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MRZM Marizyme

Filed: 23 Aug 21, 5:12pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended 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

 

MARIZYME, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 82-5464863

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

   
555 Heritage Drive, Suite 205, Jupiter, Florida 33458
(Address of principal executive offices) (Zip Code)
 
(561) 935-9955
(Registrant’s telephone number)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Not applicable.    

 

The number of the registrant’s shares of common stock outstanding was 36,143,188 as of August 16, 2021.

 

 

 

 

 

 

MARIZYME, INC.

 

FORM 10-Q

 

TABLE OF CONTENTS

 

  Page
 PART I—FINANCIAL INFORMATION 
   
ITEM 1.Consolidated Financial Statements (unaudited)4
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations20
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk25
ITEM 4.Controls and Procedures25
   
 PART II—OTHER INFORMATION 
   
ITEM 1.Legal Proceedings27
ITEM 1A.Risk Factors27
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds27
ITEM 3.Defaults Upon Senior Securities27
ITEM 4.Mine Safety Disclosures27
ITEM 5.Other Information27
ITEM 6.Exhibits27
 Signatures29

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

Contrary to the rules of the SEC, the Company’s condensed consolidated financial statements included in this filing on Form 10-Q have not been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews. The Company has not yet fully completed the accounting for the July 2020 acquisition of Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC (collectively, “Somah”), which is still in process as it relates to the valuation of certain assets.  As such, management cautions investors and any other users of these condensed consolidated financial statements and related MD&A not to place reliance on the information contained in this Form 10-Q as it may be materially incorrect and may be subject to future adjustment. The Company expects the accounting for the Somah acquisition to be completed in the near term at which time an updated and amended 10-Q will be filed if required.

 

TABLE OF CONTENTS

 

Index to Financial Statements Page
Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 4
   
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 (unaudited) and the Three and Six Months Ended June 31, 2020 (unaudited) 5
 �� 
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and the Three and Six Months Ended June 30, 2020 (unaudited) 6
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and the Six Months Ended June 30, 2020 (unaudited) 7
   
Notes to Condensed Consolidated Financial Statements (unaudited) 8

 

 3 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

Contrary to the rules of the SEC, the Company’s condensed consolidated financial statements included in this filing on Form 10-Q have not been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews. The Company has not yet fully completed the accounting for the July 2020 acquisition of Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC (collectively, “Somah”), which is still in process as it relates to the valuation of certain assets. As such, management cautions investors and any other users of these condensed consolidated financial statements and related MD&A not to place reliance on the information contained in this Form 10-Q as it may be materially incorrect and may be subject to future adjustment. The Company expects the accounting for the Somah acquisition to be completed in the near term at which time an updated and amended 10-Q will be filed if required.

 

MARIZYME, INC.

and Subsidiaries

Condensed Consolidated Balance Sheets

 

  June 30,  December 31, 
  2021  2020 
  (unaudited)    
ASSETS        
Current 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  41,573,599   42,278,211 
Prepaid royalties, non-current  340,969   344,321 
Deposits  30,000   30,000 
         
Total assets $43,342,385  $47,083,561 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
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 
Non-current liabilities        
Operating  lease obligations, non-current portion  1,001,492   1,074,538 
Derivative liability  

24,982

   - 
Warrant liability  49,963   - 
Convertible promissory note  3,491   - 
Total non-current liabilities  1,079,928   1,074,538 
Total liabilities  2,797,108   1,795,933 
         
Commitments and contingencies (see Note 5)  -   - 
         
Stockholders’ equity        
Preferred stock, $0.001 par value, 25,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020  -   - 
Common stock, par value $0.001, 75,000,000 shares authorized, 35,928,188 shares issued and outstanding as of June 30, 2021 and December 31, 2020  35,928   35,928 
Additional paid in capital  82,606,376   82,077,334 
Accumulated deficit  (42,097,027)  (36,825,634)
Total stockholders’ equity  40,545,277   45,287,628 
Total liabilities and stockholders’ equity $43,342,385  $47,083,561 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 4 

 

 

MARIZYME, INC.

and Subsidiaries

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2021 and 2020

(unaudited)

 

  

June 30, 2021

  June 30, 2020  June 30, 2021  June 30, 2020 
  For the Three Month Ended  For the Six Month Ended 
  

June 30, 2021

  June 30, 2020  June 30, 2021  June 30, 2020 
             
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 
Depreciation and amortization  

295,216

   -   711,811   - 
Other general and administrative expenses  591,489   9,861   965,322   25,330 
Total operating expenses  2,617,438   434,911   5,501,941   906,281 
Total operating loss  (2,456,653)  (434,911)  (5,267,204)  (906,281)
                 
Other expense                
Interest expense  

4,189

   -   

4,189

   - 
Total other expense  (4,189)  -   (4,189)  - 
                 
Net loss $(2,460,842) $(434,911) $(5,271,393) $(906,281)
                 
Loss per share – basic and diluted $(0.07) $(0.02) $(0.15) $(0.05)
                 
Weighted average number of shares of common stock – basic and diluted  35,928,188   20,027,062   35,928,188   19,961,309 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 5 

 

 

