||||||
Net Income (Loss) | (602,283 | ) | (662,629 | ) | (3,012,689 | ) | (5,040,377 | ) | ||||||||
Foreign currency Translation Adjustment | (365,488 | ) | (2,503,497 | ) | (1,480,788 | ) | (116,135 | ) | ||||||||
Comprehensive income (loss) | (967,771 | ) | (3,166,126 | ) | (4,493,477 | ) | (5,156,512 | ) | ||||||||
Less: Net Income (Loss) attributable to noncontrolling interest | 535,588 | (271,574 | ) | (340,849 | ) | (1,699,550 | ) | |||||||||
Less: Other Comprehensive Income (Loss) attributable to noncontrolling interest | (182,378 | ) | (1,223,936 | ) | (738,913 | ) | (32,642 | ) | ||||||||
Total Comprehensive income (loss) attributed to stockholders | (1,320,981 | ) | (1,670,617 | ) | (3,413,715 | ) | (3,424,320 | ) |
Additional | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid in | Treasury | Accumulated | ||||||||||||||||||||||||||||
Shares | Amount | 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 | - | - | 125,000 | 125 | 124,875 | - | - | 125,000 | ||||||||||||||||||||||||
Stock-based compensation expense | - | - | - | - | 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 | ||||||||||||||||
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 | - | - | - | - | - | - | (2,810,551 | ) | (2,810,551 | ) | ||||||||||||||||||||||
Balance, March 31, 2021 | - | $ | - | 35,928,188 | $ | 35,928 | $ | 82,411,719 | $ | - | $ | (39,636,185 | ) | $ | 42,811,462 |
GBS Enterprises Incorporated
Interim
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
For the nine months ended September 30, 2013 and September 30, 2012 (Restated)Three Months Ended March 31,
(Unaudited)(unaudited)
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,810,551 | ) | $ | (471,370 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation expense | 62,901 | - | ||||||
Amortization expense | 353,694 | |||||||
Stock-based compensation – stock options | 334,385 | 346,058 | ||||||
Stock-based compensation – restricted common stock | 33,333 | - | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | 4,802 | - | ||||||
Prepaid expense | 43,290 | - | ||||||
Inventory | 11,700 | - | ||||||
Accounts payable and accrued expenses | (98,584 | ) | 125,282 | |||||
Net cash used in operating activities | (2,065,030 | ) | (30 | ) | ||||
Cash flows used in investing activities: | ||||||||
Purchase of intangible assets | (2,775 | ) | - | |||||
Net cash used in investing activities | (2,775 | ) | - | |||||
Net decrease in cash | (2,067,805 | ) | (30 | ) | ||||
Cash at beginning of period | 2,902,762 | 90 | ||||||
Cash at end of period | $ | 834,957 | $ | 60 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for taxes | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Restated | ||||||||
September 30, 2013 | September 30, 2012 | |||||||
$ | $ | |||||||
Cash flow from operating activities | ||||||||
Net loss / net income | (3,012,689 | ) | (5,103,623 | ) | ||||
Adjustments | ||||||||
Deferred income taxes | 56,093 | (1,421,720 | ) | |||||
Depreciation and amortization | 3,399,200 | 3,289,383 | ||||||
Write-down of Goodwill and Intangibles | - | 3,079,168 | ||||||
Consulting expense | 74,000 | - | ||||||
Interest Expense | 195,288 | - | ||||||
Gains (Losses) on Sale of Assets | - | (1,566,119 | ) | |||||
Gains (Losses) from equity investment | - | (26,751 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, prepaid assets, other current receivables | 3,574,403 | 1,471,490 | ||||||
Other Assets | - | (37,398 | ) | |||||
Retirement benefit obligation | 6,538 | - | ||||||
Inventories | (21,684 | ) | 119,245 | |||||
Accounts payable and other liabilities | (2,915,625 | ) | (2,438,073 | ) | ||||
Net cash provided (used) by operating activities | 1,355,523 | (2,634,397 | ) | |||||
Net cash provided (used) by discontinued | - | 63,246 | ||||||
Cash flow from investing activities | ||||||||
Sale (Purchase) of intangible assets | 487,309 | (2,527,077 | ) | |||||
Sale (Purchase) of property, plant and equipment | - | (579,206 | ) | |||||
Increase (Decrease) in Financial assets | - | 614,480 | ||||||
Net cash provided (used) in investing activities | 487,309 | (2,491,803 | ) | |||||
Cash flow from financing activities | ||||||||
Net borrowings - banks | 164,889 | 1,067,397 | ||||||
Other borrowings | (538,562 | ) | (2,074,044 | ) | ||||
Capital paid-in | 100,000 | 3,583,176 | ||||||
Loans from related party | (2,115,869 | ) | (28,432 | ) | ||||
Net cash provided (used) in financing activities | �� | (2,389,541 | ) | 2,548,096 | ||||
Effect of exchange rate changes on cash | (348,280 | ) | 6,991 | |||||
Net increase (decrease) in cash | (894,988 | ) | (2,507,867 | ) | ||||
Cash and cash equivalents - Beginning of the year | 1,154,602 | 3,250,821 | ||||||
Cash and cash equivalents - End of Quarter | 259,614 | 742,954 |
7 |
Notes to the Interim Financial StatementsMARIZYME, INC.
September 30, 2013AND SUBSIDIARIES
GBS Enterprises IncorporatedNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UnauditedMARCH 31, 2021
(unaudited)
NoteNOTE 1 COMPANY– ORGANIZATION AND BACKGROUNDDESCRIPTION OF BUSINESS
GBS Enterprises Incorporated, a Nevada corporation, through its subsidiaries, is a global provider of technology solutions for businesses and government agencies. We focus on developing and delivering solutions that help our customers to gain value and reduce cost in the development, deployment and management of the applications used in the course of conducting their business (“business applications”). We do this by building software and providing services that aid in:
Our customers include corporate and government IT departments, solutions integrators (“SIs”) and independent software vendors (“ISVs”). Our corporate customers are from a variety of industries, including insurance, financial services, pharmaceuticals, healthcare, manufacturing, logistics, and education. The install-base of our software products spans more than 5,000,000 users in 38 countries on four continents. We principally market and sell our products and services directly in the United States, Canada, United Kingdom, Germany, Austria, Switzerland, the Nordics and India; and indirectly through local distributors and resellers representing Australia, South America and regionally in Europe.
Our software and services are designed to mainly serve organizations that have investments in IBM’s Lotus® Notes and Domino platform. The IBM Lotus® Notes and Domino platform is both a system for enterprise email as well as an application platform, meaning that it can be used as both an email system and an environment in which business applications can be deployed and used. This platform was originally brought to market by Lotus Development Corp. in 1989, and was subsequently acquired by IBM in 1995. According to Radiate, in 2011, IBM Lotus Domino will have a worldwide installed base of 189 million mailboxes. Currently, the installed base for On-Premises IBM Lotus Domino mailboxes represents the majority of worldwide IBM Lotus Domino mailboxes, accounting for 87% of worldwide IBM Lotus Domino mailboxes. By 2015, this percentage is expected to decrease to 80%, as hosted email grows in popularity. (The Radiate Group Inc., April 2011, “IBM Lotus Notes/Domino Market Analysis, 2011-2015“)
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
We, through our subsidiaries, have executed our strategy to acquire companies, which have developed software and specialized services for the Lotus Notes and Domino market. This growth by acquisition strategy has resulted in less competition for our software products; a large concentration of highly skilled employees with unique expertise in the area of Lotus Notes and Domino; staff and physical offices on three continents providing greater access to a global market; significant market awareness and greater market share amongst organizations that use Lotus Notes and Domino; and a comprehensive portfolio of solutions specific to the needs and requirements of organizations which use Lotus Notes and Domino.
While our products and services remain in use and demand, over the last several years, the market itself has been undergoing a paradigm shift. New technologies, especially in the areas of Cloud Computing and Mobile applications, have grown in popularity due to the potential cost savings and operational efficiencies they can offer. As organizations make investments in these new technologies, they are faced with highly complex and costly projects to migrate (“migration”) or replace their existing systems that don’t operate in the cloud or on mobile devices (“modernization”) – this includes their existing email and business applications that run on Lotus Notes and Domino.
To that end, we have acquired and developed technologies that help organizations reduce the time, cost, resources and risks associated with these highly complex migration and modernization projects.
General Corporate HistoryOverview
We were incorporatedMarizyme, 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”), a German-based public-company.
By December 31, 2016, the Company had sold the controlling interest in GROUP and other subsidiaries, keeping only a minority interest in GROUP. On March 21, 2018, the Company formed a wholly owned subsidiary named Marizyme, Inc., a Nevada corporation, and merged with it, effectively changing the Company’s name to Marizyme, Inc. On June 1, 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 March 20, 2007 as SWAV Enterprises Ltd. (“SWAV”). SWAV was an importerSeptember 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 refocused on the life sciences and wholesaler of Chinese manufactured goods.began to seek technologies to acquire.
On April 26, 2010, SWAV purchased certainSeptember 12, 2018, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporation to acquire all rights, title, and interest in their Krillase technology assets of Lotus Holdings Ltd. (“Lotus”) in exchange for 2,265,24016.98 million shares of SWAV common stock. AlsoCommon Stock. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in dental care, wound healing, and thrombosis.
On December 15, 2019, the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on April 26, 2010, Lotus (on behalfMarch 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 SPPEF Members as discussed below) purchased an aggregate of 11,984,770assets 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 sharescapital 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 March 31, 2021, the Company formed Marizyme Sciences, Inc., a Florida corporation.
The Company’s common stock, from$0.001 par value per share (the “Common Stock”), is currently quoted on the selling shareholdersOTC Markets QB Tier under the ticker symbol “MRZM.”
Change in Management and the Board of SWAV for an aggregate of $370,000. As a result of the two sets of transactions, Lotus owned an aggregate of 14,250,010 shares of common stock of SWAV, representing approximately 95.0% of the 15,000,000 shares of SWAV common stock outstanding on April 26, 2010.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
UnauditedDirectors
On September 6, 2010, SWAV’s name was changed to GBS Enterprises Incorporated. On October 14, 2010,1, 2020, Nicholas DeVito resigned as the Company’s trading symbol on the OTC Bulletin Board was changed from SWAV to GBSX.
About Lotus Holdings, Ltd.
Lotus is a holding company which was formed under the laws of Gibraltar for the purpose of financing mergerinterim chief executive officer and acquisition projects, specifically in the niche market of small or microcap companies listed on the Frankfurt Stock Exchange with complex shareholder structures and whose stock is trading below one Euro (€1.00) per share.
SPPEFs
Lotus typically finances its merger and acquisition projects through the use of Special Purpose Private Equity Funds (“SPPEFs”). Typically, SPPEFs are funded by a company’s major shareholders (the “Major Shareholders”) seeking to raise capital for projects and who fund at least 50% of the SPPEF, with the remaining portion being provided through the investment community and network of investors in Lotus. Each SPPEF is co-managed by a representative of the company’s Major Shareholders (the “Representative Secretary”) and an attorney appointed by Lotus (the “Lotus Representative”).chief financial officer.
On February 25, 2010,September 1, 2020, Bruce Harmon was appointed as the Company’s chief financial officer.
On September 1, 2020, James Sapirstein, a groupdirector of shareholders (the “GROUP Major Shareholders”) of GROUP Business Software AG,the Company, became the Company’s interim chief executive officer.
On October 30, 2020, Dr. William Hearl was appointed as a German public company tradingDirector on the Frankfurt Stock Exchange under the symbol “INW” (“GROUP”), engaged Lotus to provide financial consulting and advisory services, on a non-exclusive basis, for the primary taskCompany’s board of establishing a SPPEF. On March 12, 2010, the GROUP Major Shareholders and Lotus established and funded a SPPEF with $1,400,000, consisting of $1,000,000 from the GROUP Major Shareholders and $400,000 from a Lotus investor (collectively, the “SPPEF Members”).
In early April 2010, the SPPEF Members decided to acquire SWAV. As disclosed above, on April 26, 2010, Lotus, on behalf of the SPPEF Members, acquired an aggregate of 11,984,770 shares of SWAV common stock from the selling shareholders of SWAV for an aggregate purchase price of $370,000. The 11,984,770 shares of SWAV common stock represented approximately 79.9% of the 15,000,000 outstanding shares of SWAV common stock on April 26, 2010. Upon the consummation of the acquisition, the then executive officers and directors of SWAV resigned and Mr. Joerg Ott, the Chief Executive Officer of GROUP and a GROUP Major Shareholder, was appointed the Chief Executive Officer of SWAV and sole member of SWAV’s Board of Directors.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Transactions following the acquisitiondirectors.
On November 1, 2010,2020, Dr. Neil J. Campbell was appointed as the Company’s chief executive officer, president, and director.
On November 1, 2020, James Sapirstein relinquished his role as interim chief executive officer.
On December 1, 2020, Dr. Steven Brooks was appointed as the Company’s Chief Medical Officer and Executive Vice President of Medical and Regulatory Affairs.
On December 2, 2020, Dr. Donald Very, Jr. was appointed as the Company’s Executive Vice President of Research and Development.
8 |
On January 16, 2021, Roger Schaller was appointed as the Company repurchased an aggregateExecutive Vice President of 3,043,985 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for the 3,043,985 shares of the Company’s common stock, the Company issued to Lotus a Secured Demand Note, dated November 1, 2010 (the “First Demand Note”), for the principal amount of $300,000 bearing interest at the rate of 5% per annum. The First Demand Note was repaid in September 2011.Commercial Operations.
Effective December 30, 2010, pursuantOn January 29, 2021, Amy Chandler was promoted to securities purchase agreements between the CompanyExecutive Vice President of Regulatory and six GROUP Major Shareholders, the Company purchased an aggregate of 7,115,500 shares of GROUP common stock from the six GROUP Major Shareholders in consideration for an aggregate for 3,043,985 shares of the Company’s common stock (the “December Transaction”). As a result the Company owned approximately 28.2% of the outstanding common stock of GROUP.
Reverse Merger
After the December Transaction was completed, the additional GROUP Major Shareholders accepted the share swap offer from the Company and effectuated a reverse merger of GROUP and the Company. To effectuate the reverse merger, on January 5, 2011, the Company repurchased from Lotus an aggregate of 2,361,426 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for these 2,361,426 shares, the Company issued to Lotus a Secured Demand Note, dated January 5, 2011 (the “Second Demand Note”), for the principal amount of $200,000 bearing interest at the rate of 5% per annum. The Second Demand Note was repaid in November 2011.
Effective January 6, 2011, pursuant to securities purchase agreements between the Company and the remaining GROUP Major Shareholders, the Company purchased an aggregate of 5,525,735 shares of GROUP common stock from the remaining GROUP Major Shareholders in consideration for an aggregate of 2,361,426 shares of the Company’s common stock (the “January Transaction”). The 5,525,735 GROUP shares represented approximately 21.9% of the outstanding shares of common stock of GROUP. As a result of the December Transaction and January Transaction, the Company purchased an aggregate of 12,641,235 shares of GROUP from the GROUP Major Shareholders in consideration for an aggregate of 5,405,411 shares of the Company’s common stock, resulting in the Company owning approximately 50.1% of the outstanding common stock of GROUP and effectuating a reverse merger of the Company and GROUP whereby GROUP became the accounting acquirer.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Additional AcquisitionQuality Affairs.
On February 27, 2012, the Company acquired an additional 883,765 shares of common stock of GROUP from GAVF LLC for an average purchase price of $.070 per share, or approximately $619,000, after an outstanding loan of GROUP was converted into an aggregate of 1,750,000 shares of GROUP common stock, thereby increasing GROUP’s outstanding common stock to 26,982,000 shares. By acquiring the new shares, the Company increased its ownership of GROUP common stock to an aggregate of 13,525,000 shares, representing approximately 50.1% of the outstanding common stock of GROUP.
Acquisition/Dissolution of Subsidiary Companies
Pavone AG
Effective April 1, 2011, the Company acquired 100% of the outstanding common shares of Pavone AG, a German corporation, for $350,000 in cash and 1,000,000 shares of its common stock. The fair value of the common stock was determined to be $4.90 per share, representing the market value at the end of trading on the date of the acquisition. The total value of the investment, including the assumption of $ 583,991 in debt was $5,843,991. Pavone’s extensive workflow software for Lotus Notes and Domino along with their large customer base is well suited to GBS Enterprises portfolio strategy. The acquisition of Pavone complements GBS's majority ownership in GROUP and the Company believes that it further strengthens their leading industry position on the IBM Lotus Platforms and expands their cloud computing technology offerings beyond the IBM Lotus market. Pavone currently has offices in Germany and the UK. They have over 2,500 customers and over 150,000 users worldwide.
