NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2021
(Unaudited
and Restated)
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.”
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 have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business and the ability of the Company to continue
as a going concern for a reasonable period of time. The Company had a net loss of $3,850,795
and cash used in operating activities of $2,975,603
for the six months ended June 30, 2021 and an accumulated deficit
of $40,676,429
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 on consolidation.
Use of Estimates
The
preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make use
of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported
periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable
under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the
allocation of the purchase price in a business combination to the underlying assets and liabilities, recoverability of long-term assets
including intangible assets and goodwill, amortization expense, valuation of warrants, stock-based compensation, warrant liability, derivative
liability, contingent liabilities and deferred tax valuations.
Business
Combinations
The
Company accounts for business acquisitions using the acquisition method of accounting based on Accounting Standards Codification (“ASC”)
805 — “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities
assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities
assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.
Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations.
Stock-Based
Compensation
Stock-based
compensation expense is recorded in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, for stock
and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized
as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures
that it expects will occur and records expense based upon the number of awards expected to vest. The fair value of each option is estimated
on the date of grant using the Black-Scholes option pricing model.
Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
At June 30, 2021 and December 31, 2020, the Company had $2,104 and $2,902,762 in cash, respectively, and no 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 no inventory reserve was necessary as of June 30, 2021 and December 31, 2020.
Fair Value
of Financial Instruments
The
Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs
to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions
market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable
inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each
level within the hierarchy is described below:
|
●
|
Level 1 – Quoted
prices for identical assets or liabilities in active markets.
|
|
●
|
Level 2 – Quoted
prices for identical or similar assets and liabilities in markets that are not active; or other model-derived valuations whose inputs
are directly or indirectly observable or whose significant value drivers are observable.
|
|
●
|
Level 3 – Valuations
derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable and for which assumptions
are used based on management estimates.
|
The
Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible as well as considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and amounts due
to related parties approximate fair value due to the short-term nature of these instruments.
The
fair value of lease obligations is determined using discounted cash flows based on the expected amounts and timing of the cash flows
discounted using a market rate of interest adjusted for appropriate credit risk.
The
contingent liabilities consist of present values of royalty payments, performance warrants and pediatric voucher warrants,
future rare pediatric voucher sales, and liquidation preference. Management measured these contingencies in accordance with
Level 3 of the fair value hierarchy.
|
i.
|
The performance warrants
and pediatric vouchers warrants liabilities were valued using a Monte Carlo simulation model utilizing the following weighted average
assumptions: risk free rate of 1.12%,
expected volatility of 72.66%,
expected dividend of $0,
and expected life of 6.46
years. In the six months ended June 30, 2021, changes in these assumptions resulted
in $1,296,000 decrease
in fair value of these liabilities. At June 30,
2021 the fair market value of performance warrants and pediatric vouchers warrants liabilities was $3,473,000.
|
|
ii
|
The present value of royalty payments
was measured using the scenario-based methodology. In assessing
the value attributed to the royalty payments, the estimated future cash flows were discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the revenue from
net sales of the product. The cash flows derived from the Company’s fifteen-year strategic plan are based on
managements’ expectations of market growth, industry reports and trends, and past performances. These projections are
inherently uncertain due to the evolving impact of the COVID-19 pandemic. The discounted cash flow model included projections
surrounding revenue, discount rates, and growth rates. The discount rates used to calculate the present value of royalty payments
reflect specific risks of the Company and market conditions and the mid-range was estimated at 20.8%. In
the six months ended June 30, 2021, changes in these assumptions resulted in $1,016,000
increase in fair value of these liabilities. At June 30, 2021, the fair market value of royalty payments was $3,202,000.
|
|
iii.
|
Rare
pediatric voucher sales liability was valued based on the scenario-based methodology where the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset – 20.8%.
In the six months ended June 30, 2021, changes in these assumptions resulted in $2,000
increase in fair value of this liability.