MARIZYME, INC.

and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three and Six Months Ended June 30, 2021 and 2020

(unaudited)

 

  Shares  Amount  Shares  Amount  Capital  Stock  Deficit  Total 
  Preferred Stock  Common Stock  Paid in  Treasury  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Stock  Deficit  Total 
                         
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                                
Stock-based compensation expense  -   -   -   -   334,385   -   -   334,385 
Net loss  -   -   -   -   -   -   (2,810,551)  (2,810,551)
Balance at March 31, 2021  -  $0  $35,928,188   35,928  $82,411,719  $-  $(39,636,185) $42,811,462 
Stock-based compensation expense  -   -   -   -   194,657   -   -   194,657 
Net loss  -   -   -   -   -   -   (2,460,842)  (2,460,842)
Balance, June 30, 2021  -  $-   35,928,188  $35,928  $82,606,376  $-  $(42,097,027) $40,545,277 
                                 
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 expense                  221,058   -       221,058 
Net loss  -   -   -   -   -   -   (471,370)  (471,370)
Balance at March 31, 2020  -  $0  $125,000  $125  $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 expense  -   -   -   -   221,057   -   -   221,057 
Net loss  -   -   -   -   -   -   (434,911)  (434,911)
Balance, June 30, 2020  -  $-   20,183,939  $20,184  $60,034,872  $(16,000) $(31,886,862) $28,193,616 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 6 

 

 

MARIZYME, INC.

and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2021 and 2020

(unaudited)

 

  

June, 30

2021

  

June 30,

2020

 
       
Cash flows from operating activities:        
Net loss $(5,271,393) $(906,281)
Adjustments to reconcile net loss to net cash used in operations:        
Depreciation expense  4,424   - 
Amortization expense  707,386   - 
Stock-based compensation – stock options  

529,042

   567,115 
Stock-based compensation – restricted common stock  33,333   - 
Change in operating assets and liabilities:        
Accounts receivable  (78,686)  - 
Prepaid expense  44,701   - 
Inventory  39,600   - 
Accounts payable and accrued expenses  750,990   152,620 
Due to related party  

265,000

   - 
Net cash used in operating activities  (2,975,603)  (186,546)
         
Cash flows used in investing activities:        
Purchase of intangible assets  -   - 
Net cash used in investing activities  -   - 
         

Net cash provided by financing activities

        
Proceeds  from short term loan  -   1,000 
Proceeds from convertible promissory note  74,945   - 
Capital Paid - In  -   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 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest $-  $- 
Cash paid for taxes $-  $- 
Non-cash investing and financing activities:        
Derivative liabilities $

24,982

  $

-

 
Warrant liabilities $

49,963

  $

-

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 7 

 

 

MARIZYME, INC.

AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2021

(unaudited)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Overview

 

Marizyme, Inc., a Nevada corporation formerly known as GBS Enterprises Incorporated (the “Company” or “Marizyme”), conducted its primary business through its majority owned subsidiary, GBS Software AG (“GROUP”), a German-based public-company.

 

By December 31, 2016, the Company had sold the controlling interest in GROUP and other subsidiaries, keeping only a minority interest in GROUP. On March 21, 2018, the Company formed a wholly owned subsidiary named Marizyme, Inc., a Nevada corporation, and merged with it, effectively changing the Company’s name to Marizyme, Inc. On June 1, 2018, the Company exchanged the shares of GROUP and all the intercompany assets and liabilities for 100% of the shares of X-Assets Enterprises, Inc, a Nevada Corporation. As part of a type-D business restructuring on September 5, 2018, the Company then distributed the X-Assets shares to its stockholders on a 1 for 1 basis.

 

Beginning after the X-Assets share distribution, Marizyme 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 all rights, title, and interest in their Krillase technology in exchange for 16.98 million shares of Common Stock. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in dental care, wound healing, and thrombosis.

 

On December 15, 2019, the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on March 31, 2020 and May 29, 2020, with Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC, companies duly organized under the laws of Delaware (collectively, “Somah”) to acquire all of the assets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties. On July 30, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement which finalized this Agreement. Pursuant to the terms of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of Somahlution, Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products for sale in the EU.

 

On September 25, 2020, the Company formed Somaceutica, Inc., a Florida corporation.

 

On September 25, 2020, the Company formed Marizyme Sciences, Inc., a Florida corporation.

 

The Company’s common stock, $0.001 par value per share (the “Common Stock”), is currently quoted on the OTC Markets QB Tier under the ticker symbol “MRZM.”

   

 8 

 

 

Change in Management and the Board of Directors

 

On January 16, 2021, Roger Schaller was appointed as the Company Executive Vice President of Commercial Operations.

 

On January 29, 2021, Amy Chandler was promoted to Executive Vice President of Regulatory and Quality Affairs.

 

On February 3, 2021, Julie Kampf was appointed as a Director on the Company’s board of directors.

 

On February 22, 2021, Dr. Vithal Dhaduk was appointed as a Director on the Company’s board of directors.

 

On March 18, 2021, Dr. Neil Campbell resigned as Chief Executive Officer, President and Director.

 

On March 19, 2021, James Sapirstein was appointed as Interim Chief Executive Officer.

