UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 20131)
¨ TRANSITION☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
555 Heritage Drive, Suite 205, Jupiter, Florida33458 | ||
| ||
(Address of principal executive offices) |
(561)935-9955 |
(Registrant’s telephone number) |
(404) 891-1711
(Registrant’s telephone number, including area code)
With a copy to:
Philip Magri, Esq.
The Magri Law Firm, PLLC
2642 NE 9th Avenue
Fort Lauderdale, FL 33334
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 ☒ No ☐
Yes 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 ☒ No ☐
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 |
☒ | |||
Non-accelerated filer | ☒ | Smaller reporting company | |
☒ | Emerging growth company |
Indicate by checkmarkcheck mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Yes ¨ No x
APPLICABLE ONLY TO CORPORATE REGISTRANTS
IndicateIf an emerging growth company, indicate by check mark if the number of shares outstanding of eachregistrant 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 registrant’s classes of common stock, asExchange Act. ☒
Securities registered pursuant to Section 12(b) of the latest practicable date.Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Not applicable. |
As of May 15, 2014 , there were 31,904,291November 22, 2021 the registrant had shares of common stock ($0.001 par value $0.001 per share, of the Registrant issued andvalue) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
EXPLANATORY NOTE
GBS Enterprises Incorporated, a Nevada corporation (the “Company”), is filingReason for this Amendment No. 1 (this “Amendment No. 1”) to its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 (the “Form 10-Q”), originally filed with the Securities and Exchange Commission on November 14, 2013 (the “Original Filing”), for the following purposes:
Other than the foregoing, no additional material changes have been made to the Company’s Form 10-Q. This Amendment No. 1 to the Quarterly Report on Form 10-Q speaksof Marizyme, Inc. (the “Company”) for the three and six months ended June 30, 2021 (the “Original Report”), originally filed on August 23, 2021 (the “Original Filing”) with the U.S. Securities and Exchange Commission (the “SEC”)is to restate the Company’s unaudited condensed consolidated financial statements as of and for the date of the Original Filing does not reflect events that may have occurred subsequentthree and six months ended June 30, 2021 and 2020 (the “Consolidated Financial Statements), and related note disclosure, as described in Notes 5 and 12 to the Original Filing dateConsolidated Financial Statements. The amendment relates to the change in the valuation of assets purchased in the acquisition of Somahlution, LLC., Somahlution, Inc., and doesSomaceutica, LLC (collectively, “Somah”) in July 2020. The accounting for the Somah acquisition was not modify or updatereviewed in any way disclosures madecompliance with SEC Rules by the external audit firm in the Original Filing. In addition, in Note 13 to the Consolidated Financial Statements the Company disclosed a subsequent event which occurred on November 1, 2021. Lastly, in this Amendment No. 1, the Company has amended language in the discussion of the Controls and Procedures; these changes were for accuracy only and did not change any conclusions reached in the Original Repot.
Description of Restatement
As reported in the Original Report, the Company had not fully completed the accounting for the July 2020 acquisition of Somah. The certificationsdelay in the accounting was due to the valuation of certain assets purchased with the transaction, specifically valuation of the contingent consideration related to the future royalty payments, performance warrants and pediatric voucher warrants, future rare pediatric voucher sales, and liquidation preference.Subsequent to the Company’s Original Filing on August 23, 2021, the valuation of the transaction was finalized. See “Note 5 – Acquisitions” and “Note 12 – Restatement” for the detailed break-down of the changes resulted from the finalized valuation of the transaction.
The Company has also updated the report for subsequent events. On November 1, 2021, the Company entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to Section 302 and Section 906which the Company will acquire My Health Logic Inc., a wholly owned subsidiary of HLII. See “Note 13 – Subsequent Events” for the Sarbanes-Oxley Act of 2002, filed as Exhibits 31 and 32, respectively, todetails on the transaction.
Items Amended in this Form 10-Q/A
This Form 10-Q/A presents the Original Filing,Report, amended and restated with modifications as necessary to reflect the restatements. The following items have been re-executedamended to reflect the restatement:
Part I – Item 1 – Financial Statements
Part I – Item 2 - Management’s Discussion and re-filedAnalysis of Financial Condition and Results of Operations
Part I – Item 4 - Controls and Procedures
In addition, the Company’s Interim Chief Executive Officer has provided new certification dated as of the date of this Amendment No. 1.filing in connection with this Form 10-Q/A.
In addition, an independent public accounting firm has reviewed the 10-Q/A in accordance with professional standards and in compliance with SEC Rules.
Except as described above, this Form 10-Q/A does not amend, update or change any other items or disclosures in the Original Report and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Form 10-Q/A speaks only as of the Original Report was filed, and we have not undertaken herein to amend, supplement or update any information contained in the Original Report to give effect to any subsequent events. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings.
2 |
MARIZYME, INC.
FORM 10-Q
TABLE OF CONTENTS
3 |
GBS Enterprises IncorporatedPART I – FINANCIAL INFORMATION
Interim
TABLE OF CONTENTS
4 |
ITEM 1. FINANCIAL STATEMENTS
MARIZYME, INC.
and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2013 (Unaudited) and December 31, 2012 (Audited and Restated)(Restated)
June 30, 2021 | December 31, 2020 | |||||||
Restatement - Notes 5 and 12 | Unaudited and Restated | |||||||
ASSETS: | ||||||||
Cash | $ | 2,104 | $ | 2,902,762 | ||||
Accounts receivable | 119,271 | 40,585 | ||||||
Prepaid expense | 28,356 | 106,390 | ||||||
Inventory | 16,740 | 56,340 | ||||||
Total current assets | 166,471 | 3,106,077 | ||||||
Fixed assets, net | 2,698 | 7,122 | ||||||
Operating lease right-of-use assets, net | 1,228,648 | 1,317,830 | ||||||
Intangible assets, net | 46,493,897 | 42,278,211 | ||||||
Prepaid royalties, non-current | 340,969 | 344,321 | ||||||
Deposits | 30,000 | 30,000 | ||||||
Goodwill | 5,416,000 | - | ||||||
Total non-current assets | 53,512,212 | 43,977,484 | ||||||
Total assets | $ | 53,678,683 | $ | 47,083,561 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
Accounts payable and accrued expenses | $ | 1,209,110 | $ | 478,103 | ||||
Due to related party | 265,000 | - | ||||||
Operating lease obligations, current portion | 243,070 | 243,292 | ||||||
Total current liabilities | 1,717,180 | 721,395 | ||||||
Operating lease obligations, non-current portion | 1,001,492 | 1,074,538 | ||||||
Derivative liability | 24,982 | - | ||||||
Warrant liability | 49,963 | - | ||||||
Convertible promissory note, net of debt discount | 3,491 | - | ||||||
Contingent liabilities | 9,648,000 | - | ||||||
Total non-current liabilities | 10,727,928 | 1,074,538 | ||||||
Total liabilities | 12,445,108 | 1,795,933 | ||||||
Commitments and contingencies (see Note 6) | - | - | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | - | - | ||||||
Common stock, par value $ , shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 35,928 | 35,928 | ||||||
Additional paid in-capital | 81,874,076 | 82,077,334 | ||||||
Accumulated deficit | (40,676,429 | ) | (36,825,634 | ) | ||||
Total stockholders’ equity | 41,233,575 | 45,287,628 | ||||||
Total liabilities and stockholders’ equity | $ | 53,678,683 | $ | 47,083,561 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
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 |
Subsequent events - Note 25MARIZYME, INC.