At June 30, 2021, the fair market value of the rare pediatric voucher sales liability was $1,150,000.
|
|
|
|
|
iv.
|
The
present value of liquidation preference liability, included in the contingent consideration, was determined using the Black-Scholes
option pricing method and represents the fair value of the maximum payment amount according to the Agreement. The following assumptions
were used in the Black-Scholes option pricing model: risk free rate of 0.21%, expected volatility of 78.93%, expected dividend of
$0, and expected life of 5 years. No changes to the fair value of liquidation preference liability were recorded in the period ended
June 30, 2021. At June 30, 2021, the fair market value of the liquidation preference was $1,823,000.
|
The
Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities
are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
The following
table summarizes our financial instruments that are measured at fair value on a recurring basis as of June 30, 2021:
SCHEDULE OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
|
|
Fair
Value Hierarchy
|
|
|
|
|
June
30, 2021
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
December
31, 2020
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
49,963
|
|
|
$
|
-
|
|
Derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
24,982
|
|
|
|
-
|
|
Contingent
liability
|
|
|
-
|
|
|
|
-
|
|
|
|
9,648,000
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,722,945
|
|
|
$
|
-
|
|
The
following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs:
SCHEDULE OF RECONCILIATION OF ALL LIABILITIES MEASURED AT FAIR VALUE USING LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS
June 30,
2021
|
|
Contingent
Liabilities
|
|
Balance at December 31, 2020
|
|
|
-
|
|
Initial
valuation of contingent liabilities assumed on Somah acquisition1
|
|
$
|
9,926,000
|
|
Change
in fair value
|
|
|
(278,000
|
)
|
Balance at June 30, 2021
|
|
$
|
9,648,000
|
|
1
|
Measured as at Somah acquisition
date of July 31, 2020, see Note 5.
|
Fixed Assets
Fixed
assets are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to
operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life. Upon the sale or
retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss
is reflected in consolidated statements of operations.
SCHEDULE OF USEFUL LIFE OF FIXED ASSETS
Classification
|
|
Estimated
Useful Lives
|
Equipment
|
|
5 to 7 years
|
Furniture and fixtures
|
|
4 to 7 years
|
Intangible
Assets
Costs
incurred to file patent applications and acquired intangibles are capitalized when the Company believes that there is a high likelihood
that the patent will be issued and there will be future economic benefit associated with the patent. These costs will be amortized on
a straight-line basis over a 20-year life from the date of patent filing. All costs associated with abandoned patent applications are
expensed. In addition, the Company will review the carrying value of patents and other intangible assets for indicators of impairment
at least annually and if it determines that the carrying value is impaired, it values the patent and any other intangible assets at fair
value. As of June 30, 2021, $122,746 has been capitalized for patents which have not been amortized.
Impairment
of Long-lived Assets
The
Company follows ASC 360 for its long-lived assets. The Company’s long-lived assets, such as intellectual property, are required
to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the
related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying
amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets
are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the
net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The
Company determined that there were no 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.
Direct Cost
of Revenue
Cost of sales
includes the actual cost of merchandise sold; the cost of transportation of merchandise from our third-party vendor to our distributer.
Net Income
(Loss) per Share
The
Company computes basic and diluted income (loss) per share amounts pursuant to ASC 260 of the FASB Accounting Standards Codification.
Basic loss per share is computed by dividing net loss available to common stockholders, by the weighted average number of shares of common
stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share is computed
by dividing net loss available to common stockholders by the diluted weighted average number of shares of common stock during the period.
The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day
of the year for any potentially diluted debt or equity.
Income Taxes
The
Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of
existing assets and liabilities and loss carryforwards and their respective tax bases.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those
temporary differences are expected to be recovered or settled.
The
effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation
allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Tax
benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position
taken on an income tax return. The Company has no liability for uncertain tax positions as of June 30, 2021 and December 31, 2020. Interest
and penalties, if any, related to unrecognized tax benefits would be recognized as interest expense. The Company does not have any accrued
interest or penalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the three
and six months ended June 30, 2021 and 2020.
Segment
Information
In
accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the
Company is required to report financial and descriptive information about its reportable operating segments. The Company has one operating
segment as of June 30, 2021 and December 31, 2020.
Value of
Warrants Issued with Debt
The
Company estimates the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option
pricing model, or, if the terms are more complex - the Monte Carlo option lattice model. We record the amounts as interest expense
or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market
price of the Company’s common stock, stock price volatility and other assumptions as deemed appropriate. These inputs and assumptions
are subject to management’s judgment and can vary materially from period to period.
