The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. Some
of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report on Form 10-K, including information with respect
to our plans and strategy for our business and financing needs, includes
forward-looking statements that involve risks and uncertainties and should be
read together with "Item 1A. Risk Factors" of this Annual Report on Form 10-K
for a discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and
elsewhere in this Annual Report and in other reports we file with the SEC,
particularly those under "Item 1A. Risk Factors".
Overview
Marizyme is a multi-technology biomedical company dedicated to the accelerated
development and commercialization of medical technologies that improve patient
health outcomes.
Key elements of our strategy include:
? Commercialize DuraGraft and related products. Continue (i) the distribution of
DuraGraft, in Europe and other countries that accept the CE marking and (ii)
the development, regulatory approval and commercialization of DuraGraft in the
United States. We filed a pre-submission letter for DuraGraft with the FDA in
November 2021 and we submitted the De Novo request for DuraGraft to the FDA on
January 3, 2023.
? Commercialize MATLOC 1 and related products. Complete the integration of our
UACR lab-on-chip technology with our point-of-care MATLOC 1 device for FDA
approval and commercialization. MATLOC 1 is expected to be used as a screening
device to test those at risk of CKD to slow the progression of the disease.
Following our development of MATLOC 1, we intend to develop MATLOC 2, which
will incorporate eGFR lab-on-chip technology and allow for a full quantitative
CKD diagnosis at point-of-care.
? Commercialize Krillase and related products. Begin to commercialize our
Krillase platform through the development of (i) various Krillase-based
products and (ii) potential strategic partnerships for these products.
? Develop MAR-FG-001 fat grafting technology and products. Continue with the
development of MAR-FG-001 to validate its protective abilities and its
improvements to the retention of fat volume.
? Acquire more life science assets. Expand our product portfolio through the
identification and acquisition of additional life science assets.
Our net loss was approximately $38.17 million and $11.0 million for the fiscal
years ended December 31, 2022 and 2021, respectively. We expect to incur
significant expenses and operating losses over the next several years.
Accordingly, we will need additional financing to support our continuing
operations. We will seek to fund our operations through public or private equity
offerings, debt financings, government or other third-party funding,
collaborations and licensing arrangements. Adequate additional financing may not
be available to us on acceptable terms, or at all. Our failure to raise capital
as and when needed would impact our going concern and would have a negative
impact on our financial condition and our ability to pursue our business
strategy and continue as a going concern. We will need to generate significant
revenues to achieve profitability, and we may never do so.
Our three primary products and medical devices, DuraGraft, MATLOC and Krillase,
and other aspects of our business, are described in the section "Item 1 -
Business" of this Annual Report.
51
Impact of COVID-19 Pandemic
The Company has been impacted by the COVID-19 pandemic and related supply chain
shortages and other economic conditions, and some of its earlier plans to
further diversify its operations and expand its operating subsidiaries were
delayed as a result. During 2021 and the first two quarters of 2022, the impact
of COVID-19 on the Company's supply chain and its ability to produce DuraGraft
inventory was a primary reason that we did not generate substantial revenue from
sales of DuraGraft during 2021 and 2022. There can be no assurance that future
supply chain and other problems due to COVID-19 outbreaks will not adversely
impact our revenues.
In addition, the Company is dependent upon certain contract manufacturers and
suppliers and their ability to reliably and efficiently fulfill its orders is
critical to the Company's business success. The COVID-19 pandemic has impacted
and may continue to impact certain of the Company's manufacturers and suppliers.
As a result, the Company has faced and may continue to face delays or difficulty
sourcing certain products, which could negatively affect the Company's business
and financial results.
While it is not possible at this time to estimate the total impact that COVID-19
could have on our business in the future, the continued spread of COVID-19 and
variants of the virus, the rate of vaccinations regionally and globally and the
measures taken by the government authorities, and any future epidemic disease
outbreaks, could: Disrupt the supply chain and the manufacture or shipment of
products and supplies for use by us in our research activities and by strategic
partners for their distribution and sales activities; delay, limit or prevent us
in our research activities and strategic partners in their distribution and
sales activities; impede our negotiations with strategic partners; impede
testing, monitoring, data collection and analysis and other related activities
by us; interrupt or delay the operations of the FDA or other regulatory
authorities, which may impact review and approval timelines for initiation of
clinical trials or marketing; or impede the launch or commercialization of any
approved products; any of which could delay our strategic partnership plans,
increase our operating costs, and have a material adverse effect on our
business, financial condition and results of operations.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
? our ability to generate revenue from sales of our products;
? our ability to obtain FDA approval for our products;
? our ability to access additional capital and the size and timing of subsequent
financings, if any;
? the costs of acquiring and utilizing data, technology, and/or intellectual
property to successfully reach our goals and to remain competitive;
? personnel and facilities costs in any region in which we seek to introduce and
market our products;
? the costs of sales, marketing, and customer acquisition;
? the average price for our products that will be paid by consumers;
? the number of our products ordered per quarter;
? costs to manufacture our products;
? the costs of compliance with any unforeseen regulatory obstacles or
governmental mandates in any states or countries in which we seek to operate;
and
? the costs of any additional clinical studies which are deemed necessary for us
to remain viable and competitive in any region of the world.
52
Smaller Reporting Company
We are a "smaller reporting company" as defined in Rule 10(f)(1) of Regulation
S-K. Smaller reporting companies may take advantage of certain reduced
disclosure obligations, including, among other things, providing only two years
of audited financial statements. We will remain a smaller reporting company
until the last day of the fiscal year in which (1) the market value of our
shares held by non-affiliates equals or exceeds $250 million as of the prior
June 30th, or (2) our annual revenues equaled or exceeded $100 million during
such completed fiscal year and the market value of our shares held by
non-affiliates equals or exceeds $700 million as of the prior June 30th.
Key Highlights of Fiscal Year 2022
Financing
Units Private Placement
During fiscal year 2022, the Company continued to offer units consisting of
convertible promissory notes and warrants (the "Units Private Placement"), with
the intent to raise up to $10,000,000 on a rolling basis. During 2022, the
Company issued units in the total principal amount of $7,315,138, of which the
Company received $6,696 ,460 in gross cash proceeds. The proceeds from the Units
Private Placement were used to settle certain debt obligations and will be used
to sustain the Company's growth and meet its capital obligations. For a further
description of the Units Private Placement, please see "Liquidity and Capital
Resources - Units Private Placement" below.