GBS Enterprises Incorporatedand Subsidiaries
Interim
Condensed Consolidated Statements of Operations
(Unaudited and Comprehensive Income/(Loss)Restated)
For the three and nine month periods ended September 30, 2013 and September 30, 2012 (Restated)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Restatement - Notes 5 and 12 | Restated | Restated | ||||||||||||||
Revenue | $ | 160,785 | $ | - | $ | 234,737 | $ | - | ||||||||
Operating expenses: | ||||||||||||||||
Direct costs of revenue | 119,221 | - | 150,063 | - | ||||||||||||
Professional fees | 592,781 | 203,992 | 1,251,839 | 438,835 | ||||||||||||
Salary expenses | 824,074 | - | 1,860,531 | - | ||||||||||||
Stock-based compensation | 194,657 | 221,058 | 562,375 | 442,116 | ||||||||||||
Other general and administrative expenses | 342,791 | 9,861 | 534,535 | 25,330 | ||||||||||||
Total operating expenses | 2,073,524 | 434,911 | 4,359,343 | 906,281 | ||||||||||||
Total operating loss | (1,912,739 | ) | (434,911 | ) | (4,124,606 | ) | (906,281 | ) | ||||||||
Other expense | ||||||||||||||||
Interest expense | (4,189 | ) | - | (4,189 | ) | - | ||||||||||
Change in fair value of contingent liabilities | 278,000 | - | 278,000 | - | ||||||||||||
Total other expense | 273,811 | - | 273,811 | - | ||||||||||||
Net loss | $ | (1,638,928 | ) | $ | (434,911 | ) | $ | (3,850,795 | ) | $ | (906,281 | ) | ||||
Loss per share – basic and diluted | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.05 | ) | ||||
Weighted average number of shares of common stock outstanding – basic and diluted | 35,928,188 | 20,027,062 | 35,928,188 | 19,961,309 |
(Unaudited)The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
MARIZYME, INC.
and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited and Restated)
1 | ||||||||||||||||||||||||
Additional Paid-in | Treasury | Accumulated | ||||||||||||||||||||||
Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
Restatement - Notes 5 and 12 | Restated | Restated | ||||||||||||||||||||||
Balance, December 31, 2020 | 35,928,188 | $ | 35,928 | $ | 82,077,334 | - | $ | (36,825,634 | ) | $ | 45,287,628 | |||||||||||||
Common stock issued for services | - | |||||||||||||||||||||||
Common stock issued for services, shares | ||||||||||||||||||||||||
Common shares issued in lieu of AP | ||||||||||||||||||||||||
Common shares issued in lieu of AP, shares | ||||||||||||||||||||||||
Exercise of options | ||||||||||||||||||||||||
Exercise of options, shares | ||||||||||||||||||||||||
Adjustment of warrants value in connection with finalizing the business combination | ||||||||||||||||||||||||
Stock-based compensation | - | - | 334,385 | - | 334,385 | |||||||||||||||||||
Net loss - restated | - | - | - | (2,211,867 | ) | (2,211,867 | ) | |||||||||||||||||
Balance, March 31, 2021 | 35,928,188 | $ | 35,928 | $ | 82,411,719 | - | $ | (39,037,501 | ) | $ | 43,410,146 | |||||||||||||
Stock-based compensation | - | - | 194,657 | - | - | 194,657 | ||||||||||||||||||
Adjustment of warrants value in connection with finalizing the business combination | - | - | (732,300 | ) | - | (732,300 | ) | |||||||||||||||||
Net loss - restated | - | - | - | (1,638,928 | ) | (1,638,928 | ) | |||||||||||||||||
Balance, June 30, 2021 | 35,928,188 | $ | 35,928 | $ | 81,874,076 | - | $ | (40,676,429 | ) | $ | 41,233,575 |
Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
Additional Paid-in | Treasury | Accumulated | ||||||||||||||||||||||
Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
Balance, December 31, 2019 | 19,858,939 | $ | 19,859 | $ | 59,319,594 | $ | (16,000 | ) | $ | (30,980,581 | ) | $ | 28,342,872 | |||||||||||
Common stock issued for services | 125,000 | 125 | 124,875 | - | - | 125,000 | ||||||||||||||||||
Stock-based compensation | - | - | 221,058 | - | - | 221,058 | ||||||||||||||||||
Net loss | - | - | - | - | (471,370 | ) | (471,370 | ) | ||||||||||||||||
Balance, March 31, 2020 | 19,983,939 | $ | 19,984 | $ | 59,665,527 | $ | (16,000 | ) | $ | (31,451,951 | ) | $ | 28,217,560 | |||||||||||
Common shares issued in lieu of AP | 195,000 | 195 | 184,665 | - | - | 184,860 | ||||||||||||||||||
Exercise of options | 5,000 | 5 | 5,045 | - | 5,050 | |||||||||||||||||||
Stock-based compensation | - | - | 221,057 | - | - | 221,057 | ||||||||||||||||||
Net loss | - | - | - | - | (434,911 | ) | (434,911 | ) | ||||||||||||||||
Balance, June 30, 2020 | 20,183,939 | $ | 20,184 | $ | 60,076,294 | $ | (16,000 | ) | $ | (31,886,862 | ) | $ | 28,193,616 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7 |
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 | ) |
GBS Enterprises Incorporated
InterimMARIZYME, INC.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2013(Unaudited and September 30, 2012 (Restated)Restated)
(Unaudited)
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Restatement - Notes 5 and 12 | Restated | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,850,795 | ) | $ | (906,281 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation and amortization | (186,216 | ) | - | |||||
Stock-based compensation | 529,042 | 567,115 | ||||||
Stock-based compensation – restricted common stock | 33,333 | - | ||||||
Change in fair value of contingent liabilities | (278,000 | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (78,686 | ) | - | |||||
Prepaid expense | 44,701 | - | ||||||
Inventory | 39,600 | - | ||||||
Accounts payable and accrued expenses | 506,418 | 152,620 | ||||||
Due to related party | 265,000 | - | ||||||
Net cash used in operating activities | (2,975,603 | ) | (186,546 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from short term loan | - | 1,000 | ||||||
Proceeds from convertible promissory note | 74,945 | - | ||||||
Paid-in capital | - | 189,910 | ||||||
Net cash provided by financing activities | 74,945 | 190,910 | ||||||
Net (decrease)/ increase in cash | (2,900,658 | ) | 4,364 | |||||
Cash at beginning of period | 2,902,762 | 90 | ||||||
Cash at end of period | $ | 2,104 | $ | 4,454 | ||||
Non-cash investing and financing activities: | ||||||||
Derivative liabilities | $ | 24,982 | $ | - | ||||
Warrant liabilities | $ | 49,963 | $ | - | ||||
Contingent liabilities | $ | 9,648,000 | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8 |
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 |
Notes to the Interim Financial StatementsMARIZYME, INC.
SeptemberAND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 20132021
GBS Enterprises Incorporated(Unaudited and Restated)
Unaudited
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Note 1 COMPANY AND BACKGROUND
Overview
GBS Enterprises Incorporated,
Marizyme, Inc., 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 emailformerly known 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 (the “Company” or “Marizyme”), conducted its primary business through its majority owned subsidiary, GBS Software AG (“GROUP”), a German-based public-company.
Unaudited
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 September 5, 2018, the Company then distributed the X-Assets shares to its stockholders on a 1 for 1 basis.
We, through our subsidiaries, have executed our strategy
Beginning after the X-Assets share distribution, Marizyme refocused on the life sciences and began to seek technologies to acquire.
On September 12, 2018, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporation to acquire companies, which have developed softwareall rights, title, and specialized services for the Lotus Notes and Domino market. This growth by acquisition strategy has resultedinterest 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 History
We were incorporated in Nevada on March 20, 2007 as SWAV Enterprises Ltd. (“SWAV”). SWAV was an importer and wholesaler of Chinese manufactured goods.
On April 26, 2010, SWAV purchased certainKrillase technology assets of Lotus Holdings Ltd. (“Lotus”) in exchange for 2,265,240 million 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 common stock from the selling shareholders 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
Unaudited
On September 6, 2010, SWAV’s name was changed to GBS Enterprises Incorporated. On October 14, 2010, the Company’s trading symbol on the OTC Bulletin Board was changed from SWAV to GBSX.
About Lotus Holdings, Ltd.
LotusCommon Stock. Krillase is a holding company which was formed under the laws of Gibraltar for the purpose of financing mergernaturally occurring enzyme that acts to break protein bonds and acquisition projects, specificallyhas applications in the niche market of small or microcap companies listed on the Frankfurt Stock Exchange with complex shareholder structuresdental care, wound healing, and whose stock is trading below one Euro (€1.00) per share.thrombosis.
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”).
On February 25, 2010, a group of shareholders (the “GROUP Major Shareholders”) of GROUP Business Software AG, a German public company trading 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 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”).
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 acquisition
On November 1, 2010, 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 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.
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 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 Acquisition
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, 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 trading on the date 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
Unaudited
On February 1, 2013, GBS entered into a Stock Purchase Agreement, dated February 1, 2013 (the “Agreement”), with 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”), 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.
On September 27, 2011, the Company entered into an acquisition agreement with SD Holdings, Ltd. (“SYN”), a Mauritius corporation, 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 stock was determined to be $2.05 per share, representing the market value at the end of trading on the date of the agreement.
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.
GBS India Private Limited
Pursuant to an existing transfer agreement, effective July 1, 2012,2019, the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on March 31, 2020 and May 29, 2020, with SYN for $1,877,232, which transferred all assets, including intellectual property rights,Somahlution, LLC, Somahlution, Inc., 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. operatingSomaceutica, LLC, companies duly organized under the laws of Delaware (collectively, “Somah”) to acquire all of the Netherlandsassets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a 100% subsidiaryone-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 GROUP declared its endthis amendment, it was agreed that, as part of business May 31, 2012, registeredthe Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the commercial registerEU.