GroupWare, Inc.
Effective June 1, 2011, the Company acquired 100% of the outstanding common shares of GroupWare, Inc., a Florida corporation (“GroupWare”). As consideration the Company paid $250,000 and issued 250,000 shares of its common stock. The fair value of the common stock was determined to be $4.34 per share, representing the market value at the end of trading on the date of the acquisition. The total value of the investment, including the assumption of $ 694,617 in debt was $ 2,029,617. Upon the consummation of the acquisition, the management and board of GroupWare resigned and Joerg Ott, the Company’s Chief Executive Officer and sole director,3, 2021, Julie Kampf was appointed as the Chief Executive Officer and sole director of GroupWare. GroupWare is based in Lubeck, Germany with offices in St. Petersburg, Florida. GroupWare's ePDF server delivers centralized, network-wide PDF solutions for messaging, workflow, document, content and data management. The Company believes that the acquisition strengthens the GBS Modernizing/Migrating offering, which helps bring IBM Lotus Notes client applications to the web, by substituting traditional printing methods provided by the Notes client with simple-to-use print-to-PDF capabilities in the browser.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
IDC Global, Inc.
On July 25, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of IDC Global, Inc., a Delaware corporation (“IDC”). Pursuant to the acquisition agreement, dated July 15, 2011, the Company agreed to issue the shareholders an aggregate of 800,000 shares of common stock and made a cash payment of $750,000. The agreement required an additional payment to the management shareholders of 80,000 shares of common stock and signing bonuses to personnel of $35,000. The Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction. The fair value of the common stock was determined to be $3.70 per share, representing the market value at the end of tradingDirector on the dateCompany’s board of the agreement. The total value of the investment, including $883,005 of debt assumption, was $4,066,000. IDC was a privately held company that provides nationwide network and data center services. IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC includes two Data Center facilities located in the downtown Chicago area and Colocation facilities in three other Data Centers in New York, London, England and Frankfurt, Germany. IDC provides internet infrastructure Services (IaaS) to the business community helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing. IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing.
Due to the Company’s perceived increase in the demand for Modernization, Mobility and Optimization offerings, the Company made a strategic decision in 2012 to focus on its core offerings in the IBM Notes and Domino market and to divest its non-core businesses, including IDC.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unauditeddirectors.
On February 1, 2013, GBS entered into22, 2021, Dr. Vithal Dhaduk was appointed as a Stock Purchase Agreement, dated February 1, 2013 (the “Agreement”), with IDC and Global Telecom & Technology Americas, Inc., a Virginia corporation (“GTT). Pursuant toDirector on the Stock Purchase Agreement, we sold 100%Company’s board of the issued and outstanding capital stock of IDC to GTT for an aggregate purchase price of $4,600,000 (the “Purchase Price”), subject to certain holdback provisions amounting to $1.093 million as described more fully in the Stock Purchase Agreement. The Purchase Price is also subject to adjustment on a dollar-for-dollar basis for adjustments the Net Working Capital (defined as Current Assets minus Current Liabilities) of IDC by GTT within 90 days of closing.
SD Holdings, Ltd.directors.
On September 27, 2011, the Company entered into an acquisition agreement with SD Holdings, Ltd. (“SYN”), a Mauritius corporation,March 18, 2021, Dr. Neil Campbell resigned as Chief Executive Officer, President and the shareholders of SYN owning 100% of issued and outstanding shares of SYN. SYN owns 100% of all issued and outstanding shares of Synaptris, Inc., a California corporation (“Synaptris”), and 100% of all issued and outstanding shares of Synaptris Decisions Private Limited, a company formed in India (“Synaptris India”). Pursuant to the acquisition agreement, the Company purchased one hundred percent (100%) of the issued and outstanding shares of SYN (“SYN Shares”) effective November 1, 2011 in consideration for $525,529 and agreed to issue 700,000 shares of common stock, subject to adjustment. Actual shares issued were 612,874. The fair value of the common stockDirector.
On March 19, 2021, James Sapirstein was determined to be $2.05 per share, representing the market value at the end of trading on the date of the agreement.appointed as Interim Chief Executive Officer.
On April 1, 2012, the Company sold SYN, Synaptris and Synaptris India for $1,877,232 to Lotus Holding, Ltd. in an effort to restructure the Company’s multilevel subsidiary - structure derived from the historical mergers and acquisitions, and to reduce overhead and administrative costs.2, 2021, Dr. Satish Chandran was terminated as Chief Technology Officer.
GBS India Private Limited
Pursuant to an existing transfer agreement, effective July 1, 2012, the Company entered into a purchase agreement with SYN for $1,877,232, which transferred all assets, including intellectual property rights, and liabilities of the IntelliPRINT and FewClix product lines, customer contracts and certain employees for operations in a new subsidiary, GBS India Private Limited, an incorporated entity formed under the Indian Companies Act 1956 (“GBS India”). A royalty fee in the amount of approximately $350,000 has been agreed upon for the benefit the Company. Additionally a profit based fee of up to $700,000 may be earned based on license and revenue recognized from the sold IntelliVIEW and IntelliVIEW NXT products.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
On August 1, 2012, the Company acquired 100% of the outstanding shares of capital stock of GBS India. We anticipate GBS India’s presence in India to accelerate our plan to expand our product development team particularly for our strategic offerings in India.
Pavone AG/Groupware AG
On July 6, 2012 and August 9, 2012, wholly-owned subsidiaries Pavone AG and Groupware AG, respectively, were merged into Pavone GmbH. The mergers were consummated solely for administrative purposes. Pavone GmbH is a wholly-owned subsidiary of the Company.
Pavone, Ltd.
The Company serves the UK market with GROUP’s subsidiary GBS, Ltd. Therefore, subsidiary Pavone, Ltd, as being a shell company, was dissolved on July 8, 2012.
EbVokus, GmbH.
On October 1, 2012, GROUP Business Software AG sold all of the software and operational assets (constituting substantially all of the assets) of its wholly-owned subsidiary, ebVokus GmbH, along with the associated maintenance and project agreements to a non-affiliated third party for a purchase price of approximately $459,000, approximately $258,000 (200,000 Euros: 1 EUR = $1.29 USD on October 1, 2012) was paid at closing and the remaining $201,000 was paid on February 15, 2013 (150,000 Euro: 1EUR = $1.35 USD on February 15, 2013).
B.E.R.S. AD
On November 23, 2012, GROUP Business Software AG sold its entire participation (50%) in B.E.R.S AD for a total of 25,000 BGN.
Group Live, N.V.
Group Live N.V. operating under the laws of the Netherlands and a 100% subsidiary of GROUP declared its end of business May 31, 2012, registered in the commercial register June 22, 2012. Following the local procedures the company has been dissolved from the register as per April 5, 2013, registered April 16, 2013.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
NoteNOTE 2 INTERIM REPORTING- GOING CONCERN
The accompanying unaudited interimcondensed 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 accordance with generally accepted accounting principlesthe normal course of business and the ability of the Company to continue as a going concern for interima reasonable period of time. The Company had a net loss of $2,810,551 and cash used in operating activities of $2,065,030 for the three months ended March 31, 2021. As of March 31, 2021, the Company had a working capital surplus of $229,297, and accumulated deficit of $39,636,185. 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern. 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 prepared underdo 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.
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 generally accepted in the United States of America. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, they include all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s audited financial statements. All adjustments are of a normal recurring nature.
Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that can be expected for the year ending December 31, 2013.
Note 3 ACCOUNTING POLICIESAmerica (U.S. GAAP).
The unaudited condensed consolidated financial statements of the Company for the three month periods ended March 31, 2021 and accompanying notes are2020 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the more significant of which are as follows:
Critical Accounting Policiesrequirements for reporting on Form 10-Q and Estimates
The preparation of financial statements in conformity withRegulation 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.
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 disclosuresdisclosure of contingent assets and liabilities atas of the date of the consolidated financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period.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, allowance for doubtful accounts, recoverability of long-term assets including intangible assets and goodwill, amortization expense, inventory valuation, valuation of warrants, stock-based compensation, and deferred tax valuations.
9 |
Segment Reporting
The Financial Accounting Standards Board (“FASB”) authoritative guidance regarding segment reporting establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has determined that it operates in only one segment – the development and maintenance of computer software programs and support products.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Comprehensive Income (Loss)Business Combinations
The Company adoptedaccounts for business acquisitions using the FASBacquisition method of accounting based on Accounting Standards Codification topic (“ASC”) 220, “Reporting Comprehensive Income”,805 — Business Combinations, which establishes standards forrequires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the reportingdate control is obtained. The Company determines the fair value of assets acquired and displayliabilities assumed based upon its best estimates of comprehensive incomethe acquisition-date fair value of assets acquired and its componentsliabilities assumed in the financial statements. Comprehensive income consistsacquisition. Goodwill represents the excess of the purchase price over the fair value of the net incometangible and other gains and losses affecting stockholder's equity thatidentifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are excluded from net income, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses and minimum pension liability. Since inception,recorded to the Company’s other comprehensive income represents foreign currency translation adjustments and small net actuarial losses on pension plans.consolidated statements of operations.
Net Income per Common ShareStock-Based Compensation
Stock-based compensation expense is recorded in accordance with FASB ASC 260, “Earnings per share,” requires dual presentation of basicTopic 718, Compensation – Stock Compensation, for stock and diluted earnings per share (EPS) with a reconciliationstock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the numeratoraward and denominatorrecognized 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 the EPS computations. Basic earnings per share amounts are basedawards expected to vest. The fair value of each option is estimated on the weighted average sharesdate of common stock outstanding. If applicable, diluted earnings per share would assumegrant using the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Diluted net income (loss) per share on the potential exercise of the equity-based financial instruments is not presented where anti-dilutive. Accordingly, although the diluted weighted average number of common stock outstanding is disclosed on the statements of operation, the calculated net loss per share is the same for both the basic and diluted as both are based on the basic weighted average of common stock outstanding. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share.Black-Scholes option pricing model.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts and other receivable, financial assets, notes payable, liabilities to banks, accounts payable, accrued liabilities and other liabilities, due to related parties and retirement benefit obligations. Financial assets and liabilities are measured upon first recognition and reviewed at the financial statement date. Changes in fair value are recognized through profit and loss. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Currency Risk
We use the US dollar as our reporting currency. The functional currencies of our significant foreign subsidiaries are the local currency, which includes the Euro, the British Pound, the Indian Rupee, and the Bulgarian Lev. Accordingly, some assets and liabilities are incurred in those currencies and we are subject to foreign currency risks.
Fair Value Measurements
The Company follows ASC 820, “Fair Value Measurements and Disclosures”, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. This new accounting standard establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurement and expands disclosures about fair value measurements required under other accounting pronouncements. It does not change existing guidance as to whether or not an instrument is carried at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
The Company has adopted ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
Cash and cash equivalentsEquivalents
The Company considers all highly liquid instrumentsinvestments with aan original maturity of three months or less atwhen purchased to be cash equivalents. At March 31, 2021 and December 31, 2020, the time of issuance to beCompany had no cash equivalents.
InventoriesReclassifications
PursuantCertain amounts in the prior year’s unaudited condensed consolidated financial statements have been reclassified to ASC 330 (Inventories), inventories heldconform 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 salethe Statement of Operation which combined its expenses into two categories whereas, for comparison purposes for the three months ended March 31, 2021 to March 31, 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 recognized under inventories. Inventories were measurednot 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 March 31, 2021 or December 31, 2020. The Company did not record any bad debt expense in each of the three months ended March 31, 2021 and 2020.
Inventory
Inventory consisted of primarily finished goods and is valued at the lower of cost or market.net realizable value. Inventory is held in a third-party warehouse in foreign countries. Cost is determined on a first-in-first out basis, without any overhead component.
Notesusing the FIFO method. The Company decreases the value of inventory for estimated obsolescence equal to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unauditeddifference 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 inventory reserve was necessary as of March 31, 2021 and December 31, 2020.
Goodwill and other Intangible AssetsFair Value of Financial Instruments
Intangible assets predominately comprise goodwill, acquired software and capitalized software development services. Intangible assets acquired in exchange for payment are reflected at acquisition costs. If the development costs can be capitalized per ASC 985-20-25, these are reflected as ascribable personnel and overhead costs.
Company created software can be intended for sale to third parties or used by the Company itself. If the conditions for capitalization are not met, the expenses are recorded with their effect on profit in the year in which they were incurred.
The Company amortizes intangiblemeasures its financial assets with a limited useful life to the estimated residual book valueand liabilities in accordance with FASB ASC regulations.820 (the “Fair Value Topic”). For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.
We follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
10 |
Level 2: | Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. | |
Level 3: | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
The Company had no assets or liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020.
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.
Classification | Estimated Useful Lives | |
Equipment | 5 to 7 years | |
Furniture and fixtures | 4 to 7 years |
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, in special circumstances according to ASC 350-30,the Company will review the carrying value of patents for indicators of impairment on a recoverability test is performedperiodic basis and if applicable, unscheduled amortizationit determines that the carrying value is considered.impaired, it values the patent at fair value. As of March 31, 2021, $122,746 has been capitalized for patents which have not been amortized.
Impairment of Long-lived Assets
The useful life of acquired software is between three and five years and three yearsCompany follows ASC 360 for Company created software.
Intangibleits long-lived assets. The Company’s long-lived assets, obtainedsuch as part of an acquisition which do not meet the criteriaintellectual property, are required to be reviewed for a separate entry are identified as goodwill. Goodwill is reviewed once a year during an impairment test, whereby the appraised fair value of the invested capital of the reporting unit, is compared with the carrying (book) value of its invested capital amount (including goodwill.) Use value is generally appliedannually, or whenever events or changes in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The projected financial plan prepared by the management serves as the basis for this determination of use value and the planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are determined based on the expected growth rates of the markets in question.
Ifcircumstances indicate that the carrying amount of the reporting unit exceedsasset may not be recoverable.
The Company assesses the appraisedrecoverability 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 impairment based on useasset’s expected future discounted cash flows or market value, measuresif readily determinable. If long-lived assets are determined to be recoverable, but the amount of loss, if any, and an unscheduled amortization expense is recorded. Ifnewly determined remaining estimated useful lives are shorter than originally estimated, the appraised valuenet book values of the reporting unit exceeds its carrying amount, goodwilllong-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company determined that there were no impairments of the reporting unit is not considered to be impaired.long-lived assets at March 31, 2021 and December 31, 2020.
Property, Plant and EquipmentRevenue Recognition
Property, plantWe 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 equipment are valued at acquisition or manufacturing costs reduced by scheduled and, if necessary, unscheduled depreciation. Fixed assets are depreciated on a straight-line basis, prorated over their expected useful life. Scheduled depreciation for property, plant and equipment is based on useful lives of 3 to 10 years. Leasehold Improvements are depreciated up to 40 years.
Notesservices transferred to the Interim Financial Statementscustomer. 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 March 31, 2021 amount to $54,319 in Spain, $6,730 in Singapore, $8,656 in Switzerland and $4,247 in India.
In the transaction that acquired the assets of Somahlution, LLC, the Company determined that the CE mark for Europe must be in Marizyme, Inc. in order for Somahlution, Inc. to bill revenue and receive the payments accordingly. The Company has filed in Europe for the CE mark to be in Marizyme, Inc. but, until the time it is approved by the Notified Body, BSI (British Standards Institution), which is projected for May 2021, Somahlution, LLC provides the billing and receiver of funds. On a periodical basis, the cash received is transferred to Somahlution, Inc.
11 |
September 30, 2013
GBS Enterprises Incorporated
UnauditedDirect Cost of Revenue
If fixed assets are sold, retired or scrapped,Cost of sales includes the profit or loss arisingactual cost of merchandise sold; the cost of transportation of merchandise from the difference between the net sales proceeds and the residual book value are included under other operating earnings and expenses.our third-party vendor to our distributer.
Impairment or Disposal of Long-Lived AssetsNet Income (Loss) per Share
The Company evaluatescomputes basic and diluted income (loss) per share amounts pursuant to ASC 260 of the recoverabilityFASB Accounting Standards Codification. Basic loss per share is computed by dividing net loss available to common stockholders, by the weighted average number of its fixed assets and other assets in accordance with ASC topic, 360.10. This guidance requires recognitionshares of impairmentcommon stock outstanding during the period, excluding the effects of long-lived assets inany potentially dilutive securities. Diluted loss per share is computed by dividing net loss available to common stockholders by the eventdiluted weighted average number of shares of common stock during the net book valueperiod. The diluted weighted average number of such assets exceeds its’ expected cash flowscommon shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or appraised value In this instance, the asset is considered to be impaired and is written down to fair value.equity.