December 2022 Promissory Note
On December 28, 2022, the Company issued the December 2022 Promissory Note to
Hexin for the principal amount of $750,000 bearing interest at the annual rate
of 20% per annum, due June 28, 2023. Pursuant to the December 2022 Promissory
Note, the Company agreed to issue warrants to purchase common stock equal to
$1,500,000 with the same terms as any warrants issued in the Company's next
financing round and which will be immediately exercisable. Default in the
payment of principal or interest or other material covenant under the note
triggers a default penalty equal to 0.666% of $750,000 per month during the
period of default, and other lender rights, including the demand of immediate
payment of all amounts due including accrued but unpaid interest, and recovery
of all costs, fees including attorney's fees and disbursements, and expenses
relating to collection and enforcement of the promissory note.
Changes in Capitalization
First Reverse Stock Split and Decrease in Authorized Shares
On August 1, 2022, the board of directors of the Company adopted resolutions
authorizing the First Reverse Stock Split). In accordance with such board
approval, on August 3, 2022, the Company filed the First Certificate of Change
with the Nevada Secretary of State, which provided for the First Reverse Stock
Split. Pursuant to NRS Section 78.209(3), the First Certificate of Change became
effective at the First Certificate of Change Effective Time. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Developments - Second Reverse Stock Split, First Forward
Stock Split, Second Forward Stock Split, and Consolidated Reverse Stock Split"
for discussion of related subsequent developments.
Board and Stockholder Approval of Increase in Stock Incentive Plan, the
Authorized Capital Increase, and Other Meeting Proposals
In meetings held on August 26, 2022 and August 30, 2022 and a unanimous written
consent executed as of October 21, 2022, the Company's board of directors
adopted resolutions authorizing, and empowering the Company's officers to take
all such further actions as were necessary, proper, or advisable to carry out,
among other matters, (a) the increase in the number of shares of common stock
reserved for issuance pursuant to the SIP from 5,300,000 to 7,200,000; (b) the
election of the directors to the board of directors; and (c) the Authorized
Capital Increase. The board of directors directed that the Company hold our 2022
Annual Meeting of Shareholders (the "Annual Meeting") on December 27, 2022 in
order to consider and vote on proposals to approve or ratify such actions.
On December 27, 2022, at the Annual Meeting, each of the proposals described
above, including the Authorized Capital Increase, were approved by the required
number of votes of the Company's stockholders. Accordingly, on December 30,
2022, the Company filed the Certificate of Amendment with the Nevada Secretary
of State, which became effective at the Certificate of Amendment Effective Time.
October 2022 Letter Agreement
The FINRA Staff determined that certain securities previously received by each
of Univest and Bradley Richmond, a registered representative of Univest, in
connection with the following transactions with us constituted underwriting
compensation in connection with the Company's proposed public offering pursuant
to FINRA Rule 5110, based on the FINRA Staff's interpretation of such rule: (a)
our Units Private Placement conducted between May 2021 and August 2022, (b) the
My Health Logic acquisition, (c) a consulting agreement that we entered into
with Mr. Richmond in September 2020, and (d) a stock option exercisable for
273,750 shares of common stock received by Mr. Richmond from one of our former
executives in March 2022 in exchange for Mr. Richmond's payment of $25,000 to
the former executive. Consequently, each of Univest and Mr. Richmond, pursuant
to a letter agreement entered into with us, dated October 28, 2022, addressed
and submitted to the FINRA Staff (the "October 2022 Letter Agreement"), agreed
to forego their applicable rights to an aggregate of 1,435,073 shares of common
stock beneficially owned by them collectively (including shares of common stock
and shares of common stock issuable upon exercise and conversion, as applicable,
of warrants, convertible notes and a stock option), which were issued pursuant
to the transactions listed above. Pursuant to the October 2022 Letter Agreement,
the parties thereto agreed that the cancellation or disposal of the
aforementioned securities shall be without recourse by either Univest or Mr.
Richmond. Each of Univest and Mr. Richmond strongly disagrees with the FINRA
Staff's interpretation and application of FINRA Rule 5110 to the securities
described in the October 2022 Letter Agreement.
53
As the result of extinguishment of obligations under the cancelled convertible
notes, warrants and shares that were previously issued to Mr. Richmond and
Univest, the Company recorded $338,181 gain on debt extinguishment and $3,000
gain on cancellation of shares of common stock in the consolidated statements of
operations for the year ended December 31, 2022.
Corporate Governance Changes
During 2022, the board of directors of the Company was increased from five to
seven members and a new chair of the Audit Committee was appointed that the
board determined to be an "audit committee financial expert" as defined under
Item 407(d)(5)(ii) and (iii) of Regulation S-K. The board also restructured its
committees and established or reestablished an Audit Committee, a Compensation
Committee, and a Nominating and Corporate Governance Committee. The board also
adopted a committee charter for the Audit Committee, the Compensation Committee,
and the Nominating and Corporate Governance Committee. Each of these charters is
available on our website at https://www.marizyme.com.
Recent Developments
Second Reverse Stock Split, First Forward Stock Split, Second Forward Stock
Split, and Consolidated Reverse Stock Split
On January 3, 2023, the board of directors of the Company adopted resolutions
authorizing the Second Reverse Stock Split in order to, together with the First
Reverse Split, effect an aggregate one (1) for fifteen (15) reverse stock split.
In accordance with such board approval, on January 5, 2023, the Second
Certificate of Change was filed with the Nevada Secretary of State, which
provided for the Second Reverse Stock Split. Pursuant to NRS Section 78.209(3),
the Second Certificate of Change became effective at the Second Certificate of
Change Effective Time.