On September 25, 2020, the Company formed Somaceutica, Inc., a Florida corporation.
On September 25, 2020, the Company formed Marizyme Sciences, Inc., a Florida corporation.
The Company’s common stock, $ par value per share (the “Common Stock”), is currently quoted on the OTC Markets QB Tier under the ticker symbol “MRZM.”
Change in Management and the Board of Directors
On January 16, 2021, Roger Schaller was appointed as the Company Executive Vice President of Commercial Operations.
On January 29, 2021, Amy Chandler was promoted to Executive Vice President of Regulatory and Quality Affairs.
On February 3, 2021, Julie Kampf was appointed as a Director on the Company’s board of directors.
On February 22, 2021, Dr. Vithal Dhaduk was appointed as a Director on the Company’s board of directors.
On March 18, 2021, Dr. Neil Campbell resigned as Chief Executive Officer, President and Director.
On March 19, 2021, James Sapirstein was appointed as Interim Chief Executive Officer.
On April 2, 2021, Dr. Satish Chandran was terminated as Chief Technology Officer.
On June 22, 2012. Following24, 2021, James Saperstein, our Interim Chief Executive Officer resigned, and Vithal Dhaduk was appointed as our Chairman of the local procedures the company has been dissolved from the registerCompany’s board of directors.
On July 6, 2021, Vithal Dhaduk was appointed as per April 5, 2013, registered April 16, 2013.Interim Chief Executive Officer.
On July 12, 2021, Bruce Harmon resigned as Interim Chief Financial Officer.
9 |
Notes to the Interim Financial Statements
September 30, 2013NOTE 2 - GOING CONCERN
GBS Enterprises Incorporated
Unaudited
Note 2 INTERIM REPORTING
The accompanying unaudited interimcondensed consolidated financial statements 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 $3,850,795 and cash used in operating activities of $2,975,603 for the six months ended June 30, 2021 and an accumulated deficit of $40,676,429at June 30, 2021. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. 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 completeAmerica (“U.S. GAAP”).
The unaudited condensed consolidated financial statements. However, except as disclosed herein, they include all adjustments, which are, instatements of the opinion of management, necessary to present fairly the financial position, results of operations and cash flowsCompany for the interimthree and six month periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policiesended June 30, 2021 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 POLICIES
The financial statements 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 morerequirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2020 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021. These financial statements should be read in conjunction with that report.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries, Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”) and Marizyme Sciences, Inc. (“Marizyme Sciences”). All significant intercompany balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the allocation of the purchase price in a business combination to the underlying assets and liabilities, recoverability of long-term assets including intangible assets and goodwill, amortization expense, valuation of warrants, stock-based compensation, warrant liability, derivative liability, contingent liabilities and deferred tax valuations.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805 — “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations.
Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.
10 |
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At June 30, 2021 and December 31, 2020, the Company had $2,104 and $2,902,762 in cash, respectively, and 0 cash equivalents.
Reclassifications
Certain amounts in the prior year’s unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses, total assets, or stockholders’ equity as previously reported. The reclassifications were for the Statement of Operation which combined its expenses into two categories whereas, for comparison purposes for the six months ended June 30, 2021 to June 30, 2020, professional fees and stock-based compensation was segregated.
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to non-collectability. The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical experience, and other risk considerations. The Company did not have an allowance at June 30, 2021 or December 31, 2020. The Company did not record any bad debt expense in each of the three and six months ended June 30, 2021 and 2020.
Inventory
Inventory consisted of primarily finished goods and is valued at the lower of cost or net realizable value. Inventory is held in a third-party warehouse in foreign countries. Cost is determined using the FIFO method. The Company decreases the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value, based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. The Company has determined that 0 inventory reserve was necessary as of June 30, 2021 and December 31, 2020.
Fair Value of Financial Instruments
The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
● | Level 1 – Quoted prices for identical assets or liabilities in active markets. | |
● | Level 2 – Quoted prices for identical or similar assets and liabilities in markets that are not active; or other model-derived valuations whose inputs are directly or indirectly observable or whose significant value drivers are observable. | |
● | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable and for which assumptions are used based on management estimates. |
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and amounts due to related parties approximate fair value due to the short-term nature of these instruments.
The fair value of lease obligations is determined using discounted cash flows based on the expected amounts and timing of the cash flows discounted using a market rate of interest adjusted for appropriate credit risk.
The contingent liabilities consist of present values of royalty payments, performance warrants and pediatric voucher warrants, future rare pediatric voucher sales, and liquidation preference. Management measured these contingencies in accordance with Level 3 of the fair value hierarchy.
i. | The performance warrants and pediatric vouchers warrants liabilities were valued using a Monte Carlo simulation model utilizing the following weighted average assumptions: risk free rate of 1.12%, expected volatility of 72.66%, expected dividend of $0, and expected life of 6.46 years. In the six months ended June 30, 2021, changes in these assumptions resulted in $1,296,000decrease in fair value of these liabilities.At June 30, 2021 the fair market value of performance warrants and pediatric vouchers warrants liabilities was $3,473,000. |
ii | The present value of royalty payments was measured using the scenario-based methodology. In assessing the value attributed to the royalty payments, the estimated future cash flows were discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the revenue from net sales of the product. The cash flows derived from the Company’s fifteen-year strategic plan are based on managements’ expectations of market growth, industry reports and trends, and past performances. These projections are inherently uncertain due to the evolving impact of the COVID-19 pandemic. The discounted cash flow model included projections surrounding revenue, discount rates, and growth rates. The discount rates used to calculate the present value of royalty payments reflect specific risks of the Company and market conditions and the mid-range was estimated at 20.8%. In the six months ended June 30, 2021, changes in these assumptions resulted in $1,016,000 increase in fair value of these liabilities. At June 30, 2021, the fair market value of royalty payments was $3,202,000. |
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iii. | Rare pediatric voucher sales liability was valued based on the scenario-based methodology where the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset – 20.8%. In the six months ended June 30, 2021, changes in these assumptions resulted in $2,000 increase in fair value of this liability. At June 30, 2021, the fair market value of the rare pediatric voucher sales liability was $1,150,000. | |
iv. | The present value of liquidation preference liability, included in the contingent consideration, was determined using the Black-Scholes option pricing method and represents the fair value of the maximum payment amount according to the Agreement. The following assumptions were used in the Black-Scholes option pricing model: risk free rate of 0.21%, expected volatility of 78.93%, expected dividend of $0, and expected life of 5 years. No changes to the fair value of liquidation preference liability were recorded in the period ended June 30, 2021. At June 30, 2021, the fair market value of the liquidation preference was $1,823,000. |
The Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
The following table summarizes our financial instruments that are measured at fair value on a recurring basis as of June 30, 2021:
SCHEDULE OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
Fair Value Hierarchy | ||||||||||||||||
June 30, 2021 | Level 1 | Level 2 | Level 3 | December 31, 2020 | ||||||||||||
Liabilities | ||||||||||||||||
Warrant liability | $ | - | $ | - | $ | 49,963 | $ | - | ||||||||
Derivative liability | - | - | 24,982 | - | ||||||||||||
Contingent liability | - | - | 9,648,000 | - | ||||||||||||
Total | $ | - | $ | - | $ | 9,722,945 | $ | - |
The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs:
SCHEDULE OF RECONCILIATION OF ALL LIABILITIES MEASURED AT FAIR VALUE USING LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS
June 30, 2021 | Contingent Liabilities | |||
Balance at December 31, 2020 | - | |||
Initial valuation of contingent liabilities assumed on Somah acquisition1 | $ | 9,926,000 | ||
Change in fair value | (278,000 | ) | ||
Balance at June 30, 2021 | $ | 9,648,000 |
1 | Measured as at Somah acquisition date of July 31, 2020, see Note 5. |
Fixed Assets
Fixed assets are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life. Upon the sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in consolidated statements of operations.
SCHEDULE OF USEFUL LIFE OF FIXED ASSETS
Classification | Estimated Useful Lives | |
Equipment | 5 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, the Company will review the carrying value of patents and other intangible assets for indicators of impairment at least annually and if it determines that the carrying value is impaired, it values the patent and any other intangible assets at fair value. As of June 30, 2021, $122,746 has been capitalized for patents which have not been amortized.
Impairment of Long-lived Assets
The Company follows ASC 360 for its long-lived assets. The Company’s long-lived assets, such as intellectual property, are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company determined that there were 0 impairments of long-lived assets at June 30, 2021 and December 31, 2020.