Revenue RecognitionThe following is a reconciliation of basic and diluted earnings (loss) per common share for the three months ended March 31, 2021 and 2020:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Basic and diluted loss per common share | ||||||||
Numerator: | ||||||||
Net loss available to common shareholders | $ | (2,846,119 | ) | $ | (471,370 | ) | ||
Denominator: | ||||||||
Weighted average common shares outstanding | 35,928,188 | 19,887,021 | ||||||
Basic and diluted loss per common share | $ | (0.08 | ) | $ | (0.02 | ) |
Sources of Revenues:Income Taxes
License revenues
Our license revenues consist of revenues earned from the licensing of our software products. These products are generally licensed on a perpetual basis. Pricing models have generally been based either upon the physical infrastructure, such as the number of physical desktop computers or servers, on which our software runs or on a per user basis. License revenues are recognized when the elements of revenue recognitionThe Company accounts for the licensed software are complete, generally upon electronic shipment of the software and the software key to provide full access to all functionalities for our customers. In general, our invoices reflect license, service and maintenance components. In the case of multi element contracts, the revenues allocated to the software license in most cases represent the residual amount of the contract after the fair value of the other elements has been determined. Certain products of our software offering are licensed on a subscription basis.
Software maintenance revenues
Software maintenance revenues are recognized ratably on a pro-rata basis over the range of the contract period. Our contract periods typically range from one to five years. Vendor-specific objective evidence (“VSOE”) of fair value for software maintenance services is established by the rates charged in stand-alone sales of software maintenance contracts or the stated renewal rate for software maintenance. Customers who are party to software maintenance agreements with us are entitled to receive support, product updates and upgrades on a when-and-if-available basis.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Professional services revenues
Professional services include pre-project consulting, software design, customization, project management, implementation and training. Professional services are not considered essential to the functionality of our products, as these services do not alter the product capabilities and may be performed by our customers or by other vendors. Professional services engagements performed for a fixed fee, for which we are able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours incurred and estimated hours of completion. Professional services engagements that are on a time and materials basis are recognized based on hours incurred. Revenues on all other professional services engagements are recognized upon completion. Our professional services may be sold with software products or on a stand-alone basis. Vendor Specific Objective Evidence (VSOE) of fair value for professional services is based upon the standard rates we charge for such services when sold separately.
Foreign Currency Translation
The functional currency of the Company is US dollars. For financial reporting purposes, the financial statements of the subsidiary companies whose functional currency is other than US dollars were translated into US dollars using the current rate method. Assets and liabilities were translated at the exchange rates at the balance sheet dates, revenue and expenses were translated at the average exchange rates and stockholders’ equity was translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
Other Provisions
According to FASB ASC 450 “Contingencies”, provisions are made whenever there is a current obligation to third parties resulting from a past event which is likely in the future to lead to an outflow of resources and of which the amount can be reliably estimated. Provisions not already resulting in an outflow of resources in the following year are recognized at their discounted settlement amount on the financial statement date. The discount taken is based on market interest rates. The settlement amount also includes the expected cost increases. Provisions are not set off against contribution claims. If the amended estimate leads to a reduction of the obligatory amount, the provision is proportionally reversed and the earnings are recognized in other operating earnings.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Deferred Taxes
Income taxes are provided in accordance with FASB Codification topicASC 740, “Accounting“Income Taxes.” Deferred tax assets and liabilities are recognized for Income Taxes”. A deferredthe future tax asset or liability is recorded for allconsequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax reporting and net operating loss-carry forwards.bases.
Deferred tax assets and liabilities are reduced bymeasured 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 in the opinionit is “more likely-than-not” that a deferred tax asset will not be realized.
Tax benefits of management,uncertain tax positions are recognized only if it is more likely than not that that some portionthe 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 March 31, 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 all ofpenalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the deferred tax asset will not be realized. Deferred tax assetsthree months ended March 31, 2021 and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.2020.
Recent Accounting PronouncementsSegment Information
In July 2012, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. With the objective of reducing the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-loved asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwillthe provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Other – General Intangibles Other than Goodwill.Related Information,” the Company is required to report financial and descriptive information about its reportable operating segments. The more-likely-than-not threshold is definedCompany has one operating segment as having the likelihood of more than 50 percent. The amendments are effective for annualMarch 31, 2021 and interim impairment tests performed beginning April 1, 2013. Adoption of this new standard is not expected to have significant impact to the Company’s financial statement.December 31, 2020.
Off - Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligationsEffect of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
UnauditedRecent Accounting Pronouncements
Principles of Consolidation and Reverse Acquisition
As previously disclosed, the Company has exchanged a total of 5,405,411 shares of common stock in exchange for 50.1% of the outstanding common shares of GROUP. Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP becomes the accounting acquirer and is deemed to have retroactively adopted the capital structure of the Corporation. Accordingly, the accompanying consolidated financial statements reflect the historical consolidated financial statements of GROUP for periods presented prior to January 6, 2011. All costs associated with the reverse merger transaction were expensed as incurred. Those expenses totaled approximately $300,000 and were included in professional fees in administrative expenses.
The Company has based its financial reporting for the consolidation with GROUP in accordance with the FASB ASC 805-40 as it relates to reverse acquisitions. Goodwill has been measured as the excess of the fair value of the consideration effectively transferred by the Company, the acquiree, for financial reporting purposes, over the net amount of the Company’s recognized identifiable assets and liabilities.
We have recorded the acquired assets and liabilities of Group Business Software Enterprises, Inc. on the acquisition date of January 6, 2011, at their fair value and the operations of Group Business Software Enterprises, Inc. have been included in the consolidated financial statements since the acquisition date.
The assets and liabilities of GROUP, the acquirer for financial reporting purposes, are measured and recognized in the consolidated financial statements at their precombination carrying amounts in accordance with ASC 805-40-45-2(a). Therefore, the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of GROUP’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.
NOTE 4 DISCONTINUED OPERATIONS
Due to the Company’s perceived increase in the demand for Modernization, Mobility and Optimization offerings, the Company made a strategic decision in 2012 to focus on its core offerings in the IBM Notes and Domino market and to divest its non-core businesses. As a result, on February 1, 2013, GBS entered into a Stock Purchase Agreement, dated February 1, 2013 (the “Agreement”), with IDC Global, Inc., a Delaware corporation and a wholly-owned subsidiary of GBS (“IDC”), and Global Telecom & Technology Americas, Inc., a Virginia corporation (“GTT). Pursuant to the Stock Purchase Agreement, we sold 100% of the issued and outstanding capital stock of IDC to GTT for an aggregate purchase price of $4,600,000 (the “Purchase Price”),
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Discontinued Operations and their results of operations, financial positions and cash flows are shown separately for the nine months ended on September 30, 2012 for comparative purposes. Summarized financial information for discontinued operations is set forth as follows:
Note 5 SUBSIDIARY COMPANIES
The subsidiaries listed below were included in the basis of consolidation (KUSD = 1,000’s of US Dollars):
Stockholders' Equity as of 9/30/2013 | Percentage of Subscribed Capital | Profit of the consolidated quarter | Date of the First | |||||||||||||||||||
Headquarters | KUSD | KUSD | in % | Ownership | KUSD | Consolidation | ||||||||||||||||
GROUP Business Software (UK) Ltd. | Manchester | -1,236 | 23 | 50,1 | % | I | 93 | 12/31/2005 | ||||||||||||||
GROUP Business Software Corp. | Woodstock | -15,601 | 1 | 50,1 | % | I | 225 | 12/31/2005 | ||||||||||||||
GROUP LIVE N.V. | Den Haag | 1,274 | 134 | 50,1 | % | I | -3 | 12/31/2005 | ||||||||||||||
Permessa Corporation | Waltham | 10 | 0 | 50,1 | % | I | 0 | 9/22/2010 | ||||||||||||||
Relavis Corporation | Woodstock | -842 | 2 | 50,1 | % | I | -23 | 1/8/2007 | ||||||||||||||
GROUP Business Software AG | Eisenach | 9,973 | 36,107 | 50,1 | % | I | 291 | 6/1/2011 | ||||||||||||||
Pavone GmbH | Boeblingen | -863 | 47 | 100.0 | % | D | 334 | 1/4/2011 | ||||||||||||||
Groupware Inc. | Woodstock | -482 | 1 | 100.0 | % | D | 0 | 1/6/2011 | ||||||||||||||
GBS India | Chennai | 191 | 12 | 100.0 | % | D | 46 | 9/30/2012 |
D - Direct Subsidiary
I - Indirect Subsidiary
Indirect Subsidiaries are owned 50.1% through GROUP Business Software AG
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 6 CASH AND CASH EQUIVALENTS
As of the financial statement date, the Company’s cash and cash equivalents totaled 259 KUSD (December 31, 2012 restated year end: 1,155 KUSD). Included in that amount are cash equivalents of 3 KUSD (December 31, 2012 restated year end: 3 KUSD).
Note 7 ACCOUNTS RECEIVABLE
As of the financial statement date, Accounts Receivable was 3,528 KUSD (December 31, 2012 restated year end: 4,143 KUSD). Receivables are generally measured at their nominal value and taking into account all foreseeable risks. Probable default risks are handled with specific allowances for bad debts. With regard to the trade receivables which are neither impaired nor delinquent, there are no indications as of the financial statement date that the debtors will not meet their payment obligations.
Note 8 PREPAID EXPENSES
Prepaid expenses in the amount of 208 KUSD were primarily recorded for prepaid rent, insurance and advance on technological collaboration events (December 31, 2012 restated year end: 84 KUSD).
Note 9 OTHER RECEIVABLES - CURRENT
Other Receivables as of the financial statement date were 277 KUSD (December 31, 2012 restated year end: 677 KUSD) which includes tax deposits (248 KUSD), benefit credits (14 KUSD), other deposits (4K USD) and other miscellaneous receivables (11 KUSD).
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 10 DEFERRED TAX ASSETS
Deferred tax assets as of the financial statement date were 1,076 KUSD (December 31, 2012 restated year end: 1,132 KUSD). All deferred tax assets are long term.
Deferred Tax Assets | KUSD | KUSD | ||||||
9/30/2013 | 12/31/2012 | |||||||
Deferred Tax Assets – Current | 0 | 0 | ||||||
Deferred Tax Assets – Non-current | 1,076 | 1,132 | ||||||
Balance | 1,076 | 1,132 |
Note 11 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are measured at cost less scheduled straight-line depreciation. Depreciation of the computer hardware listed as office equipment is distributed over a period of three to five years. The depreciation period for other office equipment is three to ten years. Office furnishings are depreciated over a period of eight to ten years. Leasehold Improvements are depreciated up to 40 years.
Property, Plant and Equipment kUSD | Development of the cost | Development of accumulated depreciation | Balance | |||||||||
12/31/2012 | 7,219.4 | 6,893.7 | 325.7 | |||||||||
Additions | 42 | 12 | ||||||||||
Disposals | 33 | 6 | ||||||||||
Currency differences | 8 | 3 | ||||||||||
Reclassifications | 0 | 0 | ||||||||||
9/30/2013 | 7,219.4 | 6,893.7 | 325.7 |
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 12 OTHER RECEIVABLES NON-CURRENT
The major components of the Non-current Receivables include the following:
KUSD Restated | KUSD Restated | |||||||
9/30/2013 | 12/31/2012 | |||||||
Cooperative shares | 1 | 0 | ||||||
Intercompany Loan Values during the quarter | 0 | 0 | ||||||
Other long term receivables | 0 | 428 | ||||||
Balance | 1 | 428 |
Note 13 GOODWILL
Goodwill derives from the following business acquisitions:
30-Sep-13 | Date of first Consolidation | 12/31/2012 | Additions | Adjustments | Written off | 9/30/2013 | ||||||||||||||||
GROUP Business Software AG | 1/6/2011 | 18,425.6 | - | - | - | 18,425.60 | ||||||||||||||||
GROUP Business Software (UK) Ltd. | 12/31/2005 | 2,765.1 | - | - | - | 2,765.10 | ||||||||||||||||
IDC Global, Inc. | 7/25/2011 | 2,994.4 | (2,994.4 | ) | 0.00 | |||||||||||||||||
Permessa Corporation | 9/22/2011 | 2,387.4 | - | - | - | 2,387.40 | ||||||||||||||||
Pavone GmbH | 1/4/2011 | 5,950.5 | - | - | - | 5,950.50 | ||||||||||||||||
GBS India | 8/1/2012 | 1,731.9 | - | - | - | 1,731.90 | ||||||||||||||||
34,254.9 | - | - | - | 31,260.50 |
Note 14 SOFTWARE
Development costs
The costs of developing new software products and updating products already marketed by the Company are generally recognized as expenses in the period in which they arise. Provided they meet the conditions for capitalization as per FASB ASC 985-20-25, they are capitalized. Capitalized development costs can be attributed to the defined products. These products are technically realizable and there is a target market for them.
The development costs arising in the reporting period result from the personnel costs attributed to the development work as well as overhead costs, provided that these are related to the development work and do not represent general administrative costs. The ascribable overhead costs are directly recognized.
Capitalized development costs are generally amortized over a period of three years starting with the date of marketability of the new products or major releases.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Concessions, Industrial Property Rights, Licenses
The intangible financial assets carried in this item are licenses acquired in exchange for payment.
These financial assets are measured at acquisition cost less scheduled straight-line amortization. The assets added in the scope of the cost price allocation of the business divisions acquired this year.
The useful life spans were based uniformly throughout the Company according to those used by the parent company. Scheduled amortization is performed over a period from three to ten years.
The useful life of the domain “gbs.com”, was estimated as unlimited. This is because no other legal, contractual or other factors exist which would limit its useful life. It is not systematically amortized, but rather annually. Should there exist signs indicating towards impairment it is tested for recoverability and, if necessary, written down to the amount which could be obtained for it if sold.
Amortization of concessions, industrial property and similar rights and assets, as well as licenses to such rights and assets are presented in the Statement of Operations and Comprehensive Income/Loss within Cost of Goods Sold.
Concessions and licenses kUSD | Development of the cost | Development of accumulated depreciation | Balance | |||||||||
12/31/2012 | 31,913.9 | 21,341 | 10572.9 | |||||||||
Additions | 907 | 159 | ||||||||||
Disposals | 1,018 | 122 | ||||||||||
Currency differences | 143 | 126 | ||||||||||
Reclassifications | 0 | 0 | ||||||||||
9/30/2013 | 31,913.9 | 21,341.0 | 10,572.9 |
Note 15 OTHER ASSETS
The balance of this account of 132 KUSD primarily includes rent and other security deposits (December 31, 2012 restated year end: 156 KUSD).
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 16 LIABILITIES TO BANKS – CURRENT
Included in this account of 3,888 KUSD (December 31, 2012 restated year end: 7 KUSD) is primarily an operating line of creditof GROUP AG.
Note 17 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables
As of the financial statement date, trade accounts payable amounted to 2,061 KUSD (December 31, 2012 restated year end: 3,095 KUSD). Trade payables are carried at their repayment amount and all have a residual term of up to one year.
Other Accrual
Other provisions are created as of the financial statement date in an amount necessary according to a reasonable commercial appraisal, to cover future payment obligations, perceivable risks and uncertain liabilities of the Company. Amounts deemed to be most likely to occur, in careful assessment, are accrued.
12/31/2012 | 9/30/2013 | |||||||
KUSD | KUSD | |||||||
Tax provision | 53 | 21 | ||||||
Salary | 861 | 599 | ||||||
Vacation | 315 | 247 | ||||||
Workers Compensation Insurance Association | 25 | 20 | ||||||
Compensation Levy for Non-Employment of Severely Handicapped Persons | 19 | 13 | ||||||
Outstanding Invoices | 1,059 | 196 | ||||||
Annual accounting and consulting | 128 | 109 | ||||||
Other Provisions | 446 | 465 | ||||||
Warranties | 96 | 82 | ||||||
Provision for Legal Costs | 73 | 68 | ||||||
Severance | 70 | 64 | ||||||
Total | 3,147 | 1,885 |
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Provisions for salaries of 599 KUSD (December 31, 2012 restated year end: 861 KUSD) include the provisions created for the variable salaries of the sales staff for the sales objectives reached in this business period.