Derivative
Liabilities
The
Company records the estimated fair value of the warrants as of the date of issuance and at each balance sheet reporting date thereafter.
As of June 30, 2021, none of the convertible notes or warrants that resulted in the recording of the related derivative liabilities had
a change in estimated value as they were granted at the end of May 2021 and any change at June 30, 2021 was deemed immaterial.
Effect of
Recent Accounting Pronouncements
Recently
Issued Accounting Standards Not Yet Adopted
The
Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on
its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements
will have a significant effect on its consolidated financial statements.
Concentration
of Credit Risk
The
Company places its temporary cash investments with financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”).
The Company has amounts over insured limits.
Amounts
on deposit may at times exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts.
Customer
Concentrations
For
the three and six months ended June 30, 2021, four customers/distributors selling to end customers made up 100% of the revenues. As of
June 30, 2021, three customers/distributors made up 100% of accounts receivable.
Research
and Development
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.
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” or “Seller”) to acquire all of the assets and none of the liabilities of Somah
(the “Acquisition”), including DuraGraft®, a one-time intraoperative vascular graft treatment for use in vascular and
bypass surgeries that maintains endothelial function and structure, and other related properties.
On
July 31, 2020, the Company and Somah entered into Amendment No. 3 to the Agreement and the Agreement was finalized. Pursuant to the terms
of this amendment, it was agreed that, as part of the Acquisition, the Company would acquire the outstanding capital stock of Somahlution,
Inc., held by Somahlution, LLC, rather than the assets of Somahlution, Inc. This change to the Agreement was made to accommodate the
European Union (“EU”) requirements with respect to the future manufacturing under Somahlution, Inc. of CE marked products
for sale in the EU. In Amendment No. 3, the Company agreed to assume certain payables of Somah related to clinical and medical
expenses. It was agreed that the payments on the assumed debts would be recorded as a prepaid royalty against future royalties. As of
June 30, 2021 and December 31, 2020, prepaid royalties were $340,969
and $344,321,
respectively, and were recorded as a non-current asset. See Note 9.
Pursuant to
the Agreement and in consideration of the outstanding capital stock of Somahlution, Inc., the Company agreed to issue to Somah:
|
●
|
10,000,000 restricted shares
of common stock of the Company;
|
|
●
|
Warrants to purchase 3,000,000
restricted common shares of the Company with a strike price of $5.00 per common share and a term of five years;
|
|
●
|
The Company, on a pro rata
basis, shall grant the Seller the following contingent consideration upon receiving the U.S. Federal Drug Administration (“FDA”)
final approval and insurance reimbursement approval on the product:
|
|
○
|
Grant of performance warrants
for 4,000,000 restricted common shares of the Company, with a strike price determined based on the average of the closing prices
of the common shares for the 30 calendar days following the announcement of FDA approval;
|
|
○
|
Royalties to be paid on
all net sales of the product acquired from Somah of 6% on the first $50 million of international net sales (and 5% on the first $50
million of U.S. net sales), 4% for greater than $50 million up to $200 million, and 2% for greater than $200 million;
|
|
○
|
Payment of 10% of cash
value of the rare pediatric voucher sales following the U.S. Federal Drug Administration approval and subsequent sale to an
unaffiliated third party of a rare pediatric voucher based on Somah’s DuraGraft product;
|
|
○
|
Grant of rare pediatric
voucher warrants to purchase an aggregate of 250,000 commons shares with a strike price determined based on the average of the closing
prices of the common shares for the 30 calendar days following the announcement of FDA approval, and
|
|
○
|
Liquidation preference,
up to a maximum of $20 million upon the sale by the Company of all or substantially all of the assets relating to the Somah products.
Upon the sale of either or both of the DuraGraft or Somah derived solid organ transplant products, the Company will pay 15% of the
net sale proceeds towards the liquidation preference maximum amount.
|
On
July 30, 2020, the Company completed the acquisition of Somah (the “Somah Transaction”). The acquisition of Somah provides
the Company with access to DuraGraft and other related intangible assets, which upon approval by FDA, will further the Company’s
continued growth and international-wide product rollout.
In
accordance with ASC 805-10 the substance of a transaction constitutes a business combination as the business of Somah meets the definition
of a business under the standard. The transaction was accounted for in accordance with the acquisition method of accounting, and the
assets acquired, and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date.