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Revenue Recognition
We recognize revenue under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
Step 1: | Identify the contract with the customer |
Step 2: | Identify the performance obligations in the contract |
Step 3: | Determine the transaction price |
Step 4: | Allocate the transaction price to the performance obligations in the contract |
Step 5: | Recognize revenue when the company satisfies a performance obligation |
We have identified one performance obligation which is related to our DuraGraft product sales for our Distribution Partner channel, we recognize revenue for product sales at the time of delivery of the product to our Distribution Partner (customer). The customer is invoiced, and Payment Terms are Net 30. As our products have an expiration date, if a product expires before use, we will replace the product on the shelf at no charge. Revenue disaggregation for three months ended June 30, 2021 amounted to $2,586 in Spain, $1,920 in Singapore, and $17,313 in Switzerland and for the six months ended June 30, 2021 amounted to $80,180 in Spain, $8,650 in Singapore, $25,969 in Switzerland, $17,376 in Philippines, and $28,610 in Austria.
Direct Cost of Revenue
Cost of sales includes the actual cost of merchandise sold; the cost of transportation of merchandise from our third-party vendor to our distributer.
The Company computes basic and diluted income (loss) per share amounts pursuant to ASC 260 of the FASB Accounting Standards Codification. Basic loss per share is computed by dividing net loss available to common stockholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share is computed by dividing net loss available to common stockholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. The Company has no liability for uncertain tax positions as of June 30, 2021 and December 31, 2020. Interest and penalties, if any, related to unrecognized tax benefits would be recognized as interest expense. The Company does not have any accrued interest or penalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the three and six months ended June 30, 2021 and 2020.
Segment Information
In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the Company is required to report financial and descriptive information about its reportable operating segments. The Company has 1 operating segment as of June 30, 2021 and December 31, 2020.
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Value of Warrants Issued with Debt
The Company estimates the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option pricing model, or, if the terms are more complex - the Monte Carlo option lattice model. We record the amounts as interest expense or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions as deemed appropriate. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.
Derivative Liabilities
The Company records the estimated fair value of the warrants as of the date of issuance and at each balance sheet reporting date thereafter. As of June 30, 2021, none of the convertible notes or warrants that resulted in the recording of the related derivative liabilities had a change in estimated value as they were granted at the end of May 2021 and any change at June 30, 2021 was deemed immaterial.
Effect of Recent Accounting Pronouncements
Recently Issued Accounting Standards Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its consolidated financial statements.
Concentration of Credit Risk
The Company places its temporary cash investments with financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company has amounts over insured limits.
Amounts on deposit may at times exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts.
Customer Concentrations
For the three and six months ended June 30, 2021, four customers/distributors selling to end customers made up 100% of the revenues. As of June 30, 2021, three customers/distributors made up 100% of accounts receivable.
Research and Development
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:
SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITY
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
Right-of-use asset | $ | 1,228,648 | $ | 1,317,830 | ||||
Total lease liability | $ | 1,244,562 | $ | 1,317,830 | ||||
Less: Current portion | 243,070 | 243,292 | ||||||
Lease liability, net of current portion | $ | 1,001,492 | $ | 1,074,538 |
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The maturities of the lease liabilities are as follows as of June 30, 2021 for the periods ended December 31:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
2021 | $ | 104,498 | ||
2022 | 277,142 | |||
2023 | 277,142 | |||
2024 | 277,142 | |||
2025 | 277,142 | |||
Thereafter | 130,950 | |||
Total lease payments | 1,344,016 | |||
Less: Present value discount | (99,454 | ) | ||
Total | $ | 1,244,562 |
For the three and six months ended June 30, 2021, operating cash flows paid in connection with operating leases amounted to $12,008 and $47,576, respectively.
NOTE 5 – ACQUISITIONS
Krillase
On September 12, 2018, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporation to acquire all right, title and interest in their Krillase technology in exchange for 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. 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, $
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” or “Seller”) to acquire all of the assets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties.
On July 31, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement and the Agreement was finalized. Pursuant to the terms of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the EU. In Amendment No. 3, the Company agreed to assume certain payables of Somah related to clinical and medical expenses. It was agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties. As of June 30, 2021 and December 31, 2020, prepaid royalties were $340,969 and $344,321, respectively, and were recorded as a non-current asset. See Note 9.
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Pursuant to the Agreement and in consideration of the outstanding capital stock of Somahlution, Inc., the Company agreed to issue to Somah:
● | restricted shares of common stock of the Company; | |
● | Warrants to purchase 3,000,000 restricted common shares of the Company with a strike price of $5.00 per common share and a term of five years; | |
● | The Company, on a pro rata basis, shall grant the Seller the following contingent consideration upon receiving the U.S. Federal Drug Administration (“FDA”) final approval and insurance reimbursement approval on the product: |
○ | Grant of performance warrants for 4,000,000 restricted common shares of the Company, with a strike price determined based on the average of the closing prices of the common shares for the 30 calendar days following the announcement of FDA approval; | |
○ | Royalties to be paid on all net sales of the product acquired from Somah of 6% on the first $50 million of international net sales (and 5% on the first $50 million of U.S. net sales), 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million; | |
○ | Payment of 10% of cash value of the rare pediatric voucher sales following the U.S. Federal Drug Administration approval and subsequent sale to an unaffiliated third party of a rare pediatric voucher based on Somah’s DuraGraft product; | |
○ | Grant of rare pediatric voucher warrants to purchase an aggregate of 250,000 commons shares with a strike price determined based on the average of the closing prices of the common shares for the 30 calendar days following the announcement of FDA approval, and | |
○ | Liquidation preference, up to a maximum of $20 million upon the sale by the Company of all or substantially all of the assets relating to the Somah products. Upon the sale of either or both of the DuraGraft or Somah derived solid organ transplant products, the Company will pay 15% of the net sale proceeds towards the liquidation preference maximum amount. |
On July 30, 2020, the Company completed the acquisition of Somah (the “Somah Transaction”). The acquisition of Somah provides the Company with access to DuraGraft and other related intangible assets, which upon approval by FDA, will further the Company’s continued growth and international-wide product rollout.
In accordance with ASC 805-10 the substance of a transaction constitutes a business combination as the business of Somah meets the definition of a business under the standard. The transaction was accounted for in accordance with the acquisition method of accounting, and the assets acquired, and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date. The purchase price is based on management’s estimate of fair value of the common shares and warrants issued as well as contingent consideration and liquidation preference given up. The final allocation of the purchase price consideration to the assets acquired and liabilities assumed has been completed and finalized.
Details of the carrying amount and the fair value of identifiable assets and liabilities acquired and purchase consideration paid is as follows:
SCHEDULE OF PRELIMINARY ALLOCATION OF CONSIDERATION
As previously reported | Amendment | As restated | ||||||||||
Consideration given up | ||||||||||||
Common shares | $ | 12,500,000 | $ | - | $ | 12,500,000 | ||||||
Warrants | 1,932,300 | (732,300 | ) | 1,200,000 | ||||||||
Contingent consideration1 | - | 9,926,000 | 9,926,000 | |||||||||
Total consideration given up | $ | 14,432,300 | $ | 9,193,700 | $ | 23,626,000 | ||||||
Fair value of identifiable assets acquired, and liabilities assumed | ||||||||||||
Net working capital | $ | 275,480 | $ | (244,572 | ) | $ | 30,908 | |||||
Property, plant, and equipment | 9,092 | - | 9,092 | |||||||||
Intangible assets | 14,147,728 | 4,022,272 | 18,170,000 | |||||||||
Goodwill | - | 5,416,000 | 5,416,000 | |||||||||
Total identifiable assets | $ | 14,432,300 | $ | 9,193,700 | $ | 23,626,000 |
1 | Contingent consideration, for the purposes of the final allocation of the purchase price consideration, was measured as at the date of Somah acquisition – July 31, 2020. During the six months ended June 30, 2021, the fair market value of the contingent consideration, measured in accordance with Level 3 of the fair value hierarchy, has decreased by $278,000 (Note 3). |
The intangible assets acquired include:
● | DuraGraft patent, with estimated remaining economic life of 13 years, | |
● | “Distribution Relationships” intangible asset related to DuraGraft product, with estimated remaining economic life of 10 years, and | |
● | In-process research and development intangible asset – “Cyto Protectant Life Sciences” with indefinite economic life. |
See Note 8 for a detailed description of amortization recorded on DuraGraft related intangible assets.
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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 June 30, 2021, there were no pending or threatened lawsuits.