Vacation provisions of 247 KUSD (December 31, 2012 restated year end: 315 KUSD) include the obligations of GROUP’s companies to their employees for remaining vacation claims from the reporting period. The amount of the provision is calculated on the gross salary of the individual employee plus the employer contribution to social security/Medicare and based on the unused vacation days as of the financial statement date.
Other employment of 97 KUSD (December 31, 2012 restated year end: 114 KUSD) were accrued for severance and compensation insurance and compensation levy.
For liabilities not yet settled, a provision totaling 196 KUSD (December 31, 2012 restated year end: 1059 KUSD) was created.
Other Provisions of 465 KUSD (December 31, 2012 restated year end: 446 KUSD) include miscellaneous provisions.
Expenses of accounting and other external consulting of the Company were recognized at 109 KUSD (December 31, 2012 restated year end: 128 KUSD).
A provision for anticipated legal consulting of 68 KUSD was recorded (December 31, 2012 restated year end: 73 KUSD).
For warranty claims, a provision of 82 KUSD (December 31, 2012 restated year end: 96 KUSD) was created determined by service income.
Note 18 DEFERRED INCOME
Accruals for future periods leading to realization of sales after the financial statement date are reported under deferred income. The deferred income items listed as of the financial statement date in the amount of 6,847 KUSD (December 31, 2012 restated year end: 6,100 KUSD) primarily include maintenance income collected in advance for the period after the end of the financial statement date. They are amortized on a straight-line basis over their respective contract terms.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 19 OTHER SHORT TERM LIABILITIES
Other short-term liabilities of 242 KUSD (December 31, 2012 restated year end: 860 KUSD) and includes miscellaneous short term obligations including amounts due on business assets
Note 20 COMMON STOCKRecently Issued Accounting Standards Not Yet Adopted
The Company has authorizedreviewed 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.
12 |
Concentration of Credit Risk
The Company places its temporary cash investments with financial institutions insured by the 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 months ended March 31, 2021, four customers/distributors selling to end customers made up 100% of the revenues. As of March 31, 2021, three customers/distributors made up 100% of accounts receivable.
Research and Development
All research and development costs, payments to laboratories and research consultants are expensed when incurred.
NOTE 4 – LEASE
Effective January 1, 2020, 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 asset and related lease liability related to their leases.
The Company leases its administrative office and laboratories under an operating lease agreement. The Company entered into an agreement in December 2020 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:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Right-of-use asset | $ | 1,257,929 | $ | 1,317,830 | ||||
Total lease liability | $ | 1,282,262 | $ | 1,317,830 | ||||
Less: Current portion | 304,114 | 243,292 | ||||||
Lease liability, net of current portion | $ | 978,148 | $ | 1,074,538 |
The maturities of the lease liabilities are as follows as of March 31, 2021 for the periods ended December 31: | ||||
2021 | $ | 156,748 | ||
2022 | 277,142 | |||
2023 | 277,142 | |||
2024 | 277,142 | |||
2025 | 277,142 | |||
Thereafter | 130,950 | |||
Total lease payments | 1,396,266 | |||
Less: Present value discount | (114,004 | ) | ||
Total | $ | 1,282,262 |
For the three months ended March 31, 2021, operating cash flows paid in connection with operating leases amounted to $35,568.
13 |
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 16.98 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, the status of 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 methods 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, 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 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 75,000,000Somahlution, 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. 2, the Company agreed to assume certain payables of Somah related to clinical and medical expenses. These assumed payables were $344,321. It was agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties. As of March 31, 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.
The Company compensated the Somah stockholders as follows: (1) 10,000,000 shares of common stock valued at $1.25 per share (the Company’s stock is thinly traded therefore the value per share was determined by the funding completed on August 3, 2020 which sold 4,610,064 shares of common stock at $1.25 per share, which was the first tranche of a total funding of $7,000,240 (5,600,272 shares, August 3, 2020 and September 25, 2020) which all stock was sold at $1.25 per share); (2) 3,000,000 warrants with a strike price of $5.00 per share and a term of five years; and (3) royalties on all net sales for Somahlution, Inc. of 6% on the first $50 million of net sales, 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million.
The Company is in the process of determining the fair value of the royalty component of the total consideration as well as the identifiable intangible assets acquired in business combination. The Company is using a third-party valuation firm and at this time we are unable to estimate the contingent consideration related to the future royalty payment stream amount accurately. The Company is expecting the valuation to be finalized in the Form 10-Q for the period ended June 30, 2021. As such, the following table represents the preliminary consideration in connection with the transaction excluding the fair value of the royalty payment stream:
Consideration given: | ||||
Common stock shares given | $ | 12,500,000 | ||
Warrants given | 1,932,300 | |||
Total consideration given | $ | 14,432,300 |
Fair value of identifiable assets acquired, and liabilities assumed: | ||||
Receivable | $ | 45,845 | ||
Inventory | 229,635 | |||
Fixed assets | 9,092 | |||
Intangible assets | 14,147,728 | |||
Total identifiable net assets | $ | 14,432,300 |
The Company anticipates a significant fair value to be assigned to identifiable intangible assets such as in process research and development and patents. Included in the preliminary allocation to the fair value of assets acquired and liabilities assumed is an 100% allocation to intangible assets for the consideration in excess of tangible net assets. The Company utilized a preliminary estimated weighted average amortization period of seven years. As such, the Company recorded amortization expense of $353,693 for the three months ended March 31, 2021 and $0 for the three months ended March 31, 2020.
14 |
Dr. Vithal D. Dhaduk, a co-founder of Somahlution, LLC (“Dhaduk”), is the subject of a complaint filed in the United States District Court, Middle District of Pennsylvania, Civil Action No. 3:17 cv 02243 in December 2017 by Mukeshkkumar B. Patel (“Patel”), 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 million 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.
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 May 6, 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 250,000 shares of common stock at a strike price of $1.50, 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 March 31, 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 40,000 shares of common stock vesting over one year. On October 22, 2020, Mr. Harmon received 120,000 options for common stock vesting over three years with an exercise price of $1.25. 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 500,000 options for common stock vesting over three years, with an exercise price of $1.25. 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.
15 |
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 – FIXED ASSETS
Fixed assets, stated at cost, less accumulated depreciation at March 31, 2021 and December 31, 2020 consisted of the following:
March 31, | 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 | (4,970 | ) | (1,970 | ) | ||||
Property and equipment, net | $ | 4,122 | $ | 7,122 |
Depreciation expense for the three months ended March 31, 2021 and 2020 was $3,000 and $0, respectively.
NOTE 8 –INTANGIBLE ASSETS
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 16.98 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 at the fair value of the shares. No amortization has been recorded as the patents and patent applications are not yet in a position to produce cash flows.
During 2020, the Company incurred legal and filing fees of $17,801 associated with a patent application for pharmaceutical compositions and methods for the treatment of thrombosis. The patents are pending. The Company capitalized these costs.
On July 31, 2020, the Company executed an agreement with Somah (see Note 4) for the DuraGraft® technology in exchange for 10,000,000 shares of common stock, 3,000,000 warrants and a royalty as stated herein. 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.
16 |
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Krillase - Patents, Patent Applications, Research and Development, Clinical Trials, Developed Technology | $ | 28,600,000 | $ | - | $ | 28,600,000 | $ | 28,600,000 | $ | - | $ | 28,600,000 | ||||||||||||
DuraGraft - Patents, Patent Applications, Research and Development, Clinical Trials, Developed Technology | 14,147,729 | (943,182 | ) | 13,204,547 | 14,147,729 | (589,489 | ) | 13,558,240 | ||||||||||||||||
Patents in process | 122,746 | - | 122,746 | 119,971 | - | 119,971 | ||||||||||||||||||
Total Intangibles | $ | 42,870,475 | $ | (943,182 | ) | $ | 41,927,293 | $ | 42,867,700 | $ | (589,489 | ) | $ | 42,278,211 |
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 | |||
Additions | 2,775 | |||
Amortization expense | (353,693 | ) | ||
Balance, March 31, 2021 | $ | 41,927,293 |
The Company has recorded amortization expense of $353,693 for the three months ended March 31, 2021 and $0 for the three months ended March 31, 2020.
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 $1,414,773 for each year from 2021 through 2026 and $6,484,375 for 2027 and thereafter.
NOTE 9 – RELATED PARTY TRANSACTIONS
The Company has recorded a prepaid royalty to the shareholders of Somahlution, LLC in regard to the acquisition (see Note 5). The primary beneficial owner is Dr. Vithal Dhaduk, a director of the Company (appointed in 2021) and significant shareholder of the Company. Prepaid royalties were $340,969 at March 31, 2021 and $344,321 at December 31, 2020.
NOTE 10 – STOCKHOLDERS’ EQUITY
Preferred stock
Our Articles of Incorporation authorize the issuance of 25,000,000 shares of “blank check” preferred stock each with a par value of $0.001. No class of preferred stock has been designated or issued. As of September 30, 2013,March 31, 2021, and December 31, 2020, there were no shares 30,837,624issued and outstanding, respectively.
Common stock
Our Articles of common stock outstanding. AtIncorporation authorize the timeissuance of the Reverse Merger of the Company by GROUP on January 6, 2011, there were 16,500,00075,000,000 shares of common stock with a par value of the Company outstanding and, as the Reverse Merger was accounted for as a recapitalization and applied retroactively, this balance is recorded as the balance outstanding since inception.$0.001.
Transactions occurring in 2012
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
The Note was convertible in full at $0.50 per share into common stockAs of the Company if this conversion was exercised on or before September 30, 2012. If not exercised, Mr. Shihadah would receive a 3-year warrant to purchase shares at 50,000March 31, 2021 and December 31, 2020, there were 35,928,188 shares of common stock at $1.00 per share.issued and outstanding.
17 |
Options
On January 13, 2021, the Board of Directors approved the Marizyme, Inc. 2021 Stock Incentive Plan (“SIP”). The SIP incorporates stock options issued prior to January 13, 2021. The SIP authorized 5,300,000 options for issuance. As of March 31, 2021, there remains 512,500 options available for issuance.
The conversion was not exercised by September 30, 2012, therefore,summary of option activity for the three months ended March 31, 2021 is as per the termsof the Loan Agreement Mr. Shihadah was issued a 3-year warrant to purchase shares at 50,000 shares of common stock at $1.00 per share.follows:
Weighted | Weighted | |||||||||||||||
Average | Average | Total | ||||||||||||||
Number of | Exercise | Contractual | Instrinic | |||||||||||||
Options | Price | Life | Value | |||||||||||||
Outstanding at December 31, 2020 | 3,800,943 | $ | 1.36 | |||||||||||||
Granted | 732,500 | $ | 1.25 | |||||||||||||
Exercised | - | $ | - | |||||||||||||
Forfeited | - | $ | - | |||||||||||||
Outstanding at March 31, 2021 | 4,533,443 | $ | 1.35 | 8.82 | $ | 123,600 | ||||||||||
Exercisable at March 31, 2021 | 2,960,735 | $ | 1.40 |
Notes
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 $1.01 to $1.37 per share in the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unauditedfirst quarter of 2021) and expected life of the stock option (10 years in 2021), the current price of the underlying stock and its expected volatility (ranging from 179.31% to 304.44% in the first quarter of 2021), expected dividends (0%) on the stock and the risk-free interest rate (.93%) for the term of the stock option. In addition, the Company recognizes forfeitures as they occur.
The Notefair value of each stock option was convertible in full at $0.50estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging from $1.01 to $1.37 per share into common stockin 2020) and expected life of the stock option (10 years in 2020), the current price of the underlying stock and its expected volatility (ranging from 179.31% to 304.44% in 2020), expected dividends (0%) on the stock and the risk-free interest rate (.93%) for the term of the stock option. In addition, the Company if this conversion was exercised on or before September 30, 2012. If not exercised, K Group Ltd. would receive a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.recognizes forfeitures as they occur.
The conversion was not exercised by September 30, 2012, therefore, as perfollowing stock options were granted during the terms of the Loan Agreement K Group was issued a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.
The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised Vitamin B Venture GmbH would receive a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.three months ended March 31, 2021:
The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement Vitamin B Venture GmbH was issued a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
In connection with the execution of the Loan Agreement, on October 26, 2012,On January 1, 2021, the Company issued the Lender a7,500 options for common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 100,000 shares of common stock atan employee. The options vest over three years, have an exercise price of $0.35 until$1.25 and expire in 10 years. For the third anniversary date of the date of issuance. The Warrant was issued in a private transaction betweenthree months ended March 31, 2021, the Company and the Lender andhas recorded $708 in stock-based compensation. The Black-Scholes value was exempt from registration under the Securities and Exchange Actdetermined to be $1.13. As of 1933, as amended, pursuant to Section 4(a)(2) (formerly Section 4(2)) thereof.March 31, 2021, there is an unamortized amount of $7,792.
In connection with the Loan Agreement, on February 22, 2013, the Company and Mr. Moore amended the Note pursuant to which Mr. Moore agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment,On January 12, 2021, the Company issued 450,960 shares of Common Stock to Mr. Moore. The Company issued the shares in reliance on Section 4(a)(2) (formerly Section 4(2)) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
In connection with the execution of the Loan Agreement, on October 26, 2012, the Company issued the Lender a common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 500,000 shares of common stock atan employee. The options vest over three years, have an exercise price of $0.20 until$1.25 and expire in 10 years. For the third anniversary date of the date of issuance. The Warrant was issued in a private transaction betweenthree months ended March 31, 2021, the Company andhas recorded $1,717 in stock-based compensation. The Black-Scholes value was determined to be $1.19. As of March 31, 2021, there is an unamortized amount of $22,083.
On January 16, 2021, the Lender and was exempt from registration under the Securities and Exchange Act of 1933, as amended, pursuant to Section 4(a)(2) (formerly Section 4(2)) thereof. On February 12, 2013, Mr. Baksa exercised the right to purchase 500,000 shares ofCompany issued 40,000 options for common stock atto Roger Schaller, the Company’s executive vice president. The options vest over three years, have an exercise price of $0.20.$1.25 and expire in 10 years. For the three months ended March 31, 2021, the Company has recorded $3,356 in stock-based compensation. The Black-Scholes value was determined to be $1.22. As of March 31, 2021, there is an unamortized amount of $45,640.
In connection with the Loan Agreement, on February 22, 2013, the Company and Mr. Baksa amended the Note pursuant to which Mr. Baksa agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment,On January 29, 2021, the Company issued 200,000 shares40,000 options for common stock to Amy Chandler, the Company’s executive vice president. The options vest over three years, have an exercise price of Common Stock$1.25 and expire in 10 years. For the three months ended March 31, 2021, the Company has recorded $2,745 in stock-based compensation. The Black-Scholes value was determined to Mr. Baksa. Thebe $1.22. As of March 31, 2021, there is an unamortized amount of $45,727.
On March 5, 2021, the Company issued the shares in reliance on Section 4(a)(2) (formerly Section 4(2))125,000 options for common stock to James Sapirstein, a director of the Securities Act dueCompany. The options vest over three years, have an exercise price of $1.25 and expire in 10 years. For the three months ended March 31, 2021, the Company has recorded $11,003 in stock-based compensation. The Black-Scholes value was determined to the fact that the issuance was isolated and did not involve a public offeringbe $1.19. As of securitiesMarch 31, 2021, there is an unamortized amount of $137,747.
Transactions occurringOn March 5, 2021, the Company issued 125,000 options for common stock to Terry Brostowin, a director of the Company. The options vest over three years, have an exercise price of $1.25 and expire in 201310 years. For the three months ended March 31, 2021, the Company has recorded $11,003 in stock-based compensation. The Black-Scholes value was determined to be $1.19. As of March 31, 2021, there is an unamortized amount of $137,747.
On March 5, 2021, the Company issued 125,000 options for common stock |
Notes to Dr. William Hearl, a director of the Interim Financial StatementsCompany. The options vest over three years, have an exercise price of $1.25 and expire in 10 years. For the three months ended March 31, 2021, the Company has recorded $11,003 in stock-based compensation. The Black-Scholes value was determined to be $1.19. As of March 31, 2021, there is an unamortized amount of $137,747.
On March 5, 2021, the Company issued 125,000 options for common stock to Julie Kampf, a director of the Company. The options vest over three years, have an exercise price of $1.25 and expire in 10 years. For the three months ended March 31, 2021, the Company has recorded $11,003 in stock-based compensation. The Black-Scholes value was determined to be $1.19. As of March 31, 2021, there is an unamortized amount of $137,747.