The Company submitted a request to FINRA to process and announce each of the
First Reverse Stock Split and Second Reverse Stock Split on FINRA's Daily List
of issuer corporate actions in accordance with FINRA Rule 6490. In order to
address FINRA's issuer corporate action processing requirements, and as
authorized by the resolutions of our board of directors as adopted on August 1,
2022 and January 3, 2023, on January 13, 2023, the Third Certificate of Change,
Fourth Certificate of Change and Fifth Certificate of Change was each filed by
the Company with the Nevada Secretary of State. These filings provided for two
forward stock splits of the authorized and issued and outstanding common stock
at the same ratios as the First Reverse Stock Split and Second Reverse Stock
Split followed by a reverse stock split at their combined ratio. These filings
were made in order for us to amend the Company's request for FINRA to process
the First Reverse Stock Split and Second Reverse Stock Split in aggregate to
request that FINRA process the Consolidated Reverse Stock Split in accordance
with FINRA's issuer corporate action processing requirements. The Third
Certificate of Change provided for the First Forward Stock Split, and became
effective at the Third Certificate of Change Effective Time, pursuant to NRS
Section 78.209(3). The Fourth Certificate of Change provided for the Second
Forward Stock Split, and became effective at the Fourth Certificate of Change
Effective Time, pursuant to NRS Section 78.209(3). The Fifth Certificate of
Change provided for the decrease of the authorized common stock from 300,000,000
to 20,000,000 and corresponding change of every fifteen (15) shares of the
issued and outstanding common stock to one (1) share, and became effective at
the Fifth Certificate of Change Effective Time, pursuant to NRS Section
78.209(3).
The processing of the effects of the Consolidated Reverse Stock Split on the
number of shares held by each stockholder according to transfer agent or
brokerage firm records and the reported price of the common stock will occur at
the Public Adjustment Time, which will be subject to the listing of the common
stock on the Nasdaq Capital Market tier of Nasdaq and completion of FINRA's
issuer corporate action processing requirements. The listing of the common stock
on Nasdaq remains subject to approval by Nasdaq of our listing application. The
outcome of these matters cannot be determined at this time. Assuming that Nasdaq
approves the listing of the common stock, it is anticipated that the Public
Adjustment Time will occur after market close on the trading date prior to the
first date of trading on Nasdaq. At that time, the number of shares of common
stock held by each stockholder as reflected in the records of the Company's
transfer agent or the stockholder's brokerage firm records will be reduced by
1,500% to reflect the processing of the Consolidated Reverse Stock Split. At
market open the following trading day, which as anticipated will be the first
day that the common stock trades on Nasdaq, the price of the common stock will
reflect a 1,500% increase as a result of the processing of the Consolidated
Reverse Stock Split. The common stock will trade on Nasdaq under its current
ticker symbol, "MRZM," but will trade under a new CUSIP Number, 570372 201. The
Company also intends to file a Current Report on Form 8-K reporting FINRA's
announcement of the Consolidated Reverse Stock Split and related material
matters.
54
No fractional shares will be issued, and no cash or scrip will be paid in
connection with the First Reverse Stock Split, the Second Reverse Stock Split,
the First Forward Stock Split, the Second Forward Stock Split, or the
Consolidated Reverse Stock Split. One whole share of common stock is issuable to
any stockholder who would otherwise receive a fractional share pursuant to the
First Certificate of Change or the Second Certificate of Change. No fractional
shares were anticipated to become issuable pursuant to the Third Certificate of
Change, the Fourth Certificate of Change, or the Fifth Certificate of Change. At
the Public Adjustment Time, certain stockholders whose shares are converted at
the Consolidated Reverse Stock Split ratio may receive one fewer whole share in
lieu of fractional shares than such stockholders would have received in lieu of
fractional shares from the separate rounding at different effective dates and
times of post-split fractional shares provided for by the First Certificate of
Change and Second Certificate of Change as compared to the adjustment to shares
held by such stockholders at the time of the Public Adjustment Time. Following
the Public Adjustment Time, any claim to an additional whole share issuable
pursuant to the First Certificate of Change and the Second Certificate of Change
of any stockholder will be addressed on a case-by-case basis upon receipt of a
written notice of such claim submitted by the stockholder with supporting
documentation to the Company at the following address: Attn: Secretary,
Marizyme, Inc., 555 Heritage Drive, Suite 205, Jupiter, Florida 33458.
January 2023 Letter Agreement
Under a Letter Agreement between the Company and Univest as placement agent for
the investors in the Units Private Placement, dated January 12, 2023 (the
"January 2023 Letter Agreement"), the parties agreed that simultaneously with
any adjustment to the exercise price under the Class C Warrants as a result of
any equity issuances, not including qualified financings and certain other
exempt issuances, the number of shares of common stock that may be purchased
under the Class C Warrants will be increased such that the aggregate exercise
price of such shares will be the same as the aggregate exercise price in effect
immediately prior to the adjustment, without regard to any limitations on
exercise contained in the Class C Warrants, including the beneficial ownership
limitation described above. The January 2023 Letter Agreement was conditioned
upon approval by the board of directors by January 31, 2023 and the filing of a
Current Report on Form 8-K relating to the transactions and amendments contained
in the Letter Agreement. The board of directors approved the January 2023 Letter
Agreement on January 18, 2023.
February 2023 Promissory Note
On February 6, 2023, the Company entered into a securities purchase agreement
(the "February 2023 Securities Purchase Agreement") with Walleye, pursuant to
which the Company issued the February 2023 Promissory Note in the aggregate
principal amount of $1,000,000 (the "February 2023 Subscription Amount") and a
Class D Common Stock Purchase Warrant (the "February 2023 Warrant") to purchase
up to a number of shares of the Company's common stock equal to the quotient of
250% of the February 2023 Subscription Amount divided by the price per unit at
which units are sold in the Company's proposed public offering (the "February
2023 Warrant Shares").
The principal amount of the February 2023 Promissory Note must be repaid in full
by the Company to the holder of the February 2023 Promissory Note on or before
the date that is 90 days following the issuance of the February 2023 Promissory
Note, or May 7, 2023 (the "February 2023 Promissory Note Maturity Date"). If all
obligations arising under the February 2023 Promissory Note are not paid or
otherwise satisfied in full on the February 2023 Promissory Note Maturity Date,
then the principal amount of the February 2023 Promissory Note shall be
increased from $1,000,000 to $1,250,000. The February 2023 Promissory Note bears
no interest. If an event constituting an event of default under the February
2023 Promissory Note occurs, including non-payment, defaults of covenants, an
adverse judgment for payment of $500,000 or more, defaults on certain other
indebtedness, bankruptcy-type events, or failure to maintain directors and
officers insurance coverage of at least $1,000,000, and such event of default is
not cured with the period specified, the obligations of the Company under the
February 2023 Promissory Note will become subject to immediate repayment
obligations. The February 2023 Promissory Note may be assigned.