Contingencies
On July 13, 2019, the Company signed a consulting agreement with an individual to advise the Board of Directors. The individual receives $30,000 per month through July 13, 2022 and received an option to purchase shares of common stock at a strike price of $ , which vest monthly through July 13, 2021. The vesting of these options was accelerated by the Board on September 2, 2020. See Note 10. The agreement also provided for royalties derived directly from the assets related to wound healing, debridement, grafting, dental applications for both human and pet, and thrombosis (see Note 5 – Krillase). The royalties associated with the acquisition of Krillase will be calculated as follows:
Royalties on sales equal to:
10% on net sales
On December 15, 2019, the Company entered into the Agreement, as amended on March 31, 2020 and May 29, 2020, with Somah (see Note 5). The royalties associated with the Agreement will be calculated as follows:
Royalties on U.S. sales equal to:
5% on the first $50,000,000 of net sales
4% on net sales of $50,000,001 up to $200,000,000
2% on net sales over $200,000,000
Royalties on sales outside of the U.S.:
6% on the first $50,000,000 of net sales
4% on net sales of $50,000,001 up to $200,000,000
2% on net sales over $200,000,000
The royalties are in perpetuity. As of June 30, 2021, there has been no revenue related to the above royalties.
The Company, after the acquisition of Somah, has been leasing the office space on a month-to-month basis with a monthly rate of $10,701. The Company maintained this office space through December 31, 2020.
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Employment and Consulting Agreements
On September 1, 2020, Bruce Harmon executed a consulting agreement and was named as chief financial officer. He is compensated $120,000 annually, received shares of common stock vesting over . On October 22, 2020, Mr. Harmon received options for common stock vesting over three years with an exercise price of $ . See Note 10. On November 1, 2020, Mr. Harmon became an employee of the Company thereby cancelling the consulting agreement. On March 5, 2021, Mr. Harmon executed a letter of understanding for employment. See Note 1.
On November 1, 2020, Dr. Neil J. Campbell executed an employment agreement and was named as chief executive officer, president and director. He is compensated $375,000 annually, received options for common stock vesting over years, with an exercise price of $ . On March 18, 2021, Dr. Campbell resigned all positions. See Notes 1 and 12. We expect to enter into a settlement and release agreement with Dr. Campbell but as of the date of this report no such agreement has been finalized.
On November 30, 2020, Dr. Steven Brooks executed a letter of understanding for employment as chief medical officer.
On December 1, 2020, Dr. Donald Very executed a letter of understanding for employment as executive vice president of research and development.
On January 16, 2021, Roger Schaller executed a letter of understanding for employment as executive vice president of commercial operations.
Risks and Uncertainties
The outbreak of the coronavirus (COVID-19) resulted in increased travel restrictions, and shutdown of businesses, which may cause slower recovery of the economy. We may experience impact from quarantines, market downturns and changes in customer behavior related to pandemic fears and impact on our workforce if the virus continues to spread. In addition, one or more of our customers, partners, service providers or suppliers may experience financial distress, delayed or defaults on payment, file for bankruptcy protection, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. The extent to which the coronavirus impacts our results will depend on future developments and reactions throughout the world, which are highly uncertain and will include emerging information concerning the severity of the coronavirus and the actions taken by governments and private businesses to attempt to contain the coronavirus. It is likely to result in a potential material adverse impact on our business, results of operations and financial condition. Wider-spread COVID-19 globally could prolong the deterioration in economic conditions and could cause decreases in or delays in advertising spending and reduce and/or negatively impact our short-term ability to grow our revenues. Any decreased collectability of accounts receivable, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations.
NOTE 7 – FIXED ASSETS
Fixed assets, stated at cost, less accumulated depreciation at June 30, 2021 and December 31, 2020 consisted of the following:
SCHEDULE OF PROPERTY, PLANT, AND EQUIPMENT
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
Furniture and equipment | $ | 701 | $ | 701 | ||||
Computer related | 7,220 | 7,220 | ||||||
Machinery and equipment | 1,171 | 1,171 | ||||||
Total | 9,092 | 9,092 | ||||||
Less: accumulation depreciation | (6,394 | ) | (1,970 | ) | ||||
Property and equipment, net | $ | 2,698 | $ | 7,122 |
Depreciation expense for the three months ended June 30, 2021 and 2020 was $1,125 and $0, respectively, and for the six months ended June 30, 2021 and 2020 was $4,425 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 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.
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On July 31, 2020, the Company completed the Somah Transaction and acquired DuraGraft® technology in exchange for 3,000,000 warrants and certain contingent considerations (Note 5). Somah is engaged in developing products to prevent ischemic injury to organs and tissues and DuraGraft® is a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties. shares of common stock,
SUMMARY OF INTANGIBLE ASSETS AMORTIZATION EXPENSE
June 30, 2021 | ||||||||||||||||||||||||
Restated | December 31, 2020 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Krillase intangible assets | $ | 28,600,000 | $ | - | $ | 28,600,000 | $ | 28,600,000 | $ | - | $ | 28,600,000 | ||||||||||||
DuraGraft, patent | 5,256,000 | (370,615 | ) | 4,885,385 | 14,147,729 | (589,489 | ) | 13,558,240 | ||||||||||||||||
Distributor Relationship | 308,000 | (28,233 | ) | 279,767 | - | - | - | |||||||||||||||||
IPR&D - Cyto Protectant Life Sciences | 12,606,000 | - | 12,606,000 | - | - | - | ||||||||||||||||||
Patents in Process | 122,745 | - | 122,745 | 119,971 | - | 119,971 | ||||||||||||||||||
Total Intangibles | $ | 46,892,745 | $ | (398,848 | ) | $ | 46,493,897 | $ | 42,867,700 | $ | (589,489 | ) | $ | 42,278,211 |
SCHEDULE OF INTANGIBLE ASSETS
Balance, December 31, 2019 | $ | 28,613,000 | ||
Acquired in asset purchase agreement | 14,147,729 | |||
Additions | 106,971 | |||
Amortization expense | (589,489 | ) | ||
Balance, December 31, 2020 | 42,278,211 | |||
Acquired in Somah Transaction (amended) | 4,022,271 | |||
Additions | 2,775 | |||
Amortization expense (amended) | 190,640 | |||
Balance, June 30, 2021 | $ | 46,493,897 |
As a result of restatement to account for measurement period adjustments, described in Notes 5 and 12, the value of DuraGraft intangibles purchased with the Somah Transaction increased by $4,920,298. The intangible assets acquired included:
● | DuraGraft patent, with estimated remaining economic life of 13 years, | |
● | “Distribution Relationships” intangible asset related to DuraGraft product, with estimated remaining economic life of 10 years, and | |
● | In-process research and development intangible asset – “Cyto Protectant Life Sciences” with indefinite economic life. |
The useful lives of the intangible assets are based on the life of the patent and related technology. The patents and related technology for Krillase are not currently being amortized as they have not yet been put into operations.
Future amortizations for DuraGraft related intangible assets for the next five years will be $435,108 for each year from 2021 through 2026 and $2,989,613 for 2027 and thereafter. Amortization related to in process research and development will be determined upon the Company achieving commercialization.
NOTE 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, currently the CEO (appointed in June 2021, and previously a director appointed in 2021) and significant shareholder of the Company. Prepaid royalties were $340,969 at June 30, 2021 and $344,321 at December 31, 2020.
During the three months ended June 30, 2021, a shareholder and consultant of the Company loaned the Company $ at an interest rate of , which is included on the balance sheet at June 30, 2021 as Due to Related Party. The payment terms are undefined and as such the Company determined to classify the balance owed as a current liability.
In June 2021, the former CEO loaned the Company $20,000 at an interest rate of 0%. Upon termination of the CEO’s employment in June 2021, the Company agreed to repay the loan of $20,000 plus an additional $30,000, for a total of $50,000 included in Due to Related Party on the balance sheet at June 30, 2021. The Company paid the $50,000 in July 2021.
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NOTE 10 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS
On May 27, 2021, the Company entered into a Unit Purchase Agreement to sell up to Each Unit is comprised of (i) a convertible promissory note (the “Note”) convertible into common stock of the Company, (ii) a warrant to purchase one share of common stock of the Company (the “Class A Warrant”); and (iii) a second warrant to purchase common stock of the Company (the “Class B Warrant”). units (the “Units”) at a price per Unit of $ (the “Price Per Unit”).
In May 2021, the Company issued and sold 74,945, consisting of Notes of $74,945, Class A Warrants for the purchase of 29,978 shares of common stock and Class B Warrants for the purchase of 29,978 shares of common stock. The Company incurred related issuance costs of $6,745 which will be amortized over the term of the Notes. Units at a price of $ per Unit for gross proceeds of $
In July 2021, the Company issued and sold 1,100,000. The Units included Notes for $1,100,000, Class A Warrants for 440,000 shares of common stock and Class B Warrants for 440,000 shares of common stock. Units under the Unit Purchase Program for gross proceeds of $
The Company made the preliminary conclusion that the Notes had an embedded derivative related to the automatic conversion feature discount which requires bifurcation. The Company estimated the value of this derivative as $24,982 and recorded this derivative as a liability on the balance sheet as of June 30, 2021.