 

On April 2, 2021, Dr. Satish Chandran was terminated as Chief Technology Officer.

 

On June 24, 2021, James Saperstein, our Interim Chief Executive Officer resigned, and Vithal Dhaduk was appointed as our Chairman of the Company’s board of directors.

 

On July 6, 2021, Vithal Dhaduk was appointed as Interim Chief Executive Officer.

 

On July 12, 2021, Bruce Harmon resigned as Interim Chief Financial Officer.

 

NOTE 2 - GOING CONCERN

 

The 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 $5,271,393 and cash used in operating activities of $2,975,603 for the six months ended June 30, 2021 and an accumulated deficit of $42,097,027 at 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 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.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).

 

The unaudited condensed consolidated financial statements of the Company for the three and six month periods ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2020 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021. These financial statements should be read in conjunction with that report.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries, Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”) and Marizyme Sciences, Inc. (“Marizyme Sciences”). All significant intercompany balances and transactions have been eliminated.

 

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, allowance for doubtful accounts, recoverability of long-term assets including intangible assets and goodwill, amortization expense, inventory valuation, valuation of warrants, stock-based compensation, and deferred tax valuations.

 

 9 

 

 

Business Combinations

 

The Company accounts for business acquisitions using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805 — Business Combinations, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations.

 

Stock-Based Compensation

 

Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.

 

Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At June 30, 2021 and December 31, 2020, the Company had $2,104 in cash 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 measures its financial assets and liabilities in accordance with FASB ASC 820 (the “Fair Value Topic”). For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.

 

We follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

 Level 1:Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

 10 

 

 

 Level 2:Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
   
 Level 3:Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

The 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

  Total  Level 1  Level 2  Level 3 
June 30, 2021:                
Warrant liabilities $49,963  $-  $-  $49,963 
Derivative liabilities $24,982  $-  $-  $24,982 

 

The Company had 0 assets or liabilities measured at fair value on a recurring basis at December 31, 2020.

 

Fixed Assets

 

Fixed assets are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life. Upon the sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in consolidated statements of operations.

 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 for indicators of impairment on a periodic basis and if it determines that the carrying value is impaired, it values the patent 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.

 

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.

 

In the transaction that acquired the assets of Somahlution, LLC, the Company determined that the CE mark for Europe must be in Marizyme, Inc. in order for Somahlution, Inc. to bill revenue and receive the payments accordingly. The Company has filed in Europe for the CE mark to be in Marizyme, Inc. but, until the time it is approved by the Notified Body, BSI (British Standards Institution), which is projected for May 2021, Somahlution, LLC provides the billing and receiver of funds. On a periodical basis, the cash received is transferred to Somahlution, Inc.

 

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Direct Cost of Revenue

 

Cost of sales includes the actual cost of merchandise sold; the cost of transportation of merchandise from our third-party vendor to our distributer.

 

Net Income (Loss) per Share

 

The Company computes basic and diluted income (loss) per share amounts pursuant to ASC 260 of the FASB Accounting Standards Codification. Basic loss per share is computed by dividing net loss available to common stockholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share is computed by dividing net loss available to common stockholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.

 

Income Taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases.

 

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled.

 

The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.

 

Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. The Company has no liability for uncertain tax positions as of June 30, 2021 and December 31, 2020. Interest and penalties, if any, related to unrecognized tax benefits would be recognized as interest expense. The Company does not have any accrued interest or penalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the three and six months ended June 30, 2021 and 2020.

 

Segment Information

 

In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the Company is required to report financial and descriptive information about its reportable operating segments. The Company has 1 operating segment as of June 30, 2021 and December 31, 2020.

 

Value of Warrants Issued with Debt

 

The Company estimates the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option pricing model, or, if the terms are more complex, using an outside professional valuation firm, which uses 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.

 

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Concentration of Credit Risk

 

The Company places its temporary cash investments with financial institutions insured by the FDIC. The Company has amounts over insured limits. Amounts on deposit may at times exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts.

 

Customer Concentrations

 

For the three 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 

 

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.

 

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NOTE 5 – ACQUISITIONS

 

Krillase

 

On September 12, 2018, the Company consummated an asset acquisition with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporation to acquire all right, title and interest in their Krillase technology in exchange for 16.98 million shares of common stock. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in wound debridement, would healing, dental care and thrombosis. The transaction was recorded at the fair value of the shares, $28,600,000. No amortization has been recorded as all of the patents are not yet in a position to produce cash flows. The Company anticipates Krillase being placed into service in 2023. The Company has evaluated this asset for impairment and has determined that due to COVID-19 delaying the next steps for this technology, along with the associated value of the research and development, the status of the clinical trials, and other pertinent proprietary technology, there is no impairment required.

 

During 2020, the Company incurred legal and filing fees of $17,801 associated with a patent application for pharmaceutical compositions and methods for the treatment of thrombosis. The patents are pending.