On March 5, 2021, the Company issued 125,000 options for common stock to Dr. Vithal Dhaduk, a director of the Company. The options vest over three years, have an exercise price of $1.25 and expire in 10 years. For the three months ended March 31, 2021, the Company has recorded $11,003 in stock-based compensation. The Black-Scholes value was determined to be $1.19. As of March 31, 2021, there is an unamortized amount of $137,747.
The weighted average grant date fair value of options granted during 2020 was $1.25. As of March 31, 2021, the total unamortized stock-based compensation expense amounted to $1,250,144 and will be expensed through December 2023. As of March 31, 2021, the number of options outstanding and exercisable are as follows including weighted average inputs used in calculating stock-based compensation:
Number of | Number of | Remaining | ||||||||||||||||||||
Exercise | Options | Options | Life in | Intrinsic | ||||||||||||||||||
Price | Outstanding | Exercisable | Term | Years | Value | |||||||||||||||||
$ | 1.01 | 515,000 | 515,000 | 10 years | 7.69 - 7.78 | 123,600 | ||||||||||||||||
$ | 1.25 | 1,622,500 | 219,792 | 10 years | 9.56 - 9.92 | - | ||||||||||||||||
$ | 1.37 | 200,000 | 30,000 | 10 years | 9.39 | - | ||||||||||||||||
$ | 1.50 | 2,195,943 | 2,195,943 | 10 years | 8.29 | - | ||||||||||||||||
4,533,443 | 2,960,735 | 123,600 |
September 30, 2013
GBS Enterprises Incorporated
UnauditedWarrants
As of March 31, 2013, these shares had not yet been issued2021 and remain as Subscriptions Receivable.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Other changes in common stockDecember 31, 2020, there are disclosed in Note 23, Supplementary Cash Flow Disclosures.3,393,651 warrants outstanding.
Options
The Company has not issued any options, so that none are outstanding as of September 30, 2013.
WarrantsNOTE 11 - SUBSEQUENT EVENTS
The Company has issued warrants in four different manners. In each instance,evaluated subsequent events through the warrant allows the holder to purchase a common share within a three year period from issuance at a specific price per share. In the first instance, warrants have been issued as part of a private placement offering wherein the investor purchases a common share, and a warrant. The fair value of those warrants has been determined (and is shown below) by utilizing the residual method, whereby the current market value of the stock is deducted from the unit price and the remainder is allocated to the warrant. The valuation of the warrants issued is for disclosure purposes only and has no impact todate the financial statements. A description of those warrants has been described above under common shares.
The second manner in which warrants are issues is in respect to financing by way ofstatements were issued and filed with the issuance of notes payable or the conversion of debt into shares. In these instances, the fair value of the warrant has been determined using the effective interest rate method whereby the note is discounted when the interest rate is less than other similar notesSecurities and discount is allocated to the warrant and credited to additional paid in capital. The corresponding charge to discount is then amortized over the life of the note. Where there is no difference in interest terms, no value is attributable to the warrant.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Exchange Commission. The Company has also sold warrants at nominal value to certain investors. In this instance the fair value of the warrants has been determined using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below. The valuation of the warrants issued is forthat there are no other such events that warrant disclosure purposes only and has no impact to the financial statements.
Lastly, the Company has issued warrants to outside consultants in payments for services. The warrants are issued as “cashless” warrants and have been valued using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below.. The fair value of warrants issued for financing are determined for disclosure purposes as there is no impact to the financial statements. The fair value for other services, namely legal, and consulting have been recordedor recognition in the financial statements, with a charge to the corresponding expense account and a credit to additional paid in capital.
Black Scholes assumptions for warrants issued wereexcept as follows:
For the Period Ending September 30, | ||||||||
2013 | 2012 | |||||||
Annualized Volatility | 120.26 | % | 118.64 | % | ||||
Risk Free Interest Rate | 0.66 | % | 0.40 | % | ||||
Expected Life | 3 years | 3 years | ||||||
Dividend Rate | Nil | Nil |
The following share purchase warrant transactions have not been disclosed elsewhere.
On April 1, 2011, the former CFO was issued 100,000 share purchase warrants, which gave him the option of purchasing 100,000 shares of common stock for a period of 3 years at a price of $1.50 per common share. The value of this issuance, using the Black Scholes pricing model was determined to $34,000 and this amount was recorded as a consulting expense.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
In March 2012, the Company issued an aggregate of 2,020,000 warrants to five “accredited investors” pursuant to Section 4(a)(2) (formerly Section 4(2)) of the Securities Act. Each investor warrant is exercisable for the three-year period commencing from the date of issuance for $0.50 per share of Common Stock and has the same terms as the Private Placement Warrants. As noted above investors immediately exercised warrants and purchased 900,000 shares of common stock for $450,000.On March 27, 2012, the Company issued an aggregate of 250,000 warrants to 3 outside consultants pursuant to Section 4(a)(2) (formerly Section 4(2)) of the Securities Act. Each warrant is exercisable for the three-year period commencing from the date of issuance for $1.10 per share of Common Stock and has the same terms as the Private Placement Warrants. The value of this issuance, using the Black Scholes pricing model was determined to $270,208 and this amount was recorded as a professional expense.
In December 2012, The Company issued 16,875 warrants to an outside consultant pursuant to Section 4(a)(2) (formerly Section 4(2)) of the Securities Act. Each warrant is exercisable for the three-year period commencing from the date of issuance for $0.21 per share of Common Stock and has the same terms as the Private Placement Warrants. The value of this issuance, using the Black Scholes pricing model was determined to $2,624 and this amount was recorded as a consulting expense.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
# of shares | Fair value | Balance | ||||||||||||||||||||||||||
allowed to | Issue | Expiry | Strike | at | End of | |||||||||||||||||||||||
purchase | Date | Date | Price | Issuance | Issued | Exercised | Period | |||||||||||||||||||||
$ | $ | # | # | # | ||||||||||||||||||||||||
Opening - Jan 1, 2012 | 6,846,280 | 5,000 | 6,841,280 | |||||||||||||||||||||||||
Amended | (2,000,000 | ) | 10/1/2010 | 6/1/2013 | 4.00 | - | - | - | - | |||||||||||||||||||
Reissued | 2,000,000 | 6/1/2012 | 6/1/2015 | 1.00 | 556,785 | - | - | - | ||||||||||||||||||||
Issued for legal services | 3/31/2012 | 3/31/2012 | 1.10 | 270,208 | (2) | 250,000 | - | 250,000 | ||||||||||||||||||||
Issued for nominal value | 3/28/2012 | 3/28/2015 | 0.50 | 2,457,662 | 2,020,000 | 900,000 | 1,120,000 | |||||||||||||||||||||
Sold with share units | 4/16/2012 | 4/16/2015 | 1.50 | 90,000 | 120,000 | - | 120,000 | |||||||||||||||||||||
Issued with debt conversion | 4/28/2012 | 4/28/2015 | 1.75 | - | 550,000 | - | 550,000 | |||||||||||||||||||||
Issued with debt conversion | 4/30/2012 | 4/30/2015 | 1.75 | - | 500,000 | - | 500,000 | |||||||||||||||||||||
Sold with share units | 5/10/2012 | 5/10/2015 | 1.50 | 25,800 | 30,000 | - | 30,000 | |||||||||||||||||||||
Issued with debt | 7/5/2012 | 7/5/2012 | 0.50 | 26,500 | 550,000 | - | 550,000 | |||||||||||||||||||||
Issued with debt | 8/13/2012 | 8/13/2015 | 0.35 | - | 100,000 | 100,000 | 100,000 | |||||||||||||||||||||
Issued with debt | 10/26/2012 | 10/29/2015 | 0.20 | - | 500,000 | 500,000 | - | |||||||||||||||||||||
Issued with debt | 11/30/2012 | 11/30/2015 | 0.20 | - | 500,000 | 250,000 | 250,000 | |||||||||||||||||||||
Issued for consulting services | 12/21/2012 | 12/21/2015 | 0.21 | 2,624 | (1) | 16,875 | - | 16,875 | ||||||||||||||||||||
Closing - Dec 31, 2012 | 5,136,875 | 1,755,000 | 10,328,155 | |||||||||||||||||||||||||
Opening - Jan 1, 2013 | 10,328,155 | 10,328,155 | ||||||||||||||||||||||||||
Transfer (3/11/2011) | 739,000 | 2/6/2013 | 3/11/2014 | 1.50 | - | - | - | 739,000 | ||||||||||||||||||||
Closing - Mar 31, 2013 | 5,136,875 | 1,755,000 | 11,067,155 | |||||||||||||||||||||||||
Issued with debt | 4/26/2013 | 4/26/2016 | 0.25 | - | 400,000 | - | 400,000 | |||||||||||||||||||||
Closing - Jun 30, 2013 | 5,536,875 | 1,755,000 | 11,467,155 | |||||||||||||||||||||||||
Closing - September 30, 2013 | 5,536,875 | 1,755,000 | 11,467,155 |
(1) recorded as consulting expense
(2) recorded as legal expense
Note 21 REVENUE ALLOCATION
Gross revenue may be broken down by the following products for the nine months ended September 30, 2013 are as follows:
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Revenues by geographical area for the nine months ended September 30, 2013 are as follows:
Note 22 OTHER INCOME/EXPENSE
At the financial statement date, Other income was 20 KUSD (December 31, 2012 year end: Other Expense 33 KUSD).stated herein.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 23 SUPPLEMENTAL CASH FLOW DISCLOSURES
The significant non-cash transactions through September 30, 2013 were as follows:
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 24 SUBSEQUENT EVENTS
On July 10, 2013, the Board of Directors of the Company reappointed Joerg Ott as the Chief Executive Officer (Principal Executive Officer) of the Company, effective immediately. Mr. Ott replaced Mr. Gary D. MacDonald who had been serving as the Company’s Interim Chief Executive Officer since July 11, 2012.
On August 2, 2013, Gary D. MacDonald resigned as member of the Board of Directors of the Company and as, Managing Director of GBS-UK. From March 1, 2012 to the date of his resignation, Mr. MacDonald also served as member of the Board’ Audit Committee. Mr. MacDonald’s resignation was not due to any disagreement with the Company or the Board.
On August 13, 2012, the Company entered into a note purchase and security agreement (the “Loan Agreement”) with John A. Moore, a member of the Board. Pursuant to the Loan Agreement, the Company issued a secured promissory note, dated October 26, 2012 (the “Note”), to Mr. Moore for the principal amount of $1,000,000, bearing interest at a rate of 20% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note, without any penalty for prepayment. To secure the obligations of the Company under the Note, the Company granted Mr. Moore a secured priority security interest in the Company’s Accounts Receivable and its subsidiaries located in the United States of America, as more fully described in the full text of the document.
On October 23, 2013, the Company filed a lawsuit (GBS Enterprises, Inc. v. Reliance Globalcom, Inc.) in the Superior Court of the State of California, County of San Francisco, seeking a declaratory judgment that the Company has no obligation to Reliance Globalcom Inc. (“Reliance”) for any claims or liabilities in connection with a Master Services Agreement (“MSA”) executed by Reliance and IDC Global Inc. (“IDC”) a then wholly owned subsidiary of the Company in March 2010. On February 1, 2013, GBS sold IDC to Global Telecom & Technology Inc. (“GTT”). Pursuant to the governing Stock Purchase Agreement (SPA), GTT gained all right, title and interest in 100% of all of IDC’s stock, all of which had been owned by GBS. Pursuant to the Stock Purchase Agreement, GTT withheld $528,777.93 of the purchase price from payment to GBS to cover potential exposure due to the Identified Dispute described herein between IDC and Reliance. The Stock Purchase Agreement requires that, within three days of notice to GTT that the Identified Dispute described herein has been resolved, GTT will release the $528,777.93 to GBS. The Company is seeking declaratory relief from the Court stating the Company is not liable to Reliance and that GTT may release the $528,777.93 in funds owed to the Company. There were no material developments in this case since the filing of the lawsuit.
The Company intends to vigorously defend its interests in this matter.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENT
Item 2. Management’s
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.
Note Regarding Forward-Looking Statements
The following discussion” 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 analysis shouldother similar expressions. Any statement contained in this report that is not a statement of historical fact may be readdeemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in conjunction withor suggested by our financialforward-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 the notes to those financial statementswe can give no assurance that are included elsewhere in the Quarterly Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Notice Regarding Forward-Looking Statements” and “Description of Business” sections in the Company’s latest Annual Report on Form 10-K and subsequent filings. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “predict,” and similar expressions to identify forward-looking statements. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, our actual results could differ materially from those discussed in these statements. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.prospects will be achieved.
OVERVIEWCompany Overview
GBS Enterprises Incorporated,We are a Nevada corporation (the “Company,” “GBS,” “GBSX,” “we,” “us,” “our” or similar expressions), conducts its primary business through its 50.1% owned subsidiary, GROUP Business Software AG (“GROUP”), a German-based public-company whose stock trades on the Frankfurt Exchange under the stock symbol INW. GROUP’s software and consulting business is focused on serving IBM’s Lotus Notes and Domino market. GROUP caters primarily to mid-market and enterprise-size organizations with over 3,500 customers in thirty-eight countries spanning four continents, representing more than 5,000,000 active users of its products. GROUP’s customers include Abbot, Ernst & Young, Deutsche Bank, Bayer, HBSC, Merck and Toyota. GROUP provides IBM Lotus Notes/Domino Application and Transformation technology. Headquartered in Eisenach, Germany, GROUP has offices throughout Europe and North America. The Company maintains a website at www.gbsx.us. GROUP maintains a website at www.gbs.com. The information contained in the Company’s and GROUP’s websites is not incorporated by reference herein.
Products and Services
GBS has consolidated the fragmented Lotus Software market through the acquisition of companies with complementary product, technology or services offerings. GBS has continuously developed its software and service business to service and support GBS’s IBM Lotus customer base.
Historically, GROUP had achieved growth by acquiring companies with complimentary operations and leveraging GROUP’s expertise to turnaround and integrate these companies. Key success factors for this strategy are: enhanced portfolio, positioning GROUP as the ‘one-stop-shop’ for Lotus applications and services, expanded customer support, fast code migration, and cloud enablement/XPages conversion of acquired applications.
In 2012, in order to reduce overhead and administrative costs, we decided to restructure the Company’s multilevel subsidiary-structure. As of the fiscal quarter ended September 30, 2013, we restructured or sold the following subsidiaries:
SD Holdings, Ltd./GBS India Private Limited. On April 1, 2012, we sold SYN and its wholly-owned subsidiaries, Synaptris and Synaptris India, to Lotus for $1,877,232. On July 1, 2012, the Company entered into a purchase agreement with SYN for $1,877,232, which transferred all SYN’s assets, including intellectual property rights, and liabilities of the IntelliPRINT and FewClix product lines, customer contracts and certain employees for operations in a new subsidiary, GBS India Private Limited, an Indian company (“GBS India”). A royalty fee in the amount of approximately $350,000 has been agreed upon for the benefit the Company. Additionally a profit based fee of up to $700,000 may be earned based on license and revenue recognized from the sold IntelliVIEW and IntelliVIEW NXT products. On August 1, 2012, the Company acquired 100% of the outstanding capital stock of GBS India. We anticipate GBS India’s presence in India to accelerate our plan to expand our product development team particularly for our strategic offerings in India.
Pavone AG/Groupware AG. On July 6, 2012 and August 9, 2012, wholly-owned subsidiaries Pavone AG and Groupware AG, respectively, were merged and consolidated into one wholly-owned subsidiary, Pavone GmbH. The mergers were consummated solely for administrative purposes.
Pavone, Ltd. On July 8, 2012, Pavone, Ltd., a subsidiary of Pavone AG and a shell company, was dissolved. The Company serves the United Kingdom market through GROUP’s subsidiary GBS, Ltd.
EbVokus, GmbH. On October 1, 2012, GROUP sold all of the software and operational assets (constituting substantially all of the assets) of its wholly-owned subsidiary, ebVokus GmbH, along with the associated maintenance and project agreements to a non-affiliated third party for a purchase price of approximately $459,000, approximately $258,000 (200,000 Euros: 1 EUR = $1.29 USD on October 1, 2012) was paid at closing and the remaining $201,000 was paid on February 15, 2013 (150,000 Euro: 1EUR = $1.35 USD on February 15, 2013).
B.E.R.S. AD. On November 23, 2012, GBS AG sold its entire participation (50%) in B.E.R.S AD for a total of 25,000 BGN.