The Company estimated the value of the Class A Warrants and Class B Warrants and ascribed this value to the remainder of the proceeds at the issuance date of the Units as this estimated value exceeded the remainder of the gross proceeds, recording the warrants as a liability on the balance sheet of $49,963 as of June 30, 2021.
As all the Unit proceeds were allocated to the estimated values of the derivative and the warrants, the Company recorded the value of the Notes as $0 on issuance of the Units and will accrete to the face value of the Notes through maturity date. During the three and six months ended June 30, 2021, the Company recognized $3,491 of interest expense related to this accretion. At June 30, 2021, total future maturities of principal for the Notes was $74,945, all of which matures in May 2023. At June 30, 2021, this principal balance is reduced by the remaining debt discount ascribed to the derivative and warrants of $71,454, with a Note balance of $3,491 on the balance sheet at June 30, 2021.
Notes
The terms of the Notes are as follows:
Term - The Notes will mature 24 months from the initial closing date unless earlier converted or prepaid.
Interest - Interest shall accrue on the outstanding principal amount of the Notes at a simple rate of 10% per annum. Interest shall be paid at maturity or converted along with principal at the time of conversion of the Notes.
Optional Conversion - The outstanding principal amount of the Notes and all accrued, but unpaid interest shall be convertible at any time at the option of the holder at an initial conversion price of $2.50 (the “Conversion Price”).
Automatic Conversion - In the event the Company consummates, while the Note is outstanding, an equity financing with a gross aggregate amount of securities sold of not less than $10,000,000 (the “Qualified Financing”), then all outstanding principal, together with all unpaid accrued interest under the Notes, shall automatically convert into shares of the equity financing at the lesser of (i) 75% of the cash price per share paid in the Qualified Financing and
(ii) the conversion price of $2.50 per unit. If preferred stock is issued in the equity financing and the conversion price of the Notes is less than the cash price per share issued in the Qualified Financing, the Company may, solely elect to convert the Notes into shares of a newly created series of capital stock having the identical rights, privileges, preferences and restrictions as the preferred stock issued in the Qualified Financing, and otherwise on the same terms and conditions.
The Notes are secured by a first priority security interest in all assets of the Company.
Warrants
The Class A Warrants entitle the holder to the right, for a period of five (5) years from each closing date, to purchase shares of the Company’s Common stock at an exercise price equal to the lower of (i) $3.13 or (ii) the Automatic Conversion Price (initially $2.50); provided, however, that the exercise price shall not be less than $1.00 (except as the result of antidilution adjustments). Company may force the exercise of the Class A Warrants if, at any time following the sixty day anniversary of the final closing date or termination of the offering, (i) the shares issuable upon exercise of the Class A Warrants are registered or the purchasers otherwise have the ability to trade the underlying shares without restriction, (ii) the 20-day volume-weighted daily average price of the Company’s Common Stock exceeds $6 per share, and (iii) the average daily trading volume is at least $1,000,000 shares during such 20-day period. The Class A Warrants contain customary antidilution adjustments and additionally, if after the issuance date of the Class A Warrants, the Company issues or sells any shares of common stock (other than in the Qualified Financing or exempted securities) or issues any rights, warrants, or options, without consideration or for consideration per share less than the exercise price of the Warrants, then the exercise price of the Warrants shall be reduced to an exercise price equal to the consideration paid per share.
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The Class B Warrants will entitle the Purchasers to the right, for a period of five (5) years from each closing date, to purchase shares of the Company’s common stock at an exercise price equal $5.00 per share. The Company may force the exercise of the Class B Warrants if, at any time following the sixty day anniversary of the initial closing date, (i) the shares issuable upon exercise of the Class B Warrants are registered or the purchasers otherwise have the ability to trade the underlying shares without restriction, (ii) the 20-day volume-weighted daily average price of the Company’s Common Stock exceeds $8 per share, and (iii) the average daily trading volume is at least $1,000,000 during such 20-day period. The Class B Warrants contain customary antidilution adjustments but do not contain price based antidilution protection.
NOTE 11 – STOCKHOLDERS’ EQUITY
Preferred stock
Our Articles of Incorporation authorize the issuance of shares of “blank check” preferred stock with a par value of $ . As of June 30, 2021, and December 31, 2020, there were shares issued and outstanding, respectively.
Common stock
Our Articles of Incorporation authorize the issuance of shares of common stock with a par value of $ .
As of June 30, 2021 and December 31, 2020, there were shares of common stock issued and outstanding.
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 options for issuance. As of June 30, 2021, there remains options available for issuance.
SCHEDULE OF STOCK OPTION ACTIVITY
Weighted | Weighted | |||||||||||||||
Average | Average | Total | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | Price | Life | Value | |||||||||||||
Outstanding at December 31, 2020 | 3,800,943 | $ | 1.36 | |||||||||||||
Granted | 732,500 | $ | 1.25 | |||||||||||||
Exercised | - | $ | - | |||||||||||||
Forfeited | (412,500 | ) | $ | 1.25 | ||||||||||||
Outstanding at June 30, 2021 | 4,120,943 | $ | 1.36 | $ | 388,350 | |||||||||||
Exercisable at June 30, 2021 | $ | 1.39 | �� |
The fair value of each stock option was estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging from $ to $ per share in the first six months of 2021) and expected life of the stock option ( years in 2021), the current price of the underlying stock and its expected volatility (ranging from % to %) in the first six months of 2021), expected dividends ( %) on the stock and the risk-free interest rate ( %) for the term of the stock option. In addition, the Company recognizes forfeitures as they occur.
The fair value of each stock option was estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging from $ to $ per share in 2020) and expected life of the stock option ( years in 2020), the current price of the underlying stock and its expected volatility (ranging from % to % in 2020), expected dividends ( %) on the stock and the risk-free interest rate ( %) for the term of the stock option. In addition, the Company recognizes forfeitures as they occur.
Warrants
As of June 30, 2021 and December 31, 2020, there are 3,393,651warrants outstanding, not including Class A Warrants or Class B Warrants issued in the March 2021 Unit Purchase Agreement (see Note 10).
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NOTE 12 – RESTATEMENT
According to ASC 805, the measurement period is a reasonable time period after the acquisition date when the acquirer may adjust the provisional amounts recognized for a business combination if the necessary information is not available by the end of the reporting period in which the acquisition occurs. Subsequent to the Original Filing, filed with the SEC on August 23, 2021, the valuation of the assets acquired with the Somah Transaction was finalized, therefore the management of Marizyme chose to amend the Original Filing to disclose the nature and amount of measurement-period adjustments.
As a result, the following items have been adjusted as at and for the three and six months ended June 30, 2021:
● | Intangible assets (Notes 5 and 8), | |
● | Goodwill (Note 5), | |
● | Accounts payable and accrued expenses, | |
● | Contingent liabilities (Notes 3 and 5), | |
● | Amortization expense (Note 8). |
The restatements were made in accordance with the provisions of ASC topic 805. The disclosure provision of ASC 805 stipulates that acquirer must recognize measurement period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. As the valuation of the assets acquired, liabilities assumed, and consideration given up on completion of the Somah acquisition had been finalized in the six months ended June 30, 2021, only the current period results were restated to reflect the measurement period adjustments.
The following table reconciles previously reported net income to restated amounts:
SCHEDULE OF RECONCILES PREVIOUSLY REPORTED STATEMENTS
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2021 | 2021 | |||||||
Net loss, as previously reported | $ | (2,460,842 | ) | $ | (5,271,393 | ) | ||
Adjustment to other general and administrative expenses | 244,572 | 244,572 | ||||||
Adjustment to amortization expense on intangible assets | 299,342 | 898,026 | ||||||
Change in fair value of contingent liabilities | 278,000 | 278,000 | ||||||
As restated | $ | (1,638,928 | ) | $ | (3,850,795 | ) | ||
Net loss | $ | (1,638,928 | ) | $ | (3,850,795 | ) | ||
Restated loss per share – basic and diluted | $ | (0.05 | ) | $ | (0.11 | ) |
Selected Consolidated Balance Sheet information as of June 30, 2021:
Previously Reported | Increase (Decrease) | Restated | ||||||||||
Assets: | ||||||||||||
Intangible assets, net | $ | 41,573,599 | $ | 4,920,298 | $ | 46,493,897 | ||||||
Goodwill | - | 5,416,000 | 5,416,000 | |||||||||
Total Assets | $ | 43,342,385 | $ | 10,336,298 | $ | 53,678,683 | ||||||
Liabilities: | ||||||||||||
Contingent liabilities | - | 9,648,000 | 9,648,000 | |||||||||
Total Liabilities | $ | 2,797,108 | $ | 9,648,000 | $ | 12,445,108 | ||||||
Stockholders’ equity: | ||||||||||||
Additional paid in capital | $ | 82,606,376 | $ | (732,300 | ) | $ | 81,874,076 | |||||
Accumulated deficit | (42,097,027 | ) | 1,420,598 | (40,676,429 | ) | |||||||
Total liabilities and stockholders’ equity | $ | 43,342,385 | $ | 10,336,298 | $ | 53,678,683 |
Selected Shareholders’ equity information for the six months ended June 30, 2021:
Six Months Ended June 30, | ||||
2021 | ||||
Balance, June 30, 2021, as reported previously | $ | 40,545,277 | ||
Adjustment to net loss | 1,420,598 | |||
Adjustment to fair value of warrants issued on acquisition of Somah | (732,300 | ) | ||
As restated | $ | 41,233,575 |
As a result of all adjustments herein, the total assets increased by $10,336,298, predominately due to the valuation of the intangible assets and goodwill recognized on the Somah acquisition and the total liabilities increased by $9,648,000, mainly due to the recognition of $9,926,000 of contingent liabilities assumed on the Somah acquisition and decrease in contingent liabilities fair value in the six months ended June 30, 2021 by $278,000. The fair market value of warrants given up was revalued and decreased by $732,300. Additionally, the Company overestimated the amortization expense by $898,026 in the period ended June 30, 2021.