 

DuraGraft®

 

On December 15, 2019, the Company entered into a contingent asset purchase agreement (the “Agreement”), as amended on March 31, 2020 and May 29, 2020, with Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC, companies duly organized under the laws of Delaware (collectively, “Somah”) to acquire all of the assets and none of the liabilities of Somah (the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties. On July 31, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement and the Agreement was finalized. Pursuant to the terms of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of 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. 2, the Company agreed to assume certain payables of Somah related to clinical and medical expenses. These assumed payables were $344,321. It was agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties. As of 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.

 

The Company compensated the Somah stockholders as follows: (1) 10,000,000 shares of common stock valued at $1.25 per share (the Company’s stock is thinly traded therefore the value per share was determined by the funding completed on August 3, 2020 which sold 4,610,064 shares of common stock at $1.25 per share, which was the first tranche of a total funding of $7,000,240 (5,600,272 shares, August 3, 2020 and September 25, 2020) which all stock was sold at $1.25 per share); (2) 3,000,000 warrants with a strike price of $5.00 per share and a term of five years; and (3) royalties on all net sales for Somahlution, Inc. of 6% on the first $50 million of net sales, 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million.

 

The Company is in the process of determining the fair value of the royalty component of the total consideration as well as the identifiable intangible assets acquired in business combination. The Company is using a third-party valuation firm and at this time we are unable to estimate the contingent consideration related to the future royalty payment stream amount accurately. The Company is expecting the valuation to be finalized in the Form 10-Q for the period ended June 30, 2021. As such, the following table represents the preliminary consideration in connection with the transaction excluding the fair value of the royalty payment stream:

 SCHEDULE OF PRELIMINARY ALLOCATION OF CONSIDERATION

Consideration given:   
    
Common stock shares given $12,500,000 
Warrants given  1,932,300 
Total consideration given $14,432,300 

 

Fair value of identifiable assets acquired, and liabilities assumed:   
    
Receivable $45,845 
Inventory  229,635 
Fixed  assets  9,092 
Intangible assets  14,147,728 
Total identifiable net assets $14,432,300 

 

The Company anticipates a significant fair value to be assigned to identifiable intangible assets such as in process research and development and patents. Included in the preliminary allocation to the fair value of assets acquired and liabilities assumed is an 100% allocation to intangible assets for the consideration in excess of tangible net assets. The Company utilized a preliminary estimated weighted average amortization period of seven years. As such, the Company recorded amortization expense of $353,693 and $707,386 for the three and six months ended June 30, 2021, respectively and $0 for the three and six months ended June 30, 2020.

 

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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 250,000 shares of common stock at a strike price of $1.50, which vest monthly through July 13, 2021. The vesting of these options was accelerated by the Board on September 2, 2020. See Note 10. The agreement also provided for royalties derived directly from the assets related to wound healing, debridement, grafting, dental applications for both human and pet, and thrombosis (see Note 5 – Krillase). The royalties associated with the acquisition of Krillase will be calculated as follows:

 

Royalties on sales equal to:

10% on net sales

 

On December 15, 2019, the Company entered into the Agreement, as amended on March 31, 2020 and May 29, 2020, with Somah (see Note 5). The royalties associated with the Agreement will be calculated as follows:

 

Royalties on U.S. sales equal to:

5% on the first $50,000,000 of net sales

4% on net sales of $50,000,001 up to $200,000,000

2% on net sales over $200,000,000

 

Royalties on sales outside of the U.S.:

6% on the first $50,000,000 of net sales

4% on net sales of $50,000,001 up to $200,000,000

2% on net sales over $200,000,000

 

The royalties are in perpetuity. As of June 30, 2021, there has been no revenue related to the above royalties.

 

The Company, after the acquisition of Somah, has been leasing the office space on a month-to-month basis with a monthly rate of $10,701. The Company maintained this office space through December 31, 2020.

 

Employment and Consulting Agreements

 

On September 1, 2020, Bruce Harmon executed a consulting agreement and was named as chief financial officer. He is compensated $120,000 annually, received 40,000 shares of common stock vesting over one year. On October 22, 2020, Mr. Harmon received 120,000 options for common stock vesting over three years with an exercise price of $1.25. See Note 10. On November 1, 2020, Mr. Harmon became an employee of the Company thereby cancelling the consulting agreement. On March 5, 2021, Mr. Harmon executed a letter of understanding for employment. See Note 1.

 

On November 1, 2020, Dr. Neil J. Campbell executed an employment agreement and was named as chief executive officer, president and director. He is compensated $375,000 annually, received 500,000 options for common stock vesting over three years, with an exercise price of $1.25. On March 18, 2021, Dr. Campbell resigned all positions. See Notes 1 and 12. We expect to enter into a settlement and release agreement with Dr. Campbell but as of the date of this report no such agreement has been finalized.

 

On November 30, 2020, Dr. Steven Brooks executed a letter of understanding for employment as chief medical officer.

 

On December 1, 2020, Dr. Donald Very executed a letter of understanding for employment as executive vice president of research and development.

 

On January 16, 2021, Roger Schaller executed a letter of understanding for employment as executive vice president of commercial operations.

 

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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 16.98 million shares of common stock. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in dental care, wound healing and thrombosis. The transaction was recorded at the fair value of the shares. No amortization has been recorded as the patents and patent applications are not yet in a position to produce cash flows.