The February 2023 Warrant shall be exercisable immediately upon the date (the
"Public Offering Date") that the registration statement on Form S-1 of the
Company (Registration No. 333-262697) registering the units to be issued in the
Company's proposed public offering of the Company (the "Public Offering
Registration Statement") is declared effective by the SEC and may be exercised
until the date that is five years after the Public Offering Date (the
"Termination Date"). The exercise price of the February 2023 Warrant (the
"February 2023 Warrant Exercise Price") will be equal to the public offering
price per unit at which units are sold under the Public Offering Registration
Statement. The February 2023 Warrant provides for voluntary cashless exercise if
at the time of exercise thereof there is no effective registration statement
registering, or the prospectus contained therein is not available for the
issuance of, the February 2023 Warrant Shares to the February 2023 Warrant
holder, and provides for automatic cashless exercise upon the Termination Date
if the February 2023 Warrant is not otherwise exercised. The February 2023
Warrant holder may not exercise the February 2023 Warrant to the extent that the
February 2023 Warrant holder (together with its Affiliates (as defined by the
February 2023 Warrant)) would beneficially own in excess of 4.99% of the number
of shares of common stock outstanding, as such percentage ownership is
determined in accordance with the terms of the February 2023 Warrant (the
"Beneficial Ownership Limit"). The February 2023 Warrant holder may increase the
Beneficial Ownership Limit to any other percentage not in excess of 9.99%,
provided that any increase in such percentage shall not be effective until 61
days following notice from the February 2023 Warrant holder. The number of
February 2023 Warrant Shares, the February 2023 Warrant Exercise Price and other
terms of the February 2023 Warrant are subject to customary adjustments upon the
occurrence of certain corporate events subject to the Beneficial Ownership Limit
to the extent specified. The Company may also voluntarily reduce the February
2023 Warrant Exercise Price to any amount and for any period of time deemed
appropriate by the board of directors of the Company subject to the prior
written consent of the February 2023 Warrant holder. The February 2023 Warrant
is transferable but may only be disposed of in compliance with state and federal
securities laws pursuant to the February 2023 Securities Purchase Agreement. The
February 2023 Warrant Shares acquired upon the exercise of the February 2023
Warrant, if not registered, will also have restrictions upon resale imposed by
state and federal securities laws.
55
Pursuant to the February 2023 Securities Purchase Agreement, the Company shall
promptly, but in any event no later than 90 days following the Public Offering
Date, prepare and file with the SEC a registration statement covering the resale
of the February 2023 Warrant Shares (the "Resale Registration Statement"). The
Company shall use its commercially reasonable efforts to have the Resale
Registration Statement declared effective as soon as practicable after filing
thereof but in no event later than the date that is 120 days following the
Public Offering Date. After the Resale Registration Statement is declared
effective, the Company shall continue to keep the Resale Registration Statement
effective until the Warrant Shares may be resold pursuant to Rule 144 under the
Securities Act, or have been sold.
The February 2023 Securities Purchase Agreement and the February 2023 Promissory
Note contain customary representations and warranties and customary covenants
for a loan of this kind. The February 2023 Promissory Note is unsecured and is
subordinated in right of payment to the prior payment in full of all senior
indebtedness. For purposes of the February 2023 Promissory Note, "senior
indebtedness" means all indebtedness of the Company to banks, insurance
companies and other financial institutions or funds, unless in the instrument
creating or evidencing such indebtedness it is provided that such indebtedness
is not senior in right of payment to the February 2023 Promissory Note. Subject
to the other subordination provisions of the February 2023 Promissory Note, the
February 2023 Promissory Note provides that in the event that the holder of any
senior indebtedness accelerates such senior indebtedness , then the February
2023 Promissory Note holder may accelerate the indebtedness evidenced by the
February 2023 Promissory Note, and if the Company is permitted under the terms
of the senior indebtedness to pay an amount due and owing under the February
2023 Promissory Note and fails to make such payment, then so long as the terms
of the senior indebtedness do not prohibit such action, the February 2023
Promissory Note holder may exercise its rights to be paid such amount, but only
such amount (and the February 2023 Promissory Note holder shall not be permitted
to accelerate under the February 2023 Promissory Note).
DeVito Settlement Agreement
Under a Confidential Settlement Agreement, dated November 18, 2022 (the "DeVito
Settlement Agreement"), the Company and Mr. DeVito agreed that Mr. DeVito would
dismiss the DeVito Complaint. The parties also agreed that following an
anticipated reverse split, the Company was required to issue Mr. DeVito 60,000
"post-split" (giving effect to the First Reverse Stock Split and prior to the
Second Reverse Stock Split, First Forward Stock Split, Second Forward Stock
Split, and Consolidated Reverse Stock Split) shares to be delivered in paper
certificate form within three (3) business days of the reverse split. The DeVito
Settlement Agreement further provided that the delivered shares would be subject
to normal and customary restrictions pursuant to Rule 144 of the SEC. In the
event no split occurred by December 12, 2022, the Company was required to issue
Mr. DeVito 240,000 "pre-split" shares. In addition, the parties agreed that no
further continuous service is required pursuant to Section 2 of the DeVito
Release. Pursuant to the agreement, on January 4, 2023, the Company issued
240,000 shares of common stock to Mr. DeVito.
Results of Operations
Components of Results of Operations
Revenue
Revenue represents gross product sales less service fees and product returns.
For our distribution partner channel, we recognize revenue for product sales at
the time of delivery of the product to our distribution partner. As our products
have an expiration date, if a product expires, we will replace the product at no
charge. Currently, all of our revenue is generated from the sale of DuraGraft in
European and Asian markets where the product has the required regulatory
approvals.