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NOTE 13 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the condensed consolidated financial statements, except as stated below:
Convertible Promissory Notes and Warrants
In July 2021, the Company issued and sold 1,100,000. The Units included Notes for $1,100,000, Class A Warrants for 440,000 shares of common stock and Class B Warrants for 440,000 shares of common stock. See Note 10 for the terms and features of the Units. Units under the Unit Purchase Program for gross proceeds of $
Acquisition of My Health Logic Inc.
On November 1, 2021, Marizyme entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant to which the Company will acquire My Health Logic Inc., a wholly-owned subsidiary of HLII (the “Transaction”).
The Transaction will be effected by way of a plan of arrangement under the Business Corporations Act (British Columbia). In connection with the plan of arrangement, Marizyme will issue an aggregate of shares of its common stock to HLII, which will be subject to certain terms and restrictions. Upon closing, My Health Logic Inc. will be a wholly-owned subsidiary of Marizyme.
The acquisition is subject to, among other things, the approval of the Supreme Court of British Columbia, the approval of the NEX board of the TSX Venture Exchange, and requires the approval of at least two-thirds of the votes cast by HLII shareholders at the upcoming annual and special meeting of HLII shareholders
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENT
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Company Overview
We are a Nevada corporation originally incorporated on March 20, 2007, under the name SWAV Enterprises, Ltd. On September 6, 2010, we changed our name to GBS Enterprises Incorporated and from 2010 to September 2018 we were in the software products and advisory services business for email and instant messaging applications. We divested that business between December 2016 and September 2018 and, since that time, we have begun to focus on the acquisition of life science technologies.
We changed our name to Marizyme, Inc. on March 21, 2018, to reflect our new life sciences focus, and our common stock is currently quoted on the OTC Markets’ QB tier under the symbol “MRZM.” We may also examine our options with respect to the listing of our common stock on the Nasdaq Stock market or the NYSE.
In the second half of 2018, we acquired the protease-based therapeutic platform called Krillase® from ACB Holding AB.
Recent Events
Somahlution Asset Acquisition
Pursuant to the terms of the Acquisition, the majority shareholder of Somah is entitled to appoint two members to our board of directors, one of whom must be independent. Additionally, Dr. Satish Chandran, Somah’s co-founder and Chief Executive Officer, has become our Chief Technical Officer and Dr. Catherine Pachuk, Somah’s Chief Science Officer, has become our Chief Science Officer.
Pursuant to the terms of the Acquisition, Somah is entitled to appoint two members to our board of directors, one of whom must be independent. Additionally, Dr. Satish Chandran, Somah’s co-founder and Chief Executive Officer, has become our Chief Technical Officer and Dr. Catherine Pachuk, Somah’s Chief Science Officer, has become our Chief Science Officer.
Private Placement
On August 3, 2020, we conducted an initial closing of a private placement (the “Private Placement”) in which we sold to a number of accredited investors an aggregate of 4,609,984 shares of our common stock, par value $0.001 per share, at a purchase price of $1.25 per share for an aggregate amount of $5,762,480. On September 25, 2020, we conducted a second closing of the Private Placement and sold an additional 990,208 shares of our common stock for an aggregate amount of $1,237,760, for a total Private Placement offering amount of $7,000,240. The offering costs were $725,176, leaving net proceeds of $6,275,064.
Unit Purchase Agreement
On May 27, 2021, we sold 29,978 Units at a price of $2.50 per Unit for gross proceeds of $74,945, consisting of Notes of $74,945, Class A Warrants for the purchase of 29,978 shares of common stock and Class B Warrants for the purchase of 29,978 shares of common stock. In July 2021, we sold 440,000 Units under the Unit Purchase Program for gross proceeds of $1,100,000. The Units included Notes for $1,100,000, Class A Warrants for 440,000 shares of common stock and Class B Warrants for 440,000 shares of common stock.
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Our Products
Krillase
Through our acquisition of the Krillase technology from ACB Holding AB, we have purchased a European Union researched and evaluated protease therapeutic platform that has the potential for use in the treatment of chronic wounds/burns, and other clinical applications. Krillase may be classified as a biological drug, however, it has been classified as a Class III medical device in Europe for treating chronic wounds.
Krillase, derived from Antarctic krill, shrimp-like crustaceans, is a combination of endo and exopeptidases that safely and efficiently breaks down organic material. The mix of proteinases and peptidases in Krillase helps the Antarctic krill digest and break down its food in the extremely cold Antarctic environment. As a result, this specialized collection of enzymes provides a unique biochemical “cutting” capability. As a “biochemical knife,” Krillase can potentially break down organic matter, such as necrotic tissue, thrombogenic material, and biofilms produced by microorganisms. As such, it may be useful in the mitigation or treatment of multiple disease states in humans. For example, Krillase may dissolve arterial thrombogenic plaque safely and efficiently, promote faster healing and support the grafting of skin for the treatment of chronic wounds and burns, and reduce bacterial biofilms associated with poor oral health in humans and animals.
We have acquired a Krillase-based product pipeline that is focused on developing products that treat several conditions across the critical care market.
Itemized below is a breakdown of our projected Krillase development pipeline:
● | MB101 – Therapy for complex wounds and burns | |
● | MB102 – Therapy for acute ischemic stroke | |
● | 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.
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● | DuraGraft is a CE-marked endothelial damage inhibitor that protects free vascular grafts and endothelium against ischemic injury. | |
● | 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.
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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. | |
● | Our patent protected unique mixture of highly efficient endo and exopeptidases extracted from the digestive tract of the Antarctic Krill for use in the removal of dental plaque and other dental applications has not been recreated artificially. | |
● | The DuraGraft platform provides a significant and substantial competitive advantage as: | |
● | DuraGraft, CE marked in Europe, is “first-in-class” as the only approved product for sale in Europe for vein graft preservation. |
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 have been no specific notices of delay from federal or foreign government authorities, potential interruptions, delays or changes to the operations of the FDA, or of any foreign authority with which we might interact, might impact the approval of any applications we plan and will need to file in the future.
We have not developed a COVID-19 contingency plan to address the potential challenges and risks presented by this pandemic. If we were to prepare such a plan, there could be no assurance that it would be effective in mitigating the effects of the COVID-19 virus.
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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. |
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.
In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our shares of common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
GOING CONCERN
The accompanying unaudited condensed consolidated financial statements and the factors within it, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and the ability of the Company to continue as a going concern for a reasonable period of time. The Company had a net loss of $3.9 million and cash used in operating activities of $3.0 million for the six months ended June 30, 2021. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
FINANCIAL OPERATIONS OVERVIEW
As of June 30, 2021, our accumulated deficit is $40.7 million. We expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.
Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.
28 |
RESULTS OF OPERATIONS
Comparison of Three and Six Months Ended June 30, 2021 and 2020
Revenues
Our total revenue was $160,785 and $0 for the three months ended June 30, 2021 and 2020 and $234,737 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase in revenue is due to the acquisition of Somahlution, LLC and Somaceutica, LLC and the acquisition of Somahlution, Inc. on July 31, 2020 (the “Soma Acquisition”).
Direct Costs of Revenue
Our direct costs of revenue were $119,221 and $0 for the three months ended June 30, 2021 and 2020 and $150,063 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase in direct costs of revenue is due to the Soma Acquisition.