 

During 2020, the Company incurred legal and filing fees of $17,801 associated with a patent application for pharmaceutical compositions and methods for the treatment of thrombosis. The patents are pending. The Company capitalized these costs.

 

On July 31, 2020, the Company executed an agreement with Somah (see Note 4) for the DuraGraft® technology in exchange for 10,000,000 shares of common stock, 3,000,000 warrants and a royalty as stated herein. Somah is engaged in developing products to prevent ischemic injury to organs and tissues and DuraGraft® is a one-time intraoperative vascular graft treatment for use in vascular and bypass surgeries that maintains endothelial function and structure, and other related properties.

 

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 SUMMARY OF INTANGIBLE ASSETS AMORTIZATION EXPENSE

  June 30, 2021  December 31, 2020 
  Gross     Net  Gross     Net 
  Carrying  Accumulated  Carrying  Carrying  Accumulated  Carrying 
  Amount  Amortization  Amount  Amount  Amortization  Amount 
Krillase - Patents, Patent Applications, Research and Development, Clinical Trials, Developed Technology $28,600,000  $-  $28,600,000-  $28,600,000  $-  $28,600,000 
DuraGraft - Patents, Patent Applications, Research and Development, Clinical Trials, Developed Technology  14,147,729   (1,296,875)   12,850,854   14,147,729   (589,489)  13,558,240 
Patents in process  122,745   -   122,745   119,971   -   119,971 
                         
Total Intangibles $42,870,474  $(1,296,875)  $41,573,599  $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  2,774 
Amortization expense  (589,489)
Balance, December 31, 2020  42,278,211 
Balance, December 31, 2020  42,278,211 
Additions  2,774 
Amortization expense  (707,386)
Balance, June 30, 2021 $41,573,599 

 

The Company has recorded amortization expense of $353,693 and 707,386 for the three and six months ended June 30, 2021, respectively and $0 for the three and six months ended June 30, 2020.

 

The useful lives of the intangible assets are based on the life of the patent and related technology. The patents and related technology for Krillase are not currently being amortized as they have not yet been put into operations.

 

Future amortizations for DuraGraft related intangible assets for the next five years will be $1,414,773 for each year from 2021 through 2026 and $6,486,375 for 2027 and thereafter.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

The Company has recorded a prepaid royalty to the shareholders of Somahlution, LLC in regard to the acquisition (see Note 5). The primary beneficial owner is Dr. Vithal Dhaduk, 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 $215,000 at an interest rate of 0%, 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.

 

NOTE 10 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS

 

On May 27, 2021, the Company entered into a Unit Purchase Agreement to sell up to 4,000,000 units (the ‘Units’) at a price per Unit of $2.50 (the “Price Per Unit”). 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”).

 

In May 2021, the Company issued and 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. The Company incurred related issuance costs of $6,745 which will be amortized over the term of the Notes.

 

In July 2021, the Company issued and sold 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.

 

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.

 

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Optional Conversion - The outstanding principal amount of the Notes and all accrued, but unpaid interest shall be convertible at any time at the option of the holder at an initial conversion price of $2.50 (the “Conversion Price”).

 

Automatic Conversion - In the event the Company consummates, while the Note is outstanding, an equity financing with a gross aggregate amount of securities sold of not less than $10,000,000 (the “Qualified Financing”), then all outstanding principal, together with all unpaid accrued interest under the Notes, shall automatically convert into shares of the equity financing at the lesser of (i) 75% of the cash price per share paid in the Qualified Financing and (ii) the conversion price of $2.50 per unit. If preferred stock is issued in the equity financing and the conversion price of the Notes is less than the cash price per share issued in the Qualified Financing, the Company may, solely elect to convert the Notes into shares of a newly created series of capital stock having the identical rights, privileges, preferences and restrictions as the preferred stock issued in the Qualified Financing, and otherwise on the same terms and conditions.

 

The Notes are secured by a first priority security interest in all assets of the Company.

 

Warrants

 

The Class A Warrants entitle the holder to the right, for a period of five (5) years from each closing date, to purchase shares of the Company’s Common stock at an exercise price equal to the lower of (i) $3.13 or (ii) the Automatic Conversion Price (initially $2.50); provided, however, that the exercise price shall not be less than $1.00 (except as the result of antidilution adjustments). Company may force the exercise of the Class A Warrants if, at any time following the sixty day anniversary of the final closing date or termination of the offering, (i) the shares issuable upon exercise of the Class A Warrants are registered or the purchasers otherwise have the ability to trade the underlying shares without restriction, (ii) the 20-day volume-weighted daily average price of the Company’s Common Stock exceeds $6 per share, and (iii) the average daily trading volume is at least $1,000,000 shares during such 20-day period. The Class A Warrants contain customary antidilution adjustments and additionally, if after the issuance date of the Class A Warrants, the Company issues or sells any shares of common stock (other than in the Qualified Financing or exempted securities) or issues any rights, warrants, or options, without consideration or for consideration per share less than the exercise price of the Warrants, then the exercise price of the Warrants shall be reduced to an exercise price equal to the consideration paid per share.