Direct Costs of Revenue
Direct costs of revenue include primarily product costs, which include all costs
directly related to the purchase of raw materials, charges from our contract
manufacturing organizations, and manufacturing overhead costs, as well as
shipping and distribution charges. Direct costs of revenue also include losses
from excess, slow-moving or obsolete inventory and inventory purchase
commitments, if any.
Research and Development
All research and development costs are expensed in the period incurred and
consist primarily of salaries, payroll taxes, and employee benefits, those
individuals involved in research and development efforts, external research and
development costs incurred under agreements with contract research organizations
and consultants to conduct and support the Company's ongoing clinical trials of
DuraGraft, and costs related to manufacturing DuraGraft for clinical trials. The
Company has entered into various research and development contracts with various
organizations and other companies.
56
Professional Fees
Professional fees include legal fees relating to intellectual property
development, due diligence and corporate matters, and consulting fees for
accounting, finance, and valuation services. Professional fees paid to a related
party relate to certain consulting services. We anticipate increased expenses
related to audit, legal, regulatory, and tax-related services associated with
maintaining compliance with SEC requirements, and with listing and maintaining
compliance with Nasdaq.
Salaries and Stock-Based Compensation
Salaries consist of compensation and related personnel costs. Stock-based
compensation represents the fair value of equity-settled share awards on stock
options granted by the Company to its employees, officers, directors, and
consultants. The fair value of awards is calculated using the Black-Scholes
option pricing model, which considers the following factors: exercise price,
current market price of the underlying shares, expected life, risk-free interest
rate, expected volatility, dividend yield, and forfeiture rate.
Other General and Administrative Expenses
Other general and administrative expenses consist principally of marketing and
selling expenses, facility costs, administrative and office expenses, director
and officer insurance premiums, and investor relations costs associated with
operating a public company.
Other Income (Expenses )
Other income and expenses consist of mark-to-market adjustments on contingent
liabilities assumed on the acquisition of the Somahlution Assets, interest and
accretion expenses related to our Convertible Notes, impairment of intangible
assets, gain on debt extinguishment, and cancellation of common stock pursuant
to the October 2022 Letter Agreement.
Comparison of the Years Ended December 31, 2022 and 2021
The following table summarizes our results of operations for the years ended
December 31, 2022 and 2021:
Years Ended December 31,
2022 2021 Change
Revenue $ 233,485 $ 210,279 $ 23,206
Cost of goods sold 54,319 80,354 (26,035 )
Gross profit 179,166 129,925 49,241
Operating expenses:
Direct costs of revenue
Professional fees (includes
related party amounts of
$172,800 and $410,400,
respectively) 2,082,079 2,269,756 (187,677 )
Salary expenses 2,421,969 2,887,309 (465,340 )
Research and development 3,978,826 1,681,899 2,296,927
Stock-based compensation 1,905,948 898,444 1,007,504
Depreciation and amortization 841,444 43,871 797,573
Impairment of intangible assets 24,350,000 - 24,350,000
Other general and administrative
expenses 1,922,696 1,170,029 752,667
Total operating expenses 37,502,962 8,951,308 28,551,654
Total operating loss $ (37,323,796 ) $ (8,821,383 ) $ (28,502,413 )
Other income (expenses):
Interest and accretion expense (2,789,255 ) (126,024 ) (2,663,231 )
Change in fair value of
contingent liabilities 1,606,000 (1,387,000 ) 2,993,000
Gain/(loss) on debt
extinguishment 338,181 (663,522 ) 1,001,703
Other income 3,000 - 3,000
Total other income (expense) (842,074 ) (2,176,546 ) 1,334,472
Net loss $ (38,165,870 ) $ (10,997,929 ) $ (27,167,941 )
Revenue
We recognized revenue of approximately $0.23 million for the year ended December
31, 2022 compared to approximately $0.21 million for the year ended December 31,
2021. The relatively insignificant change year over year was primarily due to
the impact of the COVID-19 pandemic on the Company's supply chain and ability to
produce DuraGraft inventory in fiscal year 2021. The Company's inventory
production of DuraGraft returned to its pre-pandemic level at the end of the
second quarter of 2022, but lingering effects of the pandemic continued to
depress demand for DuraGraft.
Direct Costs of Revenue
During the year ended December 31, 2022, we incurred approximately $0.05 million
in direct costs of revenue, representing a decrease of $0.03 million, or 32.4%,
compared to approximately $0.08 million in direct costs of revenue incurred
during the year ended December 31, 2021. During the second half of 2022, our
executive and management teams' efforts to re-establish the Company's business
relationships with its trusted manufacturing and distribution partners, and the
loosening of COVID-19 restrictions, led to a decrease in direct costs of
revenue.
57
Professional Fees
Professional fees decreased by $0.19 million, or 8.3%, to approximately $2.08
million for the year ended December 31, 2022, compared to approximately $2.27
million for the year ended December 31, 2021. The decrease predominantly relates
to higher professional fees incurred in the prior comparative year due to the
acquisition of My Health Logic in December 2021 and regulatory and valuation
work related to the Somahlution and My Health Logic acquisitions. The
professional fees expense remained elevated, however, due to the Company's
continuing efforts to grow its business and commercialize its three main
products and list its securities on Nasdaq. Related party professional fees
increased by approximately $0.20 million or 49% to $0.61 million from $0.41
million during the fiscal 2022 compared to the fiscal 2021 because the Company
retained additional consulting services in order to advance development of its
medical technologies.
Salary Expenses
Salary expenses for the year ended December 31, 2022 were approximately $2.42
million, a $0.47 million, or 16.1%, decrease, from approximately $2.89 million
in the comparative year. The decrease in the cost is attributable to the
restructuring in the prior comparative period from the restructuring of the
Company's executive and management teams in 2021.
Research and Development Expenses
During the year ended December 31, 2022, Marizyme incurred approximately $3.98
million in research and development expenses compared to approximately $1.69
million in the previous year ended December 31, 2021, or 136.6% more than the
previous year. The increase in research and development expenses can be
attributed to the Company's acquisition of MATLOC 1 assets in late 2021 and its
intensified focus on development and advancement of DuraGraft, Krillase, and
MATLOC 1 towards commercialization during 2022.