The purchase price is based on management’s estimate of fair value of the common shares and warrants issued as well as contingent
consideration and liquidation preference given up. The final allocation of the purchase price consideration to the assets acquired and
liabilities assumed has been completed and finalized.
Details
of the carrying amount and the fair value of identifiable assets and liabilities acquired and purchase consideration paid is as follows:
SCHEDULE OF PRELIMINARY ALLOCATION OF CONSIDERATION
|
|
As
previously reported
|
|
|
Amendment
|
|
|
As
restated
|
|
Consideration
given up
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
$
|
12,500,000
|
|
|
$
|
-
|
|
|
$
|
12,500,000
|
|
Warrants
|
|
|
1,932,300
|
|
|
|
(732,300
|
)
|
|
|
1,200,000
|
|
Contingent consideration1
|
|
|
-
|
|
|
|
9,926,000
|
|
|
|
9,926,000
|
|
Total consideration
given up
|
|
$
|
14,432,300
|
|
|
$
|
9,193,700
|
|
|
$
|
23,626,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of identifiable assets acquired, and liabilities assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
$
|
275,480
|
|
|
$
|
(244,572
|
)
|
|
$
|
30,908
|
|
Property, plant, and equipment
|
|
|
9,092
|
|
|
|
-
|
|
|
|
9,092
|
|
Intangible assets
|
|
|
14,147,728
|
|
|
|
4,022,272
|
|
|
|
18,170,000
|
|
Goodwill
|
|
|
-
|
|
|
|
5,416,000
|
|
|
|
5,416,000
|
|
Total identifiable assets
|
|
$
|
14,432,300
|
|
|
$
|
9,193,700
|
|
|
$
|
23,626,000
|
|
1
|
Contingent
consideration, for the purposes of the final allocation of the purchase price consideration, was measured as at the date of Somah acquisition
– July 31, 2020. During the six months ended June 30, 2021, the fair market value of the contingent consideration, measured in
accordance with Level 3 of the fair value hierarchy, has decreased
by $278,000
(Note 3).
|
The intangible
assets acquired include:
|
●
|
DuraGraft patent, with
estimated remaining economic life of 13 years,
|
|
●
|
“Distribution Relationships”
intangible asset related to DuraGraft product, with estimated remaining economic life of 10 years, and
|
|
●
|
In-process research and
development intangible asset – “Cyto Protectant Life Sciences” with indefinite economic life.
|
See
Note 8 for a detailed description of amortization recorded on DuraGraft related intangible assets.
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.
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 completed the Somah Transaction and acquired DuraGraft® technology in exchange for 10,000,000 shares of
common stock, 3,000,000 warrants and certain contingent considerations (Note 5). Somah is engaged in developing products to prevent ischemic
injury to organs and tissues and DuraGraft® is a one-time intraoperative vascular graft treatment for use in vascular and bypass
surgeries that maintains endothelial function and structure, and other related properties.
SUMMARY OF INTANGIBLE ASSETS AMORTIZATION EXPENSE
|
|
June 30,
2021
|
|
|
|
|
|
|
Restated
|
|
|
December
31, 2020
|
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
Krillase intangible assets
|
|
$
|
28,600,000
|
|
|
$
|
-
|
|
|
$
|
28,600,000
|
|
|
$
|
28,600,000
|
|
|
$
|
-
|
|
|
$
|
28,600,000
|
|
DuraGraft, patent
|
|
|
5,256,000
|
|
|
|
(370,615
|
)
|
|
|
4,885,385
|
|
|
|
14,147,729
|
|
|
|
(589,489
|
)
|
|
|
13,558,240
|
|
Distributor Relationship
|
|
|
308,000
|
|
|
|
(28,233
|
)
|
|
|
279,767
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
IPR&D - Cyto Protectant Life Sciences
|
|
|
12,606,000
|
|
|
|
-
|
|
|
|
12,606,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Patents in Process
|
|
|
122,745
|
|
|
|
-
|
|
|
|
122,745
|
|
|
|
119,971
|
|
|
|
-
|
|
|
|
119,971
|
|
Total Intangibles
|
|
$
|
46,892,745
|
|
|
$
|
(398,848
|
)
|
|
$
|
46,493,897
|
|
|
$
|
42,867,700
|
|
|
$
|
(589,489
|
)
|
|
$
|
42,278,211
|
|
SCHEDULE OF INTANGIBLE ASSETS
Balance, December 31, 2019
|
|
$
|
28,613,000
|
|
Acquired in asset purchase agreement
|
|
|
14,147,729
|
|
Additions
|
|
|
106,971
|
|
Amortization expense
|
|
|
(589,489
|
)
|
Balance, December 31, 2020
|
|
|
42,278,211
|
|
Acquired in Somah Transaction (amended)
|
|
|
4,022,271
|
|
Additions
|
|
|
2,775
|
|
Amortization expense
(amended)
|
|
|
190,640
|
|
Balance, June 30, 2021
|
|
$
|
46,493,897
|
|
As
a result of restatement to account for measurement period adjustments, described in Notes 5 and 12, the value of DuraGraft intangibles
purchased with the Somah Transaction increased by $4,920,298.