 

The Class B Warrants will entitle the Purchasers to the right, for a period of five (5) years from each closing date, to purchase shares of the Company’s common stock at an exercise price equal $5.00 per share. The Company may force the exercise of the Class B Warrants if, at any time following the sixty day anniversary of the initial closing date, (i) the shares issuable upon exercise of the Class B Warrants are registered or the purchasers otherwise have the ability to trade the underlying shares without restriction, (ii) the 20-day volume-weighted daily average price of the Company’s Common Stock exceeds $8 per share, and (iii) the average daily trading volume is at least $1,000,000 during such 20-day period. The Class B Warrants contain customary antidilution adjustments but do not contain price based antidilution protection.

 

NOTE 11 – STOCKHOLDERS’ EQUITY

 

Preferred stock

 

Our Articles of Incorporation authorize the issuance of 25,000,000 shares of “blank check” preferred stock with a par value of $0.001. As of June 30, 2021, and December 31, 2020, there were 0 shares issued and outstanding, respectively.

 

Common stock

 

Our Articles of Incorporation authorize the issuance of 75,000,000 shares of common stock with a par value of $0.001.

 

As of June 30, 2021 and December 31, 2020, there were 35,928,188 shares of common stock issued and outstanding.

 

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Options

 

On January 13, 2021, the Board of Directors approved the Marizyme, Inc. 2021 Stock Incentive Plan (“SIP”). The SIP incorporates stock options issued prior to January 13, 2021. The SIP authorized 5,300,000 options for issuance. As of June 30, 2021, there remains 512,500 options available for issuance.

 

The summary of option activity for the six months ended June 30, 2021 is as follows:

 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   8.82  $388,350 
Exercisable at June 30, 2021  3,082,402  $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 $1.01 to $1.50 per share in the first six months of 2021) and expected life of the stock option (10 years in 2021), the current price of the underlying stock and its expected volatility (ranging from 179.31% to 304.44%) in the first six months of 2021), expected dividends (0%) on the stock and the risk-free interest rate (0.93%) 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 $1.01 to $1.37 per share in 2020) and expected life of the stock option (10 years in 2020), the current price of the underlying stock and its expected volatility (ranging from 179.31% to 304.44% in 2020), expected dividends (0%) on the stock and the risk-free interest rate (0.93%) 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 3,393,651 warrants outstanding, not including Class A Warrants or Class B Warrants issued in the March 2021 Unit Purchase Agreement (see Note 10).

 

NOTE 12 - SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the date the 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 financial statements, except as stated below:

 

Convertible Promissory Notes and Warrants

 

In July 2021, the Company issued and 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. See Note 10 for the terms and features of the Units.

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Contrary to the rules of the SEC, the Company’s condensed consolidated financial statements included in this filing on Form 10-Q have not been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews. The Company has not yet fully completed the accounting for the July 2020 acquisition of Somahlution, LLC, Somahlution, Inc., and Somaceutica, LLC (collectively, “Somah”), which is still in process as it relates to the valuation of certain assets.  As such, management cautions investors and any other users of these condensed consolidated financial statements and related MD&A not to place reliance on the information contained in this Form 10-Q as it may be materially incorrect and may be subject to future adjustment. The Company expects the accounting for the Somah acquisition to be completed in the near term at which time an updated and amended 10-Q will be filed if required.

 

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.

 

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.

 

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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.

 

 DuraGraft is a CE-marked endothelial damage inhibitor that protects free vascular grafts and endothelium against ischemic injury.

 

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 DuraGraft is approved in Europe for graft protection and preservation during bypass (cardiac and peripheral) and other vascular surgeries.
   
 DuraGraft protects graft tissue from harvesting through anastomosis and is used during coronary artery bypass grafting, or CABG, (and other vascular surgeries) as a treatment to maintain the structural and functional integrity of the endothelium of isolated vascular grafts.
   
 The use of DuraGraft is associated with the reduction of post-CABG complications associated with graft disease and failure; myocardial infarction, repeat revascularization, and major adverse cardiovascular events, or MACE.

 

Unmet Clinical Needs

 

 CABG remains the standard treatment for multi-vessel coronary artery disease or left main artery disease.
   
 Benefits of CABG are, however, limited by high patient level of vein graft failure (VGF) rates (50%) that have not changed in decades.
   
 “The Early Promise of Coronary Bypass Grafting has not been fulfilled and an insidiously deadly variety of atherosclerosis progressively chokes vein grafts and extinguishes their benefits,” Fitzgibbons, 1996.
   
 “VGF remains one of the leading causes of poor in-hospital and long-term outcomes after CABG,” Harskamp, 2013.
   
 “The Issue of Low Patency Rates Owing to VGF Needs Urgent Attention,” de Vries, 2016.
   
 Vein graft failure is result of damage to graft endothelium that occurs during CABG surgery.
   
 Ischemic reperfusion injury is the primary cause of endothelial damage.
   
 Vein graft failure post-CABG is associated with poor clinical outcomes.
   
 DuraGraft minimizes endothelial damage, reduces graft disease, and improves clinical outcomes.