Stock-Based Compensation
Stock-based compensation increased to approximately $1.91 million in fiscal 2022
from approximately $0.90 million in fiscal year 2021, which represents 112.1%
increase year over year. The increase in stock-based compensation was due to a
higher weighted average number of options outstanding and not fully vested in
fiscal 2022 compared to fiscal 2021 as well as $0.3 million of compensation cost
recognized on restricted share awards during the year ended December 31, 2022.
Depreciation and Amortization
Depreciation and amortization increased by approximately $0.80 million, or
1,818.0%, to $0.84 million in the year ended December 31, 2022 compared to
approximately $0.44 million in the year ended December 31, 2021. The increase
was due to the initial amortization in 2022 of the intangible capital assets
that were acquired in December 2021 with the My Health Logic acquisition, and
the increase in amortization of the Somahlution Assets beginning in 2022
following their valuation in the second half of 2021.
Impairment of intangible assts
During the year ended December 31, 2022, the Company recognized impairment loss
of $24.35 million related to Krillase intangible assets carrying value exceeding
its recoverable amount.
Other General and Administrative Expenses
Other general and administrative expenses increased $0.75 million, or 64.3%, to
approximately $1.92 million during the year ended December 31, 2022 from
approximately $1.17 million during the year ended December 31, 2021. The
majority of the increase in expenses during the year ended December 31, 2022 was
due to the Company's non-legal fees related to preparation for the Company's
proposed public offering throughout 2022.
Other Income (Expenses)
During the year ended December 31, 2022, the Company incurred approximately
$2.79 million of interest and accretion expenses compared to 2021, or $2.66
million, or 2,113.3%, in greater interest and accretion expenses than the
approximately $0.13 million in interest and accretion expenses incurred in 2021.
The increase in interest and accretion expenses was primarily due to
approximately $2.76 million in accretion expenses in 2022 compared to accretion
expenses of approximately $0.09 million in 2021. "Accretion expense" refers to
an amount recognized as an expense classified as an operating item in the
statement of income resulting from the increase in the carrying amount of the
liability associated with the asset retirement obligation. During 2022 and 2021,
the Convertible Notes were issued with a debt discount of approximately $6.5
million and approximately $6.8 million, respectively. Debt "discount" is defined
as the difference between the net proceeds, after expense, received upon
issuance of debt and the amount repayable at its maturity. Accretion expense
tends to increase with the passage of time while interest expense remains
relatively flat year over year.
58
The fair value of contingent liabilities changed from approximately $(1.39
million) in 2021 to approximately $1.61 million in 2022. The change in fair
value was due to a change in the valuation assumptions used to calculate the
value of royalties, performance warrants, and pediatric voucher sales
liabilities issued as part of the Somahlution acquisition.
As a result of extinguishment of obligations under Mr. Richmond's and Univest's
Convertible Notes and Class C Warrants pursuant to the October 2022 Letter
Agreement, the Company recorded approximately $0.34 million gain on debt
extinguishment for the year ended December 31, 2022. During the year ended
December 31, 2021, due to the substantial reduction of the purchase and
conversion price terms of the convertible notes and related modifications to the
Units Private Offering agreements in December 2021, the Company recorded a loss
of approximately $0.66 million on the extinguishment of the convertible notes
issued as part of the Units Private Placement.
Liquidity and Capital Resources
To date, we have incurred significant net losses and negative cash flows from
operations. As of December 31, 2022 and 2021, we had available cash of
approximately $0.51 million and $4.07 million, respectively, and accumulated
deficit of $85.99 million and $47.82 million respectively. We fund our
operations through capital raises.
Units Private Placement
During the year ended December 31, 2022, the Company issued 4,180,067 units in
the Units Private Placement for gross proceeds of approximately $7.3 million. Of
the total 4,180,067 units issued: (i) 159,243 units were issued to settle notes
payable assumed on acquisition of My Health Logic, (ii) 22,857 units were issued
to settle accounts payable, and 171,428 units were issued in exchange for
services rendered to the Company in the year ended December 31, 2022. The
remaining proceeds from the Units Private Placement have been used to sustain
the Company's growth and meet its capital obligations.
In May 2021, the Company entered into a placement agency agreement with Univest,
as placement agent, to conduct a private placement of secured convertible
promissory notes together with two classes of warrants to purchase shares of
common stock, directly to one or more investors through Univest, as placement
agent. On May 27, 2021, in connection with the private placement, the Company
entered into a unit purchase agreement with several investors, under which it
agreed to offer, in one or more closings, units at a price per unit of $2.50,
comprised of, (i) a 10% secured convertible promissory note, with principal and
accrued interest convertible into common stock at an initial price per share of
$2.50, subject to adjustment, maturing in two years; (ii) a warrant to purchase
a share of common stock (the "Class A Warrants"), at a price per share of the
lower of (i) $3.13 per share of common stock, or (ii) the lesser of (a) 75% of
the cash price per share to be paid by the purchasers in an equity financing
with a gross aggregate amount of securities sold of not less than $10,000,000 (a
"qualified financing"), provided that the Company is listed on a trading market
that is a senior exchange such as Nasdaq or the NYSE at the time of such
financing, and (b) $2.50, subject to adjustment; and (iii) a Class B Common
Stock Purchase Warrant to purchase one share of common stock (the "Class B
Warrants"), with an exercise price of $5.00 per share, subject to adjustment.
From May 2021 to July 2021, the Company sold units in the Units Private
Placement for aggregate gross proceeds of $1,174,945.