IDC Global, Inc. On February 1, 2013, GBS entered into a Stock Purchase Agreement, dated February 1, 2013 (the “Agreement”), with IDC Global, Inc., a Delaware corporation and a wholly-owned subsidiary of GBS (“IDC”), and Global Telecom & Technology Americas, Inc., a Virginia corporation (“GTT). Pursuant to the Agreement, we sold 100% of the issued and outstanding capital stock of IDC to GTT for a purchase price of $4,600,000 (the “Purchase Price”), subject to certain holdback provisions, including a holdback of approximately $217,000 for accounts receivable and which is to be paid by GTT to GBS within one business day of IDC receiving such payment, $334,000 for GroupLive liabilities and liens on IDC which is to be paid by GTT to GBS within three business days that GTT is reasonably satisfied that such liabilities and liens have been removed, less any amounts up to $12,500 which GTT or IDC is required to pay to either satisfy the obligations or purchase replacement equipment; and approximately $528,000 for an outstanding dispute which is to be paid by GTT to GBS within three days that GTT is reasonably satisfied has been resolved, subject however to a term of 18 months from the closing date or, if after 18 months, the holdback will be used to offset any indemnifications by GBS under the Agreement. The Purchase Price was also subject to adjustment on a dollar-for-dollar basis for adjustments to the Net Working Capital (defined as Current Assets minus Current Liabilities) of IDC by GTT.
Group Live N.V. operating under the laws of the Netherlands and a 100% subsidiary of GROUP declared its end of business May 31, 2012, registered in the commercial register June 22, 2012. Following the local procedures the Company has been dissolved from the register as per April 5, 2013, registered April 16, 2013.
The Board of Directors of the Company has approved each of the transactions discussed above.
Messaging and Business Applications Software & Solutions
GBS Messaging and Business Application Software & Solutions product lines include software and advisory services for email and Instant Messaging (IM) Management, Security, Compliance, Archiving and Productivity, CRM Applications, Governance, Risk & Compliance (GRC) Management software, Workflow and Business Process Management software, ePDF Archiving & Document Management.
GBS develops, sells and installs well-known business process and management software suites based on Lotus Notes / Domino and IBM Portal technology, mainly for major international companies and medium-sized customers.
Through GBS’s comprehensive messaging software product lines and associated services, Lotus Notes, Microsoft Exchange or SMTP-based-email customers, as well as Lotus Sametime, customers are able to provide their users with a secure, efficient and centrally administered use of e-mail and IM while maintaining control over their compliance with current legal requirements and corporate guidelines.
Consulting Services
GBS develops, sells and orchestrates customer-specific Lotus Domino strategy and consulting services, such as CIO and IT department leader Strategic Advisory Services, Managed Services, Outsourcing, Administration, Assessments and Implementations, Performance Improvements, Custom Application Development, Governance and Security, Technical Support, and Training, as well as Email Migration Services.
Based on GBS’s unique concentration of industry talent and expertise, mainly in the areas inside and around IBM Lotus Notes/Domino, inside and around corporate messaging (IBM, Microsoft, SMTP) and inside and around IT environmental and application assessment, analysis and reporting, commercial and governmental customers, as well as Software Integrators (SI) and channel partners, are able to rely on the company’s strategic and tactical advisory services for evaluating, planning, staffing and execution of related customer projects. GBS Consulting Services’ global teams of consultants use modern project management techniques, proprietary methodologies and GBS accelerator technologies to complete client projects on time and with reduced risk.
We believe that our focus on recruiting and retaining top Lotus expertise positions our team to offer leading-edge Lotus Notes / Domino subject matter knowledge to our customers.
As a Premier IBM Business Partner, GBS is one of the few partners that can sell and support licenses for all five IBM software brands: Lotus, WebSphere, Rational, Tivoli, and DB2.
Market Trends
As IT departments face continuous budget reductions and constant pressure for higher performance and efficiency, CIOs are focusing on modern technologies to support their need for increased scalability, flexibility and lower costs. GBS has identified this demand as a strategic growth opportunity for the company and has placed a significant focus on expanding its Modernizing/Migrating technology, which will assist client companies as they move to scale and adapt while remaining cost conscious.
GBS Lotus Application Modernization and Migration
GBS Lotus Application Modernization and Migration activities are focused on the IBM Lotus / Domino applications market and the offering spans from expert services and accelerator technologies to modernized, web enabled (also named “cloud” or “cloud computing”) and migrated Lotus applications; and thus ultimately to take the Lotus applications from legacy to the future. The foundation of the Modernizing/Migrating Suite Software offering is GBS’s significant R&D investment in a set of methodologies and key technology accelerators to automate the conversion of traditional Notes based client-server applications, into the IBM XPages framework which enables Domino applications to be run and accessed via the Lotus client, a web browser or on a mobile device. The patent-pended software that underpins Modernizing/Migrating was developed by GBS with assistance and guidance from IBM’s Software Group to ensure alignment with future releases of the IBM Lotus / Domino and XPages technology.
Revenue Model
GBS generates its revenue from the sale of internally created software, third-party developed software and the delivery of related services, including IT systems planning, administration, support, hosting, implementation and integration.
Strategy and Focus Areas
Based on current market demands for modern, Cloud-based and mobile-device capable business applications, we have acquired and developed a set of unique technologies that help organizations reduce the time, cost, resources and risks associated with modernizing or migrating their existing applications.
We generate revenue from subscription and usage fees and related services, including support and strategic consulting services. The subscription period is typically based on a yearly or multi-year contract with our customers. Another sector of our strategic portfolio is a suite of tools and methodologies we have developed to rapidly convert Lotus Notes applications into web and modern mobile applications. This portfolio includes a set of powerful analysis tools known as Insights that identify all of the Lotus Notes applications within an organization and provide metrics about the uses and users of those applications. Because of the nature of Lotus Notes and Domino, the applications within a customer environment tend to be highly distributed and number in the thousands. For many organizations, this fact alone makes it extremely difficult to plan for projects that involve modernizing these applications for use in a browser and on mobile devices or migrating them to another platform. Our technologies help them to dramatically reduce the cost, risk, time and resources associated with these highly complex projects.
We generate revenue with our analysis tools by charging a fee for the use of our technology and for the associated cost of the services to produce a report and set of recommendations for the customer. Additional revenues come from consulting services that result from helping our customers implement those recommendations. For use of our conversion tools, referred to as Modernizing/Migrating, we charge a flat fee for the conversion and additional hourly rates to perform additional supporting development or testing as needed. We also believe there is a significant revenue opportunity in licensing these tools to a network of global partners who also have existing presence and expertise in the Lotus Notes and Domino market. We have established partner agreements for the use of the analysis and conversion tools with partners in several countries and directly with IBM.
General Corporate History
The Company was originally incorporated in the state of Nevada on March 20, 2007, asunder the name SWAV Enterprises, Ltd. (“SWAV”). SWAV was in a different industry and had a different management team and Board of Directors.
On April 26, 2010, SWAV purchased certain technology assets of Lotus Holdings Ltd. (“Lotus”) in consideration for 2,265,240 shares of SWAV common stock. Also on April 26, 2010, Lotus (on behalf of the SPPEF Members as discussed below) purchased an aggregate of 11,984,770 of the outstanding shares of SWAV common stock from certain selling shareholders of SWAV for an aggregate purchase price of $370,000. As a result of these two sets of transactions, Lotus acquired an aggregate of 14,250,010 shares of SWAV common stock which constituted approximately 95.0% of the 15,000,000 outstanding shares of SWAV common stock on April 26, 2010.
Upon the consummation of the April 26, 2010 acquisition, the then executive officers and directors of SWAV resigned and Mr. Joerg Ott, the Chief Executive Officer of GROUP and a GROUP Major Shareholder, was appointed the Chief Executive Officer of SWAV and sole member of SWAV’s Board of Directors. Mr. Ott currently serves as the Chairman of the Board of Directors of GBSX and the Chief Executive Officer of GROUP.
On September 6, 2010, SWAV’swe changed our name was changed to GBS Enterprises Incorporated. On October 14,Incorporated and from 2010 to September 2018 we were in the Company’s trading symbolsoftware 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 OTC Bulletin Board wasacquisition of life science technologies.
We changed from SWAVour name to GBSX. The Company’sMarizyme, Inc. on March 21, 2018, to reflect our new life sciences focus, and our common stock is currently quoted on the OTC Market OTCQBMarkets’ QB tier under the ticker symbol GBSX.“MRZM.” We may also examine our options with respect to the listing of our common stock on the Nasdaq Stock market or the NYSE.
About Lotus Holdings, Ltd.In the second half of 2018, we acquired the protease-based therapeutic platform called Krillase® from ACB Holding AB.
Lotus is a holding company which was formed under the laws of Gibraltar for the purpose of financing merger and acquisition projects, specifically in the niche market of small or microcap companies listed on the Frankfurt Stock Exchange with complex shareholder structures and whose stock is trading below one Euro (€1.00) per share.Recent Events
SPPEFsSomahlution Asset Acquisition
Lotus typically finances its merger and acquisition projects through the use of Special Purpose Private Equity Funds (“SPPEFs”). Typically, SPPEFs are funded by a company’s major shareholders (the “Major Shareholders”) seeking to raise capital for projects and who fund at least 50% of the SPPEF, with the remaining portion being provided through the investment community and network of investors in Lotus. Each SPPEF is co-managed by a representative of the Major Shareholders (the “Representative Secretary”) and an attorney appointed by Lotus (the “Lotus Representative”).
On February 25, 2010,July 30, 2020, we acquired all of the assets and certain of the liabilities of Somahlution LLC, or Somahlution, and its related companies, referred to collectively as Somah. Somah was engaged in developing products to prevent ischemic injury to organs and tissues and its products, which we refer to as the “Somah Products,” include DuraGraft®, a groupone-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties. As part of shareholders (the “GROUP Major Shareholders”)this acquisition, we acquired Somahlution, Inc., a wholly owned subsidiary of GROUP Software AG, a German public company trading onSomahlution and holder of the Frankfurt Stock Exchange underCE marks for manufacture and sale of the symbol “INW” (“GROUP”), engaged Lotus to provide financial consulting and advisory services, on a non-exclusive basis, forDuraGraft® products in the primary task of establishing a SPPEF. On March 12, 2010, the GROUP Major Shareholders and Lotus established and funded a SPPEF with $1,400,000, consisting of $1,000,000 from the GROUP Major Shareholders and $400,000 from a Lotus investor (collectively, the “SPPEF Members”).European Union.
In early April 2010,Pursuant to the SPPEF Members decided to acquire SWAV. As disclosed above, on April 26, 2010, Lotus, on behalfterms of the SPPEF Members, acquiredAcquisition, 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 11,984,7704,609,984 shares of SWAVour common stock, from the selling shareholderspar value $0.001 per share, at a purchase price of SWAV$1.25 per share for an aggregate purchase priceamount of $370,000. The 11,984,770$5,762,480. On September 25, 2020, we conducted a second closing of the Private Placement and sold an additional 990,208 shares of SWAVour common stock shares represented approximately 79.9%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.
Our Products
Krillase
Through our acquisition of the 15,000,000 outstanding sharesKrillase 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 SWAV common stock on April 26, 2010.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.
20 |
Transactions followingKrillase, 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 April 26, 2010 Transaction
On November 1, 2010,Antarctic krill digest and break down its food in the Company repurchased an aggregate of 3,043,985 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for these 3,043,985 shares, the Company issued to Lotus a Secured Demand Note, dated November 1, 2010 (the “First Demand Note”), for the principal amount of $300,000, bearing interest at the rate of 5% per annum. The First Demand Note was repaid in September 2011.
Effective December 30, 2010, pursuant to securities purchase agreements between the Company and six GROUP Major Shareholders, the Company purchased an aggregate of 7,115,500 shares of GROUP common stock from the six GROUP Major Shareholders in consideration for the 3,043,985 shares of GBS common stock (the “December 2010 Transaction”).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 Company owned approximately 28.2%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 outstanding common stockgrafting of GROUP.
Reverse Mergerskin for the treatment of chronic wounds and burns, and reduce bacterial biofilms associated with poor oral health in humans and animals.
AfterWe have acquired a Krillase-based product pipeline that is focused on developing products that treat several conditions across the December 2010 Transaction was completed, the additional GROUP Major Shareholders decided to accept the share swap offer from the Company and to effectuatecritical care market. Itemized below is a reverse mergerbreakdown of GROUP and the Company. To effectuate the reverse merger, on January 5, 2011, the Company repurchased from Lotus an aggregate of 2,361,426 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for these 2,361,426 shares, the Company issued to Lotus a Secured Demand Note, dated January 5, 2011 (the “Second Demand Note”), for the principal amount of $200,000, bearing interest at the rate of 5% per annum. The Second Demand Note was repaid in November 2011.
Effective January 6, 2011, pursuant to securities purchase agreements between the Company and the remaining GROUP Major Shareholders, the Company purchased an aggregate of 5,525,735 shares of GROUP common stock from the remaining GROUP Major Shareholders in consideration for the 2,361,426 shares of GBS common stock (the “January 2011 Transaction”). These 5,525,735 GROUP shares represented approximately 21.9% of the outstanding shares of common stock of GROUP. As a result of the December 2010 Transaction and January 2011 Transaction, the Company had acquired an aggregate of 12,641,235 shares of GROUP common stock from the GROUP Major Shareholders in consideration for an aggregate of 5,405,411 shares of GBS common stock, resulting in GBS owning approximately 50.1% of the outstanding GROUP common stock and effectuating a reverse merger of the Company and GROUP whereby GROUP became the accounting acquirer.
Additional GROUP Acquisition
On February 27, 2012, we acquired an additional 883,765 shares of GROUP common stock for $619,000 in order to maintain our 50.1% majority ownership of GROUP due to an increase in the outstanding common stock of GROUP.
Executive Offices
Our principal executive office is located at 585 Molly Lane, Woodstock, Georgia 30189 and our telephone number is (404) 891-1711. GROUP’s executive offices are located at Hospitalstrasse 6, 99817 Eisenach, Germany. We maintain a website at www.gbsx.us. GROUP maintains a website at www.gbs.com. The information contained in the Company’s and GROUP’s websites is not incorporated by reference herein.
Changes in Financial Condition
Assets:
Total Assets decreased from $56,802,492 at December 31, 2012 to $47,279,675 at September 30, 2013. Total Assets consists of Total Current Assets and Total Non-Current Assets.
Total Current Assets
At September 30, 2013, Total Current Assets were $4,294,224 as compared to $6,444,192 at December 31, 2012. Total Current Assets consist of: Cash and Cash Equivalents, Accounts Receivable, Inventory, Prepaid Expenses, and Other Receivables-current.projected Krillase development pipeline:
Total Non-Current Assets
At September 30, 2013, Total Non-Current Assets were $42,985,450 as compared to $50,358,300 at December 31, 2012. Total Non-Current Assets consist of: Property Plant and Equipment, Other Receivables non-current, Deferred Tax Assets non-current, Goodwill, Software, and Other Assets.
Liabilities
Total Liabilities decreased from $22,269,060 at December 31, 2012 to $16,870,431 at September 30, 2013. Total Liabilities consists of Total Current Liabilities and Total Non-Current Liabilities.
Total Current Liabilities
At September 30, 2013, Total Current Liabilities were $16,698,017, compared to $18,227,184 at December 31, 2012. Total Current Liabilities consist of Notes Payable, Liabilities to Banks, Accounts Payable and Accrued Liabilities, Deferred Income, and Other Liabilities.
MB104 – Therapy for deep vein thrombosis | ||
● | MB105 – Therapy for dissolving plaque and biofilms on teeth |
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:
● | First, leverage and maximize near-term revenue generating opportunities with products for commercial or clinical applications that have low regulatory risk, | |
● | 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 that have higher regulatory risk, but significant commercial potential. |
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.