 

Commercial Considerations

 

According to market analysis reports, the size value of the coronary artery bypass graft market globally was approximately $16 billion. This market is forecasted to increase at a CAGR of 5.8% from 2017 to 2025 (Grand View Research, March 2017). Globally, it is estimated that approximately 800,000 CABG procedures are performed each year (Grand View Research, March 2017), with procedures performed in the U.S. being a substantial percentage of the total global procedures performed. In the U.S., it is estimated that approximately 340,000 CABG surgeries are performed each year. The number of CABG procedures performed is predicted to decline at a rate of approximately 0.8% per year to less than 330,000 annually by 2026, primarily due to medical and technological advances in the use of percutaneous coronary intervention, also known as “angioplasty” (idata Research, September 2018).

 

In 2017, the number of peripheral vascular surgeries, which include angioplasty and bypass of peripheral arteries, vein removal, thrombectomy, and endarterectomy operations, were approximately 3.7 million worldwide. The number of peripheral vascular procedures is forecasted to increase at a CAGR of 3.9% in years 2017 to 2022 and is expected to exceed 4.5 million procedures by 2022 (Research and Markets, October 2018).

 

The DuraGraft product addresses unmet medical needs in both of these clinical markets. DuraGraft is a CE-marked endothelial damage inhibitor that protects free vascular grafts and endothelium against ischemic injury. The product is approved for use in Europe for graft protection and preservation during bypass (cardiac and peripheral) and other vascular surgeries. The company is currently working with local distributors of cardiovascular disease-related products, in accordance with local regulatory requirements, to sell and increase the market share of DuraGraft in Europe, South America, Australia, Africa, the Middle East, and the Far East. As of the date of this filing, the Company anticipates the submission of a de novo 510k application to the U.S. FDA for the use of DuraGraft in CABG procedures in the 4th quarter of 2021. In anticipation of the filing of the de novo 510k application for DuraGraft, the Company has submitted a pre-submission document in April 2021 to the FDA that describes the strategy for demonstrating the clinical safety and efficacy of the product.

 

Our Competitive Strength

 

We believe that the following competitive strengths will enable us to compete effectively:

 

Our Krillase platform provides a significant and substantial competitive advantage as:

 

 Clinical studies in Europe have shown Krillase to achieve superior wound healing effects in treatment of necrotic leg ulcers.
   
 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.

 

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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.

 

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.

 

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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.

 

In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our shares of common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

GOING CONCERN

 

The accompanying unaudited consolidated financial statements and the factors within it, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and the ability of the Company to continue as a going concern for a reasonable period of time. The Company had a net loss of $5.3 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 $42.1 million. We expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.

 

Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.

 

RESULTS OF OPERATIONS

 

Comparison of Three and Six Months Ended June 30, 2021 and 2020

 

Revenues

 

Our total revenue was $160,785 and $0 for the three months ended June 30, 2021 and 2020 and $234,737 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase in revenue is due to the acquisition of Somahlution, LLC and Somaceutica, LLC and the acquisition of Somahlution, Inc. on July 31, 2020 (the “Soma Acquisition”).

 

Direct Costs of Revenue

 

Our direct costs of revenue were $119,221 and $0 for the three months ended June 30, 2021 and 2020 and $150,063 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase in direct costs of revenue is due to the Soma Acquisition.

 

Operating Expenses

 

For the three months ended June 30, 2021, our operating expenses increased to $2,617,438 from $434,911 for the three months ended June 30, 2020. For the six months ended June 30, 2021, our operating expenses increased to $5,501,941 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 depreciation and amortization ($295,216 for the three months ended June 30, 2021 compared to $0 for the same period in 2020) and ($711,811 for the six months ended June 30, 2021 compared to $0 for the same period in 2020).

 

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Net Loss

 

For the three months ended June 30, 2021, we had a net loss of $2,460,842 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 $5,271,393 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 $42,097,027 compared to $36,825,634 at December 31, 2020. There is substantial doubt as to our ability to continue as a going concern.

 

We have generated minimal revenues to date and our cash balance as reported above is not sufficient to fund our current and planned operations for any period of time. To fully implement our plan of operations for the next 12-month period, we will need to raise a significant amount of capital through our Private Placement, of which we have conducted an initial closing, and through additional future offerings, either private or public. There can be no assurances, however, that we will be successful in these capital raising efforts.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, “Summary of Significant Accounting Policies” in our audited financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K as filed on April 15, 2021, for a discussion of our critical accounting policies and estimates.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We had no off-balance sheet arrangements as of June 30, 2021 and December 31, 2020.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

None

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.

 

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As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Interim Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Interim Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:

 

 1.The Company’s lack of independent directors;
   
 2.Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions;
   
 3.Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting;
   
 4.Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.

 

To remediate our internal control weaknesses, management intends to implement the following measures:

 

 The Company will add a number of independent directors to the board and establish an Audit Committee comprised of the independent directors.
   
 The Company has added sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements. To this end, effective September 1, 2020, the Company hired Mr. Bruce Harmon to serve as the Company’s Chief Financial Officer as well as other accounting personnel.
   
 The Company has hired staff technically proficient at applying U.S. GAAP to financial transactions and reporting.
   
 The Company will develop and maintain adequate written accounting policies and procedures.

 

Additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt and the results of its operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.