The intangible assets acquired included:
|
●
|
DuraGraft patent, with
estimated remaining economic life of 13 years,
|
|
●
|
“Distribution Relationships”
intangible asset related to DuraGraft product, with estimated remaining economic life of 10 years, and
|
|
●
|
In-process research and
development intangible asset – “Cyto Protectant Life Sciences” with indefinite economic life.
|
The
useful lives of the intangible assets are based on the life of the patent and related technology. The patents and related technology
for Krillase are not currently being amortized as they have not yet been put into operations.
Future
amortizations for DuraGraft related intangible assets for the next five years will be $435,108
for each year from 2021 through 2026 and $2,989,613
for 2027 and thereafter. Amortization related to
in process research and development will be determined upon the Company achieving commercialization.
NOTE 9 –
RELATED PARTY TRANSACTIONS
The
Company has recorded a prepaid royalty to the shareholders of Somahlution, LLC in regard to the acquisition (see Note 5). The primary
beneficial owner is Dr. Vithal Dhaduk, currently the CEO (appointed in June 2021, and previously a director appointed in 2021) and significant
shareholder of the Company. Prepaid royalties were $340,969 at June 30, 2021 and $344,321 at December 31, 2020.
During
the three months ended June 30, 2021, a shareholder and consultant of the Company loaned the Company $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.
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 no 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 $0.001.
As of June
30, 2021 and December 31, 2020, there were 35,928,188 shares of common stock issued and outstanding.
Options
On
January 13, 2021, the Board of Directors approved the Marizyme, Inc. 2021 Stock Incentive Plan (“SIP”). The SIP incorporates
stock options issued prior to January 13, 2021. The SIP authorized 5,300,000 options for issuance. As of June 30, 2021, there remains
512,500 options available for issuance.
The
summary of option activity for the six months ended June 30, 2021 is as follows:
SCHEDULE
OF STOCK OPTION ACTIVITY
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Weighted
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Weighted
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Average
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Average
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Total
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Number of
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Exercise
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Contractual
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Intrinsic
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Options
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Price
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Life
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Value
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Outstanding at December 31, 2020
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3,800,943
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$
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1.36
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Granted
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732,500
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$
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1.25
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Exercised
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-
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$
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-
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Forfeited
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(412,500
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)
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$
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1.25
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Outstanding at June 30, 2021
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4,120,943
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$
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1.36
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8.82
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$
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388,350
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Exercisable at June 30, 2021
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3,082,402
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$
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1.39
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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 – RESTATEMENT
According
to ASC 805, the measurement period is a reasonable time period after the acquisition date when the acquirer may adjust the provisional
amounts recognized for a business combination if the necessary information is not available by the end of the reporting period in which
the acquisition occurs. Subsequent to the Original Filing, filed with the SEC on August 23, 2021, the valuation of the assets acquired
with the Somah Transaction was finalized, therefore the management of Marizyme chose to amend the Original Filing to disclose the nature
and amount of measurement-period adjustments.
As
a result, the following items have been adjusted as at and for the three and six months ended June 30, 2021:
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●
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Intangible
assets (Notes 5 and 8),
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●
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Goodwill
(Note 5),
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●
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Accounts
payable and accrued expenses,
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●
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Contingent
liabilities (Notes 3 and 5),
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●
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Amortization
expense (Note 8).