● | DuraGraft is a CE-marked endothelial damage inhibitor that protects free vascular grafts and endothelium against ischemic injury. |
21 |
● | DuraGraft is approved in Europe for graft protection and preservation during bypass (cardiac and peripheral) and other vascular surgeries. | |
● | DuraGraft protects graft tissue from harvesting through anastomosis and is used during coronary artery bypass grafting, or CABG, (and other vascular surgeries) as a treatment to maintain the structural and functional integrity of the endothelium of isolated vascular grafts. | |
● | The use of DuraGraft is associated with the reduction of post-CABG complications associated with graft disease and failure; myocardial infarction, repeat revascularization, and major adverse cardiovascular events, or MACE. |
Unmet Clinical Needs
● | CABG remains the standard treatment for multi-vessel coronary artery disease or left main artery disease. | |
● | Benefits of CABG are, however, limited by high patient level of vein graft failure (VGF) rates (50%) that have not changed in decades. | |
● | “The Early Promise of Coronary Bypass Grafting has not been fulfilled and an insidiously deadly variety of atherosclerosis progressively chokes vein grafts and extinguishes their benefits,” Fitzgibbons, 1996. | |
● | “VGF remains one of the leading causes of poor in-hospital and long-term outcomes after CABG,” Harskamp, 2013. | |
● | “The Issue of Low Patency Rates Owing to VGF Needs Urgent Attention,” de Vries, 2016. | |
● | Vein graft failure is result of damage to graft endothelium that occurs during CABG surgery. | |
● | Ischemic reperfusion injury is the primary cause of endothelial damage. | |
● | Vein graft failure post-CABG is associated with poor clinical outcomes. | |
● | DuraGraft minimizes endothelial damage, reduces graft disease, and improves clinical outcomes. |
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:
● | Clinical studies in Europe have shown Krillase to achieve superior wound healing effects in treatment of necrotic leg ulcers. | |
● |
22 |
Total Non-Current Liabilities
At September 30, 2013, our Total Non-Current Liabilities were $172,414 compared to $4,041,876 at December 31, 2012. Total Non-Current Liabilities consist of Liabilities to Banks, Retirement Benefit Obligation, Liabilities Held for Sale,The DuraGraft platform provides a significant and Deferred Tax Liabilities non-current.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:
● | Complete the integration of the acquisition of the Somah assets and begin (i) the marketing and distribution of the Somah Products, particularly DuraGraft, in Europe and (ii) the development, regulatory approval and commercialization of DuraGraft and related Somah Products in the United States; | |
● | Begin to commercialize our Krillase platform through the development of (i) manufacturing and distribution in Europe and South America of a Krillase would healing product and (ii) additional Krillase based applications; and | |
● | Expand our product portfolio through the identification and acquisition of additional life science assets. |
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 has 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:
● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; | |
● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); | |
● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and | |
● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. |
23 |
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 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 $2,810,551 and cash used in operating activities of $2,065,030 for the three months ended March 31, 2021. As of March 31, 2021, the Company had a working capital surplus of $229,297, and accumulated deficit of $39,636,185. 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 March 31, 2021, our accumulated deficit is $39,636,185. 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
ResultsComparison of Operations
Three Months Ended September 30, 2013 ComparedMarch 31, 2021 and 2020
Revenues
Our total revenue was $73,952 and $0 for the three months ended March 31, 2021 and 2020, respectively. The increase in revenue is due to the Three Months Ended September 30, 2012acquisition of Somahlution, LLC and Somaceutica, LLC and the acquisition of Somahlution, Inc. on July 31, 2020 (the “Soma Acquisition”).
RevenuesDirect Costs of Revenue
Our direct costs of revenue were $30,842 and $0 for the three months ended March 31, 2021 and 2020, respectively. The increase in direct costs of revenue is due to the Soma Acquisition.
Operating Expenses
For the three months ended September 30, 2013,March 31, 2021, our total revenue decreasedoperating expenses increased to $5,065,656$2,884,503 from $ 5,709,778$471,370 for the three months ended September 30, 2012, a decline of $644,122 or 11%.March 31, 2020. The Company generates revenue from two divisions.increase was primarily due to the Soma Acquisition. The Product division of Revenues includes revenue generated from the sale of Licenses, Maintenance, Third-Party Products, and Other revenues. The Service division includes revenue generated from services rendered.
The Product division decreased to $4,133,565increase was primarily professional fees ($659,058 for the three months ended September 30, 2013 from $4,719,446March 31, 2021 compared to $0 for the three months ended September 30, 2012, a decrease of $585,881 or 12%. The primary contributing factors were decreases in License revenues of approximately $655,000, Third Party Product revenues of $350,000, increases in Maintenance revenues of approximately $490,000 and decreases in Other revenues of approximately $65,000March 31, 2020), salary expenses ($1,036,457 for the three months ended September 30, 2013March 31, 2021 compared to $0 for the three months ended September 30, 2012. This is mainly as a result of economic conditions causing an increasesame period in the sales cycles, whereby strategic customers are giving greater consideration towards the modernization/migration of their current application platform.
The Service division of revenue decreased $56,634 or 6% from $990,3332020), stock-based compensation ($367,718 for the three months ended September 30, 2012March 31, 2021 compared to $932,091$0 for the same period in 2020), and depreciation and amortization ($416,595 for the three months ended September 30, 2013, primarily as a result ofMarch 31, 2021 compared to $0 for the sale of subsidiary companies that were contributors to the Service division of revenue.same period in 2020).
24 |
Cost of Goods SoldNet Loss
For the three months ended September 30, 2013, total CostMarch 31, 2021, we had a net loss of Goods Sold decreased$2,810,551 as compared to $2,273,055 from $3,212,767$471,370 for the three months ended September 30, 2012, a cost reduction of $_939,712 or 29%.March 31, 2020.
The Company’s Cost of Goods Sold is segmented into two divisions. The first are costs related to the Product division of revenue which includes the total cost of materials. The second are the costs related to the Service division of revenue which includes; other operating expenses, depreciation & amortization expense, and personnel expenses.LIQUIDITY AND CAPITAL RESOURCES
Within the Costs of Goods Sold related to the Product division, the Company saw a $358,890 or 39% decrease from $ 922,839 for the three months ended September 30, 2012 to $_563,950 for the three months ended September 30, 2013. The primary factors contributing to the Company’s lower Costs of Goods Sold related to the Product division of revenues was a reduction of $282,639At March 31, 2021, we had $834,957 in product material costs and of $76,250 in third party product material costs for the three months ended September 30, 2013cash, compared to the three months ended September 30, 2012.
Within the Costs of Goods Sold related to the Service division, the Company had a reduction of $580,822 or 25%, in the total costs of services from $ 2,289,927 for the three months ended September 30, 2012 to $ 1,709,105 for the three months ended September 30, 2013. The primary factor contributing to the Company’s reduction in the costs of services was a decrease in the volume of services rendered and a reduction in personnel costs, depreciation and amortization costs associated with the sale of subsidiary companies. Additional personnel costs relating to Services are included in Selling Expenses and these were also reduced from the quarter ending September 30, 2012 as indicated below.
Operating Expenses
The Company’s total operating expense consists of three segments; selling, administrative and general expenses. For the three months ended September 30, 2013, total operating expenses decreased $878,493 or 21% to $3,294,910 from $4,173,403 for the three months ended September 30, 2012.
For the three months ended September 30, 2013, Selling Expenses decreased $592,531 or 23% to $ 2,033,242 from $2,625,773 for the three months ended September 30, 2012. This was primarily due to decreases in cost of materials of $13,269, personnel expense of $532,914 and in other selling expense of $81,705, coupled with a reduction in other operating income of $9,522 and a slight increase in depreciation expense of $480.
For the three months ended September 30, 2013, Administrative Expense decreased by $83,977 or 7% to $1,145,304 from $1,229,281 for the three months ended September 30, 2012. This was primarily due to a reduction in personnel costs of $55,535 coupled with an increase in other operating income of $1,116 and decreases in other administrative expense of $ 142,207 and depreciation expense of $3,812.
For the three months ended September 30, 2013, General Expense decreased $197,986 to $120,364 from $318,350 for the three months ended September 30, 2012. This was primarily due decreases of $50,011 in other operating income and in personnel expense of $16,282, and other operating expense of $231,541. Depreciation of approximately $22,000 was at the same level as for the three months ended September 2012.
Other Income (Expense)
For the three months ended September 30, 2013, net Other Expenses of $95,487 increased from net Other Income of $759,169for the three months ended September 30, 2012. This change is primarily due to a decrease in Other Income of $847,976 and an increase in net Interest Expense of $6,472 for the three months ended September 30, 2013 compared to the three months ended September 30, 2012.
Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012
Revenues
For the nine months ended September 30, 2013, our total revenue decreased $3,151,581 or 16.8% to $15,613,048 from $ 18,764,628 for the nine months ended September 30, 2012. The Company generates revenue from two divisions. The Product division of Revenues includes revenue generated from the sale of Licenses, Maintenance, Third-Party Products, and Other revenues. The Service division includes revenue generated from services rendered.
The Product division decreased $2,077,770 or 14% to $13,170,113 from $15,247,833 for the nine months ended September 30, 2012 The primary factors contributing to the decline were decreases in License revenues of $954,414, Maintenance revenues of $116,808, Third Party Product revenues of $897,551 and Other revenues of $ 108,998 compared to the nine months ended September 30, 2012. This is mainly as a result of economic conditions causing an increase in the sales cycles, whereby strategic customers are giving greater consideration towards the modernization/migration of their current application platform.
The Service division of revenue decreased $1,073,810 or 31%, from $3,516,745 for the nine months ended September 30, 2012 to $ 2,442,935 for the nine months ended September 30, 2013, primarily as a result of a reduction in service staff.
Cost of Goods Sold
For the nine months ended September 30, 2013, total Cost of Goods Sold decreased $ 2,760,159 or 26% to $ 7,690,366 from $ 10,450,525 for the nine months ended September 30, 2012.
The Company’s Cost of Goods Sold is segmented into two divisions. The first are costs related to the Product division of revenue which includes the total cost of materials. The second are the costs related to the Service division of revenue which includes; other operating expenses, depreciation & amortization expense, and personnel expenses.
Within the Costs of Goods Sold related to the Product division the Company shows a $1,095,001 or 29% reduction from $3,833,550 for the nine months ended September 30, 2012 to $2,738,549 for the nine months ended September 30, 2013. The primary factors contributing to the Company’s lower Costs of Goods Sold related to the Product division of revenues was a reduction of $863,080 in product material costs and a reduction of $231,921 in third party product material costs, for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.
Within the Costs of Goods Sold related to the Service division, the Company had a reduction of $_1,665,158 or 25% in the total costs of services from $6,616,975 for the nine months ended September 30, 2012 to $4,951,817 for the nine months ended September 30, 2013. The primary factor contributing to the Company’s reduction in the costs of services was a decrease in the volume of services rendered and a reduction in personnel costs, depreciation and amortization costs associated with the cost reduction program.
Operating Expenses
The Company’s total operating expense consist of three segments; selling, administrative and general expenses. For the nine months ended September 30, 2013, total operating expenses decreased $ 3,703,409 or 25 % to $ 10,938,080 from $14,641,489 for the nine months ended September 30, 2012.
For the nine months ended September 30, 2013, Selling Expenses decreased $3,362,859 or 34 % to $ 6,627,311 from $ 9,990,170 for the nine months ended September 30, 2012. This was primarily due to decreases in cost of materials of $ 234,736, personnel expense of $ 2,510,500 and in other selling expense of $ 663,892, coupled with a reduction in other operating income of $ 41,904 and a slight increase in depreciation expense of $ 4,365.
For the nine months ended September 30, 2013, Administrative Expense decreased by $ 17,652 or .45% to $3,922,440 from $3,940,092 for the nine months ended September 30, 2012. This was primarily due to an increase in other operating income of $ 76,593, an increase in personnel expenses of $ 211,539, increase in depreciation expense of $ 16,270 offset by a decrease in other operating expenses of $ 168,868
For the nine months ended September 30, 2013, General Expense decreased by $318,898 or 45 % to $392,329 from $711,227 for the nine months ended September 30, 2012. This was primarily due to a decrease in other operating costs of $ 211,603 and a decrease in personnel expenses of $ 67,508, an increase in other operating income of $ 159,480 with an increase in depreciation expense of $ 119,649
Other Income (Expense)
For the nine months ended September 30, 2013, net Other Income of $20,517 increased from net Other Expense of $185,996 for the nine months ended September 30, 2012. This change is primarily due to an increase in Other Income of $513,887 and a net increase in Interest Expense of $307,374 for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.
Liquidity & Capital Resources
As September 30, 2013, the Company had $ 259,614 in cash and cash equivalents, compared to $1,154,602$2,902,762 at December 31, 2012.2020. At March 31, 2021, our accumulated deficit was $39,636,185 compared to $36,825,634 at December 31, 2020. At March 31, 2021, our work capital surplus is $227,297. There is substantial doubt as to our ability to continue as a going concern.
The Company'sWe have generated minimal revenues to date and our cash flow depends onbalance 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 timelynext 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 successful market entry of its strategic offerings. The dependency accounts for revenue generated from direct customers engagements, as well as for revenue generated through the partner channel network.
Especially for strategicadditional future offerings, for paradigm shifting technologies, management's budget plan is based on a series of assumptions regarding market acceptance, readiness and pricing. While management's assumptions are based on market research and customer surveys, assumptions bear the risk of being incorrect and may result in a delay in customer projects and consequently a delayeither private or a reduction in related invoicing. In case these delays have an impact on the Company's liquidity and therefore its ability to support its operations with the necessary cash flow, the Company depends on its ability to generate cash flow from other resources, such as debt financing from related or independent resources or as equity financing from existing shareholders or through the stock market.
Since 2012, the Company has been exploring internal and external sources for financing. To date, these sources have provided necessary funds to support the working capital needs of the Company; mainly to finance the Company’s strategic offerings.public. There can be no assurances, however, that the Company will be able to obtain additional funds from these or any other sources or that such funds will be sufficient to permit the Company to implement its intended business strategy. In the event the Company is not able to secure additional funds, management will postpone any strategic investment until the financing will be sufficient. However, management believes as a result of the assets purchased and sold to date, in accordance with the above-mentioned statement, the Company will be able to provide sufficient cash flow to support its standard operations for the next 9 months.
From time to time, the Company has issued promissory notes to fund its operations. As of September 30, 2013, the Company had an aggregate of $nil.
During the nine-month period ended September 30, 2013, we raised capital by consummating the following transactions:
Subsequent Events:
On August 13, 2012, the Company entered into a note purchase and security agreement (the “Loan Agreement”) with John A. Moore, a member of the Board. Pursuant to the Loan Agreement, the Company issued a secured promissory note, dated October 26, 2012 (the “Note”), to Mr. Moore for the principal amount of $1,000,000, bearing interest at a rate of 20% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note, without any penalty for prepayment. To secure the obligations of the Company under the Note, the Company granted Mr. Moore a secured priority security interest in the Company’s Accounts Receivable and its subsidiaries located in the United States of America, as more fully described in the full text of the document.
In the future, the Company may supplement its liquidity to fund its operations or implement its business strategy through the sale of equity or debt securities or through short or long term loans. However, there can be no assurances that the Company will be successful in consummating any such financings on favorable terms, if at all.
Cash Flows
For the Nine Months Ended September 30, | ||||||||
2013 | 2012 | |||||||
Net cash provided (used in) Operating Activities | $ | 1,355,523 | $ | (2,634,297 | ) | |||
Net cash provided (used) by Discontinued | $ | $ | 63,246 | |||||
Net cash provided (used in) Investing Activities | $ | 487,309 | $ | (2,491,803 | ) | |||
Net cash provided (used in) Financing Activities | $ | (2,389,541 | ) | $ | 2,548,096 | |||
Effect of exchange rate changes on cash | $ | (348,280 | ) | $ | 6,991 | |||
Net increase (decrease) in cash and cash equivalents during the period | $ | (894,988 | ) | $ | (2,507,867 | ) | ||
Cash and cash equivalents, beginning of period | $ | 1,154,602 | $ | 3,250,821 | ||||
Cash and cash equivalents, end of period | $ | 259,614 | $ | 742,954 |
Net cash provided by operating activities for the nine month period ended September 30, 2013 was $ 1,355,523 compared to net cash used in operating activities of $2,634,397 and net cash provided by discontinued operation of $63,246 for the nine month period ended September 30, 2012, an increase of approximately $3,989,920. This change is due to the effects of a group wide cost reduction program and due to a reduction in operating Net Loss of approximately $ 2,090,934, decrease in Accounts Receivable, Prepaid Assets and other Non Current Assets of approximately $ 2,140,311, Gains on Sale of Assets of approximately $ 1,566,119, Deferred Income Taxes of approximately $ 1,477,813, shares issued in lieu of Interest and Consulting expense of approximately $ 269,288, Depreciation and Amortization of approximately $109,817, Gains from Equity Investment of approximately $ 26,751 and increase in Retirement Benefit Obligation of $ 6,538. This is offset with a write off of Goodwill of approximately $ (3,079,168). change in Inventory of approximately $ (140,929) and increase in the payment of Accounts Payable and other liabilities of approximately $ (477,522).these capital raising efforts.