 

Changes in Internal Control over Financial Reporting

 

As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer, James Sapirstein, and our principal financial officer, Bruce Harmon, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that there were changes during the quarter ended June 30, 2021. The Company appointed Mr. Harmon as chief financial officer and additional accounting staff to facilitate increased internal controls.

 

Limitations on the Effectiveness of Controls

 

The Company’s management, including the Interim Chief Executive Officer and Principal Accounting and Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

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, 2020 filed with the SEC on April 15, 2021, which may be accessed via EDGAR through the Internet at www.sec.gov.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

During the six-month period ended June 30, 2021, we did not conduct any unregistered sales of our equity securities that were not previously disclosed in a current report of Form 8-K and we did not repurchase any of our common stock, except as follows:

 

As provided to mike and subsequent financing

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

On April 16, 2021, the Board of Directors of the Company formed the following committees:

 

Audit Committee: Terry Brostowin (Chair), Dr. Vithal Dhaduk, and Dr. William Hearl

 

Compensation Committee: Julie Kampf (Chair), Dr. Vithal Dhaduk, and Terry Brostowin

 

Nomination and Board Governance Committee: Dr. William Hearl (Chair), and Julie Kampf

 

On June 24, 2021, and in connection with the termination of his employment, James Sapirstein was removed from the audit, compensation and nomination and board governance committees.

 

On July 12, 2021, and in connection with the termination of his consulting agreement, Bruce Harmon was removed from the audit committee.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed as part of this report or incorporated by reference:

 

No. Description
3.1.1 Articles of Incorporation (filed as an exhibit to Form SB-2 (File No: 333-146748) filed January 14, 2008)
   
3.1.2 Certificate of Amendment to Articles of Incorporation, effective September 6, 2010 (filed as an exhibit to Form 10-K filed July 16, 2012)
   
3.1.3 Certificate of Amendment to Articles of Incorporation, effective November 22, 2010 (filed as an exhibit to Form 10-K/A filed July 15, 2011)
   
3.1.4 Certificate of Amendment to the Articles of Incorporation regarding 1-for-29 Reverse Stock Split filed March 20, 2018 (filed as an exhibit to Form 10 (File No. 000-53223) filed on September 12, 2018)
   
3.1.5 Articles of Merger between Marizyme, Inc. and GBS Enterprises Incorporated filed May 19, 2018 (filed as an exhibit to Form 10 (File No. 000-53223) filed on September 12, 2018)
   
3.1.6 Series A Non-Convertible Preferred Certificate of Designation filed May 11, 2018 (filed as an exhibit to Form 10 (File No. 000-53223) filed on September 12, 2018)
   
3.2 Bylaws (Filed as an exhibit to Form SB-2 (File No: 333-146748) filed January 14, 2008)
   
4.1 Form of Placement Agent Common Stock Purchase Warrant for 2020 Common Stock and Warrant Private Placement (filed as an exhibit to Form 10-Q filed on August 14, 2020)
   
4.2 Form of Incentive Stock Option Agreement (filed as an exhibit to Form 10-Q filed on November 13, 2019)
   
10.1 Form of Subscription Agreement for 2020 Common Stock Private Placement (filed as an exhibit to Form 10-Q filed on August 14, 2020)

 

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10.2 Form of Registration Rights Agreement for 2020 Common Stock Private Placement (filed as an exhibit to Form 10-Q filed on August 14, 2020)
   
10.3 Employment Agreement dated November 1, 2020 with Dr. Neil J. Campbell (filed as an exhibit to Form 8-K filed on November 6, 2020)
   
10.4 Indemnification Agreement dated November 1, 2020 with James Sapirstein (filed as an exhibit to Form 10-K filed on April 15, 2021)
   
10.5 Indemnification Agreement dated November 1, 2020 with Terry Brostowin (filed as an exhibit to Form 10-K filed on April 15, 2021)
   
10.6 Indemnification Agreement dated November 1, 2020 with Bruce Harmon (filed as an exhibit to Form 10-K filed on April 15, 2021)
   
10.7 (1) Form of Unit Purchase Agreement, dated May 2021
   
10.71 (1) Form of 10% Secured Convertible Promissory Note Agreement
   
10.72 (1) Form of Class A Common Stock Purchase Warrant
   
10.73 (1) Form of Class B Common Stock Purchase Warrant
   
10.74 (1) Form of Placement Agency Agreement
   
10.75 (1) Form of Placement Agent Warrant Agreement
   
31.1 (1) Certification of Principal Executive Officer of Marizyme, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2 (1) Certification of Principal Accounting Officer of Marizyme, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1 (1) Certification of Principal Executive Officer of Marizyme, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 Of 18 U.S.C. 63
   
32.2 (1) Certification of Principal Accounting Officer of Marizyme, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 Of 18 U.S.C. 63
   
101.INS Inline XBRL Taxonomy Extension Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

(1)Filed herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 MARIZYME, INC.
 (Registrant)
Date: August 23, 2021  
 By:/s/ Dr. Vithal Dhaduk
  Dr. Vithal Dahduk
  Interim Chief Executive Officer
  

(Principal Executive and Accounting and Financial Officer)

 

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