Operating Expenses
For the three months ended June 30, 2021, our operating expenses increased to $2,061,379 from $434,911 for the three months ended June 30, 2020. For the six months ended June 30, 2021, our operating expenses increased to $4,322,909 from $906,281 for the six months ended June 30, 2020. The increase was primarily due to the Soma Acquisition. The increase was primarily professional fees ($592,781 for the three months ended June 30, 2021 compared to $203,992 for the three months ended June 30, 2020) and ($1,251,839 for the six months ended June 30, 2021 compared to $438,835 for the six months ended June 30, 2020), salary expenses ($824,074 for the three months ended June 30, 2021 compared to $0 for the same period in 2020) and ($1,860,531 for the six months ended June 30, 2021 compared to $0 for the same period in 2020), stock-based compensation ($194,657 for the three months ended June 30, 2021 compared to $221,058 for the same period in 2020) and ($562,375 for the six months ended June 30, 2021 compared to $442,116 for the same period in 2020), and other general and administrative expenses ($342,791 for the three months ended June 30, 2021 compared to $9,861 for the same period in 2020) and ($534,535 for the six months ended June 30, 2021 compared to $25,330 for the same period in 2020).
Net Loss
For the three months ended June 30, 2021, we had a net loss of $1,638,928 as compared to $434,911 for the three months ended June 31, 2020. For the six months ended June 30, 2021, we had a net loss of $3,850,795 as compared to $906,281 for the six months ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2021, we had $2,104 in cash, compared to $2,902,762 at December 31, 2020. At June 30, 2021, our accumulated deficit was $40,676,429 compared to $36,825,634 at December 31, 2020. There is substantial doubt as to our ability to continue as a going concern.
We have generated minimal revenues to date and our cash balance as reported above is not sufficient to fund our current and planned operations for any period of time. To fully implement our plan of operations for the next 12-month period, we will need to raise a significant amount of capital through our Private Placement, of which we have conducted an initial closing, and through additional future offerings, either private or public. There can be no assurances, however, that we will be successful in these capital raising efforts.
Critical Accounting Policies 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.these estimates under different future conditions.
Segment Reporting
TheSee Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, “Summary of Significant Accounting Standards Board (“FASB”) authoritative guidance regarding segment reporting establishes standardsPolicies” in our audited financial statements for the way that public business enterprises reportyear ended December 31, 2020, included in our Annual Report on Form 10-K as filed on April 15, 2021, for a discussion of our critical accounting policies and estimates.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of June 30, 2021 and December 31, 2020.
RECENT ACCOUNTING PRONOUNCEMENTS
None
29 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information about operating segments in annual financial statementsrequired by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about productsProcedures
The Securities and services, geographic areasExchange Commission defines the term “disclosure controls 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.
Notesprocedures” to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Comprehensive Income (Loss)
The Company adopted the 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 incomemean a company’s controls and other gains and losses affecting stockholder's equityprocedures of an issuer 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
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 isdesigned 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.
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 opinionensure 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 disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, at fair value,processed, summarized and reported, within the Company considerstime periods specified in the principal or most advantageous market in which the Company would transactSecurities and the market-based risk measurements or assumptionsExchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure 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 notinformation required to be measured at fair value.disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company has not electedmaintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the fair value option for any eligible financial instruments.
Cashreports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and cash equivalents
The Company considers all highly liquid instruments with a maturity of three months or less atreported within the time of issuanceperiods specified under the SEC’s rules and forms and that information required 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. Costdisclosed is determined on a first-in-first out basis, without any overhead component.
Notesaccumulated and communicated to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Goodwill and other Intangible Assets
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 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 created 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 for property, plant and equipment is based on useful lives of 3 to 10 years. Leasehold Improvements are depreciated up to 40 years.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
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
Sources of Revenues:
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.
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 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, 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 annualchief executive and interim impairment tests performed beginning April 1, 2013. Adoption of this new standard is not expectedchief financial officer to have significant impact to the Company’s financial statement.allow timely decisions regarding disclosure.
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.
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
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 amortizedperiod covered by this report, we carried out an evaluation, under the supervision and with the participation of our Interim Chief Executive Officer and VP of Finance, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on a straight-line basis over their respective contract terms.
Notes tothis evaluation, the Interim Chief Executive Officer and VP of Finance have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Interim Chief Executive Officer and VP of Finance have determined that the Company continues to have the following deficiencies which represent a material weakness:
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.. | |
● | 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 over Financial StatementsReporting
September
As required by Rule 13a-15(d) of the Exchange Act, our management, including our Interim Chief Executive Officer, and our VP of Finance conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended June 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 19 OTHER SHORT TERM LIABILITIES
Other short-term liabilities2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our Interim Chief Executive officer and VP of 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 STOCK
Finance concluded that there were changes during the quarter ended June 30, 2021. The Company has authorized capitalhired an VP of 75,000,000 shares of common stockFinance and 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, there were shares 30,837,624 of common stock outstanding. At the time of the Reverse Merger of the Company by GROUP on January 6, 2011, there were 16,500,000 shares of common stock 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.additional accounting staff to facilitate increased internal controls.
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 stock 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 50,000 shares of common stock at $1.00 per share.
The conversion was not exercised by September 30, 2012, therefore, 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.
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 stock of 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.
The conversion was not exercised by September 30, 2012, therefore, as per 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.
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, the Company issued the Lender a common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 100,000 shares of common stock at an exercise price of $0.35 until the third anniversary date of the date of issuance. The Warrant was issued in a private transaction between the Company and 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.
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, 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 at an exercise price of $0.20 until the third anniversary date of the date of issuance. The Warrant was issued in a private transaction between the Company and 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 of common stock at the exercise price of $0.20.
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, the Company issued 200,000 shares of Common Stock to Mr. Baksa. 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
Transactions occurring in 2013
Notes to the Interim Financial Statements
September 30, 2013
GBS Enterprises Incorporated
Unaudited
As of March 31, 2013, these shares had not yet been issued 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 stock are disclosed in Note 23, Supplementary Cash Flow Disclosures.
Options
The Company has not issued any options, so that none are outstanding as of September 30, 2013.
Warrants
The Company has issued warrants in four different manners. In each instance, 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 to 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 of 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 notes 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
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 for 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 recorded 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 were 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
Limitations on the Effectiveness of Controls
The Company’s management, including the Interim Financial StatementsChief Executive Officer and VP Finance, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
September 30, 2013
GBS Enterprises Incorporated
Unaudited
Revenues by geographical area for the nine months ended September 30, 2013 are as follows:
Note 22
PART II. OTHER INCOME/EXPENSEINFORMATION
AtITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial statement date, Other income was 20 KUSD (Decembercondition or operating results.
ITEM 1A. RISK FACTORS.
For 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, 2012 year end: Other Expense 33 KUSD).2020 filed with the SEC on April 15, 2021, which may be accessed via EDGAR through the Internet at www.sec.gov.
Notes toITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the Interim Financial Statements
Septembersix-month period ended June 30, 2013
GBS Enterprises Incorporated
Unaudited
Note 23 SUPPLEMENTAL CASH FLOW DISCLOSURES
The significant non-cash transactions through September 30, 20132021, 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:
NotesAs provided to the Interim Financial Statementsmike and subsequent financing
September 30, 2013
GBS Enterprises IncorporatedITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Unaudited
None.
Note 24 SUBSEQUENT EVENTS
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
On July 10, 2013,April 16, 2021, the Board of Directors of the Company reappointed Joerg Ott asformed 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.following committees:
Audit Committee: Terry Brostowin (Chair), Dr. Vithal Dhaduk, and Dr. William Hearl
Compensation Committee: Julie Kampf (Chair), Dr. Vithal Dhaduk, and Terry Brostowin
Nomination and Board Governance Committee: Dr. William Hearl (Chair), and Julie Kampf
On August 2, 2013, Gary D. MacDonald resigned as member of the Board of Directors of the CompanyJune 24, 2021, 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 subsidiarythe termination 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 reliefhis employment, James Sapirstein was removed from the Court statingaudit, compensation and nomination and board governance committees.
On July 12, 2021, and in connection with the Company is not liable to Reliance and that GTT may releasetermination of his consulting agreement, Bruce Harmon was removed from the $528,777.93 in funds owed to the Company. There were no material developments in this case since the filing of the lawsuit.audit committee.
The Company intends to vigorously defend its interests in this matter.
32 |
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report or incorporated by reference:
33 |
(1) | Filed |
34 |
SIGNATURES
SIGNATURES
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.
MARIZYME, INC. | ||
(Registrant) | ||
Date: November 22, 2021 | ||
By: | /s/ David Barthel | |
David Barthel | ||
Chief Executive Officer | ||
(Principal Executive and Accounting and Financial Officer) |
35 | ||