Net cash provided by investing activities during the nine month period ended September 30, 2013 was $ 487,309 compared to cash used by investing activities in the comparative period ended September 30, 2012 of $ 2,491,803, increasing by approximately $ 2,797,112. The increase was due to cash provided by the Sale of Intangible Assets of approximately $ 4,146,894,and cash provided by the Sale of property plant and equipment of $ 579,206 as offset by a change in Financial Assets of approximately $ (1,928,988).
Net cash used in financing activities during the nine month period ended September 30, 2013 was $ 2,389,541 compared to net cash provided by financing activities in the comparative period ended September 30, 2012 of $ 2,548,096 decreasing by approximately $ 4,937,637 for the nine month period ended September 30, 2013. This change was due to a $ 3,483,175 reduction in capital paid-in, coupled with cash used by net borrowings from banks of $ 902,508 and payments towards related party loans of $ 2,087,437. Other borrowings provided approximately$ 1,535,482.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires managementus to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuresdisclosure of contingent assets and liabilities at the date of the financial statementsstatements. 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 couldmay 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 those estimates. The areas where criticalthese estimates were made that have significant importance to the financial statements are as follows:under different future conditions.
i. AllowanceSee 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 doubtful accounts. The company providesthe year ended December 31, 2020, included in our Annual Report on Form 10-K as filed on April 15, 2021, for potential bad debts on an account-by-account basis. Bad debts have not been significanta discussion of our critical accounting policies and our allowance has been accurate. Non-trade receivables are also scrutinized and allowed for based on expected recovery.estimates.
ii. Allocation of the price paid when acquiring subsidiaries. When the Company acquires subsidiary companies an allocation of the purchase is required. The allocation is based on management’s analysis of the value of the net assets, and is based on estimated future cash flows that each component will produce. Such components might include software, customer lists and other intangible assets that are not readily determinable. The allocation has a significant impact on the future earnings of the Company as certain assets, customer lists for example, must be amortized and charged to operations over time, while other assets, notably goodwill, does not.
iii. Impairment testing on intangibles and goodwill. As noted in more detail below, these areas involve numerous estimates as to expected cash flows, expected rates of return and other factors that are difficult to determine and are often out of the Company’s direct control.
iv. Valuation of deferred tax credits. The Company provides an allowance for tax recoveries arising from the application of losses carried forward. An allowance is provided where management has determined that it is less than likely that the loss will be applied and income taxes recovered.
Comprehensive Income (Loss)
The Company adopted FASB Codification topic (“ASC”) 220, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Comprehensive income consists of net income and other gains and losses affecting stockholder's equity that are excluded from net income, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses and minimum pension liability. Since inception, the Company’s other comprehensive income represents foreign currency translation adjustments and small net actuarial losses on pension plans.
Net Income per Common Share
FASB Codification topic (“ASC”) 260, Earnings per share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the EPS computations. Basic earnings per share amounts are based on the weighted average shares of common stock outstanding. If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Diluted net income (loss) per share on the potential exercise of the equity-based financial instruments is not presented where anti-dilutive. Accordingly, although the diluted weighted average number of common stock outstanding is disclosed on the statements of operation, the calculated net loss per share is the same for bother basic and diluted as both are based on the basic weighted average of common stock outstanding. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, financial assets, notes payable, liabilities to banks, accounts payable and accrued liabilities and other liabilities. As of the financial statement date, the Company does not hold any derivate financial instruments. Financial assets and liabilities are measured upon first recognition and reviewed at the financial statement date. Changes in fair value are recognized through profit and loss. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Currency RiskOFF-BALANCE SHEET ARRANGEMENTS
We use the US dollarhad no off-balance sheet arrangements as our reporting currency. The functional currencies of our significant foreign subsidiaries are the local currency, which includes the Euro, the British pound,March 31, 2021 and the Indian rupee. Accordingly, some assets and liabilities are incurred in those currencies and we are subject to foreign currency risks.December 31, 2020.
Fair Value MeasurementsRECENT ACCOUNTING PRONOUNCEMENTS
The Company follows FASB Codification topic (ASC”) 820, Fair Value Measurements and Disclosures, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. This new accounting standard establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurement and expands disclosures about fair value measurements required under other accounting pronouncements. It does not change existing guidance as to whether or not an instrument is carried at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.None
The Company has adopted (“ASC”) 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
Inventories
Pursuant to ASC 330 (Inventories), inventories held for sale are recognized under inventories. Inventories were measured at the lower of cost or market. Cost is determined on a first-in-first out basis, without any overhead component.
Goodwill and other Intangible Assets
Intangible assets predominately include goodwill, acquired software and capitalized software development. Intangible assets acquired in exchange for payment are reflected at acquisition costs. If the development costs can be capitalized per ASC 985-20-25, these are reflected as ascribable personnel and overhead costs.
Company created software can be intended for sale to third parties or used by the Company itself. If the conditions for capitalization are not met, the expenses are recorded with their effect on profit in the year in which they were incurred.
The Company amortizes intangible assets with a limited useful life to the estimated residual book value in accordance with ASC regulations. In addition, in special circumstances according to ASC 350-30, a recoverability test is performed and, if applicable, unscheduled amortization is considered.
The useful life of acquired software is between three and five years and three years for Company-designed software.
Intangible assets obtained as part of an acquisition which do not meet the criteria for a separate entry are identified as goodwill. Goodwill is reviewed once a year during an impairment test, whereby the appraised fair value of the invested capital of the reporting unit, is compared with the carrying (book) value of its invested capital amount (including goodwill.) Use value is generally applied in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The projected financial plan prepared by the management serves as the basis for this determination of use value and the planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are determined based on the expected growth rates of the markets in question.
If the carrying amount of the reporting unit exceeds the appraised fair value, the impairment based on use value measures the amount of loss, if any, and an unscheduled amortization expense is recorded. If the appraised value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired.
Property, Plant and Equipment
Property, plant and equipment are valued at acquisition or manufacturing costs, reduced by scheduled and, if necessary, unscheduled depreciation. Fixed assets are depreciated on a straight-line basis, prorated over their expected useful life. Scheduled depreciation is mainly based on useful lives of 3 to 10 years. Leasehold improvements are depreciated up to 40 years.
If fixed assets are sold, retired or scrapped, the profit or loss arising from the difference between the net sales proceeds and the residual book value are included under other operating earnings and expenses.
Impairment or Disposal of Long-Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC topic, 360.10. This guidance requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its’ expected cash flows or appraised value In this instance, the asset is considered to be impaired and is written down to fair value.
Revenue Recognition
License Revenues
Our license revenues consist of revenues earned from the licensing of our software products. These products are generally licensed on a perpetual basis. Pricing models have generally been based either upon the physical infrastructure, such as the number of physical desktop computers or servers, on which our software runs or on a per user basis. License revenues are recognized when the elements of revenue recognition for the licensed software are complete, generally upon electronic shipment of the software and the software key to provide full access to all functionalities for our customers. In general our invoices reflect license, service and maintenance components. In the case of multi element contracts, the revenues allocated to the software license in most cases represent the residual amount of the contract after the fair value of the other elements has been determined. Certain products of our software offering are licensed on a subscription basis.
Software Maintenance Revenues
Software maintenance revenues are recognized ratably on a pro-rata basis over the range of the contract period. Our contract periods typically range from one to five years. Vendor-specific objective evidence (“VSOE”) of fair value for software maintenance services is established by the rates charged in stand-alone sales of software maintenance contracts or the stated renewal rate for software maintenance. Customers who are party to software maintenance agreements with us are entitled to receive support, product updates and upgrades on a when-and-if-available basis.
Professional Services Revenues
Professional services include pre-project consulting, software design, customization, project management, implementation and training. Professional services are not considered essential to the functionality of our products, as these services do not alter the product capabilities and may be performed by our customers or by other vendors. Professional services engagements performed for a fixed fee, for which we are able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours incurred and estimated hours of completion. Professional services engagements that are on a time and materials basis are recognized based on hours incurred. Revenues on all other professional services engagements are recognized upon completion. Our professional services may be sold with software products or on a stand-alone basis. Vendor Specific Objective Evidence (VSOE) of fair value for professional services is based upon the standard rates we charge for such services when sold separately.
Foreign Currency Translation
The functional currency of the Company is US dollars. For financial reporting purposes, the financial statements of GROUP were translated into US dollars. Assets and liabilities were translated at the exchange rates at the balance sheet dates and revenue and expenses were translated at the average exchange rates and stockholders’ equity was translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
Other Provisions
According to FASB ASC 450 Contingencies, provisions are made whenever there is a current obligation to third parties resulting from a past event which is likely in the future to lead to an outflow of resources and of which the amount can be reliably estimated. Provisions not already resulting in an outflow of resources in the following year are recognized at their discounted settlement amount on the financial statement date. The discount taken is based on market interest rates. The settlement amount also includes the expected cost increases. Provisions are not set off against contribution claims. If the amended estimate leads to a reduction of the obligatory amount, the provision is proportionally reversed and the earnings are recognized in other operating earnings.
Deferred Taxes
Income taxes are provided in accordance with FASB Codification topic 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carry forwards.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Recent Accounting Pronouncements
In July 2012, the FASB issued ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. With the objective of reducing the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-loved asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having the likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed beginning April 1, 2013. Adoption of this new standard is not expected to have significant impact to the Company’s financial statement.
Principles of Consolidation and Reverse Acquisition
As previously disclosed, the Company originally exchanged a total of 5,405,411 shares of common stock in exchange for 50.1% of the outstanding common shares of GROUP (and retained its 50.1% shareholding by acquiring an additional 883,765 shares of GROUP on February 27, 2012). Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP became the accounting acquirer and was deemed to have retroactively adopted the capital structure of the Corporation. Accordingly, the accompanying consolidated financial statements reflect the historical consolidated financial statements of GROUP for all periods presented, and do not include the historical financial statements of the Company. All costs associated with the reverse merger transaction were expensed as incurred. Those expenses totaled approximately $300,000 and were included in professional fees in administrative expenses.
The Company has based its financial reporting for the consolidation with GROUP in accordance with FASB Accounting Standard Codification (ASC) 805-40 as it relates to reverse acquisitions. Goodwill has been measured as the excess of the fair value of the consideration effectively transferred by the Company, the acquiree, for financial reporting purposes, over the net amount of the Company’s recognized identifiable assets and liabilities.
We have recorded the acquired assets and liabilities of GBSX on the acquisition date of January 6, 2011, at their fair value and the operations of GBSX have been included in the consolidated financial statements since the acquisition date.
The assets and liabilities of GROUP, the acquirer for financial reporting purposes, are measured and recognized in the consolidated financial statements at their precombination carrying amounts in accordance with ASC 805-40-45-2(a). Therefore, in a reverse acquisition, the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of GROUP’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.
.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
ItemITEM 3. Quantitative and Qualitative Disclosures about Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
ItemITEM 4. Controls and Procedures.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2013, our management, withThe Securities and Exchange Commission defines the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), evaluated the effectiveness of our disclosureterm “disclosure controls and procedures pursuantprocedures” to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, our disclosuremean a company’s controls and other procedures were not effective in ensuringof an issuer that theare designed to ensure that information required to be disclosed in the reports that we fileit files or submitsubmits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuringforms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such material 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 ourthe issuer’s management, including our Chief Executive Officerits chief executive and our Chief Financial Officer,chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.
25 |
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 Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Interim Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Interim Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:
1. | The Company’s lack of independent directors; | |
2. | Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; | |
3. | Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting; | |
4. | Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes. |
To remediate our internal control weaknesses, management intends to implement the following measures:
● | The Company will add a number of independent directors to the board and establish an Audit Committee comprised of the independent directors. | |
● | The Company has added sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements. To this end, effective September 1, 2020, the Company hired Mr. Bruce Harmon to serve as the Company’s Chief Financial Officer as well as other accounting personnel. | |
● | The Company has hired staff technically proficient at applying U.S. GAAP to financial transactions and reporting. | |
● | The Company will develop and maintain adequate written accounting policies and procedures. |
Additional hiring is contingent upon 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 Overover Financial Reporting
As previously reportedrequired by the Company on a Form 8-K filed with the Commission on July 10, 2013, on July 10, 2013, the Board of DirectorsRule 13a-15(d) of the Company reappointed Joerg Ott as the Chief Executive Officer (Principal Executive Officer)Exchange Act, our management, including our principal executive officer, James Sapirstein, and our principal financial officer, Bruce Harmon, conducted an evaluation of the Company, effective immediately. Mr. Ott replaced Mr. Gary D. MacDonald who had been serving as the Company’s Interim Chief Executive Officer since July 11, 2012.
Also as previously reported by the Company on a Form 8-K filed with the Commission on August 2, 2013, on August 2, 2013, Gary D. MacDonald resigned as member of the Board of Directors of the Company and as, Managing Director of GBS-UK. From March 1, 2012 to the date of his resignation, Mr. MacDonald also served as member of the Board’ Audit Committee. Mr. MacDonald’s resignation was not due to any disagreement with the Company or the Board.
Other than the foregoing, during the quarter ended September 30, 2013, there were no changes in our internal control over financial reporting to determine whether any changes occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that there were changes during the quarter ended March 31, 2021. The Company appointed Mr. Harmon as chief financial officer and additional accounting staff to facilitate increased internal controls.
Limitations on the Effectiveness of Controls
The Company’s management, including the Interim Chief Executive Officer and Chief Financial Officer, 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.
26 |
PART II-OTHERII. OTHER INFORMATION
ItemITEM 1. Legal Proceedings.LEGAL PROCEEDINGS.
On October 23, 2013, the Company filed a lawsuit (GBS Enterprises, Inc. v. Reliance Globalcom, Inc.)From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the Superior Courtordinary course of the Statebusiness. 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. We are currently not aware of California, County of San Francisco, seekingany such legal proceedings or claims that we believe will have a declaratory judgment that the Company has no obligation to Reliance Globalcom Inc. (“Reliance”) for any claimsmaterial adverse effect on our business, financial condition or liabilities in connection with a Master Services Agreement (“MSA”) executed by Reliance and IDC Global Inc. (“IDC”) a then wholly owned subsidiary of the Company in March 2010. On February 1, 2013, GBS sold IDC to Global Telecom & Technology Inc. (“GTT”). Pursuant to the governing Stock Purchase Agreement (SPA), GTT gained all right, title and interest in 100% of all of IDC’s stock, all of which had been owned by GBS. Pursuant to the Stock Purchase Agreement, GTT withheld $528,777.93 of the purchase price from payment to GBS to cover potential exposure due to the Identified Dispute described herein between IDC and Reliance. The Stock Purchase Agreement requires that, within three days of notice to GTT that the Identified Dispute described herein has been resolved, GTT will release the $528,777.93 to GBS. The Company is seeking declaratory relief from the Court stating the Company is not liable to Reliance and that GTT may release the $528,777.93 in funds owed to the Company. There were no material developments in this case since the filing of the lawsuit.operating results.
The Company intends to vigorously defend its interests in this matter.
Item 1A. Risk Factors.
The disclosure required under this item is not requiredFor information regarding the various risk factors that may affect our business, please refer to our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on April 15, 2021, which may be reported by small reporting companies; as such term is defined by Item 503(e) of Regulation S-K.accessed via EDGAR through the Internet at www.sec.gov.
ItemITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
NoneDuring the three-month period ended March 31, 2021, 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, except as follows:
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.
Item 3. Defaults Upon Senior Securities.None.
NoneITEM 4.MINE SAFETY DISCLOSURES.
Not applicable.
ItemITEM 5. Other Information.
None
On April 16, 2021, the Board of Directors of the Company formed the following committees:
Audit Committee: Terry Brostowin (Chair), Dr. Vithal Dhaduk, Dr. William Hearl, James Sapirstein (Observer) and Bruce Harmon (Observer)
Compensation Committee: Julie Kampf (Chair), Dr. Vithal Dhaduk, Terry Brostowin and James Sapirstein (Observer)
Nomination and Board Governance Committee: Dr. William Hearl (Chair), Julie Kampf and James Sapirstein (Observer)
The following exhibits are filed as part of this report or incorporated by reference:
27 |
(1) | Filed |
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) | ||
Date: May 6, 2021 | ||
By: | /s/ James Sapirstein | |
Interim Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | ||
By: | /s/ | |
Bruce Harmon | ||
Chief Financial Officer | ||
(Principal |