As of November 29, 2021, the Company and the existing unit holders agreed that
(i) the price per unit for subsequent sales of units in the Units Private
Placement would be reduced from $2.50 per unit to $2.25 per unit, (ii) the
conversion price of the outstanding and subsequent convertible notes would be
reduced from $2.50 per share to $2.25 per share, (iii) all outstanding Class A
Warrants and Class B Warrants would be cancelled and replaced with Class C
Common Stock Purchase Warrants ("Class C Warrants"), allowing the purchase of
the same total amount of shares as had been provided for under the cancelled
warrants, and (iv) future units would be comprised of the modified convertible
notes and Class C Warrants for the purchase of two shares per unit at the
warrants' exercise price. As modified, the Convertible Notes provided that in
the event the Company consummates a qualified financing, and provided that the
Company is listed on a trading market that is a senior exchange such as Nasdaq
or the NYSE and the shares into which the convertible notes may be converted may
be issued or resold under an effective registration statement, then all
outstanding principal, together with all unpaid accrued interest, under the
convertible notes, would automatically convert into shares of common stock at
the lesser of (i) 75% of the cash price per share paid in the qualified
financing and the otherwise applicable conversion price. In addition, if at any
time following the sixty (60) day anniversary of the final closing date or
termination of this private placement, and provided there is an effective
registration statement permitting the issuance or resale of the shares of common
stock into which the convertible notes may be converted, if (A) the common stock
is listed on a senior national securities exchange, (B) the daily
volume-weighted average price for the prior twenty (20) consecutive trading days
is $6.00 or more (adjusted for splits and similar distributions) and (C) the
daily trading volume is at least $1,000,000 during such twenty (20)-day period,
then the Company would have the right to require the convertible notes to
convert all or any portion of the principal and accrued interest then remaining
under the note into shares of common stock at the above conversion price in
effect on the mandatory conversion date. The Class C Warrants have an exercise
price equal to the lower of (i) $2.25 per share, subject to adjustment, or (ii)
75% of the cash price per share paid by the purchasers in a qualified financing.
As a result of these changes, the Company cancelled and exchanged an aggregate
of $1,225,115 of principal and interest under the outstanding convertible notes
for modified convertible notes in the aggregate principal amount of $1,225,115,
convertible into 544,492 shares of common stock, plus additional shares based on
accrued interest, and issued, in exchange for the Class A Warrants and Class B
Warrants, Class C Warrants for the purchase of approximately 1,088,991 shares of
common stock at $2.25 per share.
On December 2, 2021, the Company sold units in the Units Private Placement for
aggregate gross proceeds of $222,500.
59
On December 21, 2021, under certain Exchange Agreements (collectively, the
"November Exchange Agreements"), the Company and the existing unit holders
agreed that (i) the price per unit for subsequent sales of units in the Units
Private Placement would be reduced from $2.25 per unit to $1.75 per unit, (ii)
the conversion price of the outstanding and subsequent convertible notes (the
"Convertible Notes"), would be reduced from $2.25 per share to $1.75 per share,
and (iii) all outstanding Class C Warrants would be cancelled and replaced with
new Class C Warrants with substantially the same terms as the previous Class C
Warrants. The Convertible Notes and Class C Warrants were also modified in this
and subsequent closings to provide that a lower price per share, or more
favorable terms, respectively, under subsequent equity issuances, not including
qualified financings and certain other exempt issuances, will be applicable to
the conversion or exercise rights under the Convertible Notes and Class C
Warrants, respectively. As a result of these changes, the Company cancelled and
exchanged an aggregate of $1,456,039 of principal and interest under the
outstanding convertible notes for new Convertible Notes in the aggregate
principal amount of $1,456,039, convertible into 832,018 shares of common stock,
plus additional shares based on accrued interest, maturing on December 21, 2023,
and issued, in exchange for the previous Class C Warrants, Class C Warrants for
the purchase of 1,664,045 shares of common stock at $2.25 per share.
Under a modified form of Unit Purchase Agreement (the "Unit Purchase
Agreement"), on December 21, 2021, the Company issued and sold to one new
investor units consisting of a Convertible Note in the principal amount of
$6,000,000, convertible into 3,428,571 shares of common stock, plus additional
shares based on accrued interest, and a Class C Warrant for the purchase of
6,857,142 shares of common stock at $2.25 per share, for gross payments of
$6,000,000, of which the Company received $5,402,200 after placement agent fees.
This investor also agreed to purchase an additional $2,000,000 of the units upon
the Company's filing of a registration statement on Form S-1 and a further
$2,000,000 of units upon the Company's responding in a satisfactory manner to
the initial round of comments of the SEC. Although a registration statement on
Form S-1 was initially filed on February 14, 2022, and on February 22, 2022, the
Division of Corporation Finance, Office of Life Sciences of the SEC issued a
letter stating that there would be no review of the registration statement and
therefore no comments, the investor has not invested any additional amounts. The
Company and Univest, as placement agent for this private placement, have
determined that the final closing under this private placement has occurred, as
described further below, and in accordance with the investor's Unit Purchase
Agreement, this investor will not be permitted to invest any further amounts in
that financing. In July 2022, the investor executed a Waiver relating to certain
subscription rights under its Unit Purchase Agreement (the "First July 2022
Waiver") and a Waiver and Consent waiving its conversion rights and exercise
rights under its Convertible Note and Class C Warrant (the "January 2023
Waiver").
On January 24, 2022, the Company issued to two investors units consisting of
Convertible Notes in the aggregate principal amount of $278,678, convertible
into 159,243 shares of common stock, plus additional shares based on accrued
interest, and Class C Warrants for the purchase of 318,490 shares of common
stock at $2.25 per share. The units were sold in exchange for the assumption,
cancellation, and conversion of principal notes of My Health Logic.
On March 24, 2022, the Company conducted an additional closing of the Units
Private Placement in which the Company issued a number of investors units
consisting of Convertible Notes in the aggregate principal amount of $3,389,975,
convertible into 1,937,127 shares of common stock, plus additional shares based
on accrued interest, of which the Company received $3,118,777 after placement
agent fees, and Class C Warrants for the purchase of 3,874,258 shares of common
stock at $2.25 per share. One of the investors in the March 24, 2022 closing of
the Units Private Placement agreed to purchase $4 million of units, and invested
$2 million. In July 2022, the investor executed a waiver of subscription rights
under its March 24, 2022 Unit Purchase Agreement (the "Second July 2022
Waiver"). The Convertible Notes in this and subsequent closings were also
modified to provide that upon the occurrence of a qualified financing, such
Convertible Notes may be voluntarily, not automatically, convertible, at the
option of the holders, at the lower of 75% of the price per equity security in
such financing and the otherwise applicable conversion price. The conversion
provision was also modified to remove the requirement that an effective
registration statement allow for the issuance or resale of shares of common
stock into which the Convertible Notes may be converted in order for the
conversion price of the Convertible Notes to be subject to the reduction to 75%
of the price per equity security in a qualified financing.