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The
restatements were made in accordance with the provisions of ASC topic 805.
The disclosure provision of ASC 805 stipulates that acquirer must recognize measurement period adjustments during the period in which
they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting
had been completed at the acquisition date. As the valuation of the assets acquired, liabilities assumed, and consideration given up
on completion of the Somah acquisition had been finalized in the six months ended June 30, 2021, only the current period results were
restated to reflect the measurement period adjustments.
The
following table reconciles previously reported net income to restated amounts:
SCHEDULE
OF RECONCILES PREVIOUSLY REPORTED STATEMENTS
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Three
Months Ended June 30,
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Six
Months Ended
June 30,
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2021
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2021
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Net loss, as previously reported
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$
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(2,460,842
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)
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$
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(5,271,393
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)
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Adjustment to other general and administrative
expenses
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244,572
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244,572
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Adjustment to amortization expense on intangible
assets
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299,342
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|
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898,026
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Change in fair value
of contingent liabilities
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278,000
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278,000
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As restated
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$
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(1,638,928
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)
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$
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(3,850,795
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)
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Net loss
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$
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(1,638,928
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)
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$
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(3,850,795
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)
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Restated loss per share
– basic and diluted
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$
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(0.05
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)
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$
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(0.11
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)
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Selected
Consolidated Balance Sheet information as of June 30, 2021:
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Previously
Reported
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Increase
(Decrease)
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Restated
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Assets:
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Intangible
assets, net
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$
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41,573,599
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$
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4,920,298
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$
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46,493,897
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Goodwill
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-
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5,416,000
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5,416,000
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Total Assets
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$
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43,342,385
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$
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10,336,298
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$
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53,678,683
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Liabilities:
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Contingent
liabilities
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-
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9,648,000
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9,648,000
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Total Liabilities
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$
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2,797,108
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$
|
9,648,000
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$
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12,445,108
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Stockholders’ equity:
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Additional paid in capital
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$
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82,606,376
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$
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(732,300
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)
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$
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81,874,076
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Accumulated
deficit
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(42,097,027
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)
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1,420,598
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(40,676,429
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)
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Total liabilities and
stockholders’ equity
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$
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43,342,385
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$
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10,336,298
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$
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53,678,683
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Selected
Shareholders’ equity information for the six months ended June 30, 2021:
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Six
Months Ended
June 30,
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2021
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Balance, June 30, 2021, as reported previously
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$
|
40,545,277
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Adjustment to net loss
|
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1,420,598
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Adjustment to fair value
of warrants issued on acquisition of Somah
|
|
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(732,300
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)
|
As restated
|
|
$
|
41,233,575
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|
As
a result of all adjustments herein, the total assets increased by $10,336,298,
predominately due to the valuation of the intangible assets and goodwill recognized on the Somah acquisition and the total liabilities
increased by $9,648,000,
mainly due to the recognition of $9,926,000
of contingent liabilities assumed on the Somah acquisition
and decrease in contingent liabilities fair value in the six months ended June 30, 2021 by $278,000.
The fair market value of warrants given up was revalued and decreased by $732,300.
Additionally, the Company overestimated the amortization expense by $898,026
in the period ended June 30, 2021.
NOTE 13
- SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued and filed with the
Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition
in the condensed consolidated financial statements, except as stated below:
Convertible
Promissory Notes and Warrants
In
July 2021, the Company issued and sold 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.
Acquisition
of My Health Logic Inc.
On
November 1, 2021, Marizyme entered into a definitive arrangement agreement with Health Logic Interactive Inc. (“HLII”) pursuant
to which the Company will acquire My Health Logic Inc., a wholly-owned subsidiary of HLII (the “Transaction”).
The
Transaction will be effected by way of a plan of arrangement under the Business Corporations Act (British Columbia). In connection with
the plan of arrangement, Marizyme will issue an aggregate of 4,600,000 shares of its common stock to HLII, which will be subject to certain
terms and restrictions. Upon closing, My Health Logic Inc. will be a wholly-owned subsidiary of Marizyme.
The
acquisition is subject to, among other things, the approval of the Supreme Court of British Columbia, the approval of the NEX board of
the TSX Venture Exchange, and requires the approval of at least two-thirds of the votes cast by HLII shareholders at the upcoming annual
and special meeting of HLII shareholders