On May 11, 2022, the Company conducted a closing of the Units Private Placement
in which the Company issued a number of investors units consisting of
Convertible Notes in the aggregate principal amount of $1,306,485, convertible
into 746,556 shares of common stock, plus additional shares based on accrued
interest, subject to adjustment, and Class C Warrants for the purchase of
1,493,127 shares of common stock at $2.25 per share, subject to adjustment.
On June 17, 2022, the Company conducted a closing of the Units Private Placement
in which the Company issued an investor units consisting of a Convertible Note
in the aggregate principal amount of $500,000, convertible into 285,714 shares
of common stock, plus additional shares based on accrued interest, subject to
adjustment, and a Class C Warrant for the purchase of 571,428 shares of common
stock at $2.25 per share, subject to adjustment.
On August 12, 2022, the Company conducted the final closing of the Units Private
Placement, in which the Company issued to an investor units consisting of a
Convertible Note in the aggregate principal amount of $1,500,000, convertible
into 857,142 pre-stock split shares of common stock, plus additional shares
based on accrued interest, subject to adjustment, and a Class C Warrant for the
purchase of 1,714,286 pre-stock split shares of common stock at $2.25 per share,
subject to adjustment.
The Convertible Notes mature 24 months after the applicable closing date and
accrue 10% of simple interest per annum on the outstanding principal amount. The
Convertible Notes' principal and accrued interest can be converted at any time
at the option of each holder at the conversion price. The Convertible Notes are
secured by a first priority security interest in all assets of the Company and
are also subject to a Guarantors Security Agreement (the "Guarantors Security
Agreement") between the investors in the Units Private Placement and Marizyme
Sciences, Somaceutica, and Somahlution, Inc., a Guaranty of each of Marizyme
Sciences, Somaceutica and Somahlution, Inc. granted to the investors (the
"Guaranty"), a Security Agreement between the Company and each of the investors
(the "Security Agreement"), a Trademark Security Agreement between the Company
and each of the investors (the "Trademark Security Agreement"), and a Patent
Security Agreement between the Company and each of the investors (the "Patent
Security Agreement"). The Convertible Notes and Class C Warrants have certain
antidilution provisions. Under a Registration Rights Agreement with each of the
investors, the Convertible Notes and Class C Warrants have certain registration
requirements for the shares of common stock underlying the Convertible Notes and
Class C Warrants upon the final closing of the Units Private Placement, subject
to lock-up agreements or registration rights waiver agreements between the Units
Private Placement investors or their assigns and the representative of the
underwriters for the Company's proposed public offering which also amount to
waivers of such registration rights and agreements that such registration rights
will be afforded to the investors in a registration statement subsequent to the
registration statement filed in connection with such proposed public offering.
60
A holder of a Convertible Note or Class C Warrant generally will not have the
right to convert the Convertible Note or exercise the Class C Warrant to the
extent that the holder (together with its affiliates) would beneficially own in
excess of 4.99% of the number of shares of common stock outstanding, as such
percentage ownership is determined in accordance with the terms of the
Convertible Note or Class C Warrant, or 9.99% if the holder becomes the
beneficial owner of more than 4.99% of the outstanding shares of common stock
not including shares of common stock that may otherwise be received upon
conversion of the Convertible Note or exercise of the Class C Warrant. An
increase of this percentage to any other percentage not in excess of 9.99%,
provided that any increase in such percentage shall not be effective until 61
days following notice from the holder to the Company. This limitation may not
apply to certain antidilution provisions of the Convertible Notes and Class C
Warrants, including an adjustment to the number of warrant shares that may be
purchased under the Class C Warrants as a result of an applicable issuance of
securities that does not constitute a "qualified financing" at more favorable
terms than were provided under the Class C Warrants.
Under its May 2021 placement agency agreement with Univest, the Company agreed
to pay Univest a cash placement fee of 8% of units sold, $50,000 upon the
receipt of $6 million from the Units Private Placement, and issue Univest, in
exchange for a $100 payment by Univest, warrants to purchase a number of shares
of common stock equal to 8% of the aggregate number of units sold in the Units
Private Placement, at an exercise price per share of 100% of the price per unit.
These warrants were required to be exercisable for either cash or on a cashless
basis beginning on the final closing date of the Units Private Placement and for
a period of five years from that date. On December 10, 2021, the Company entered
into a new placement agency agreement with Univest (the "Placement Agency
Agreement"), in which the Company and Univest agreed that Univest's compensation
would be changed to remove the provision for a $50,000 cash fee upon the receipt
of $6 million from the Units Private Placement, to add a provision for a cash
placement fee of 8% of the gross proceeds from the exercise of any Class C
Warrants sold in the Units Private Placement, and to retain the previous
placement agency agreement's warrants compensation provision. The Placement
Agency Agreement and form of Unit Purchase Agreement provided that up to $18
million and $17 million of units may be sold, respectively. As indicated above,
as of August 12, 2022, the Company had completed the final closing of the Units
Private Placement, and had issued Convertible Notes to investors in the Units
Private Placement in the aggregate principal amount of $14,431,177, convertible
into 8,246,371 shares of common stock, not including additional shares issuable
upon the incurrence of interest and further adjustments provided by the terms of
the Convertible Notes, and Class C Warrants that may be exercised to purchase
16,492,772 shares of common stock, not including the further adjustments
provided by the terms of the Class C Warrants.
Upon the final closing of the Units Private Placement, the Company was required
to issue warrants to Univest, as placement agent, and its designee, to purchase
an aggregate of 8.0% of the total number of units sold in the Units Private
Placement for a total payment of $100. On June 26, 2022, in anticipation of the
final closing of the Units Private Placement, in exchange for $100, the Company
issued Univest a warrant for the purchase of 231,239 shares of common stock, and
a warrant to Bradley Richmond, as a registered representative of Univest who is
entitled to a portion of Univest's compensation due to his employment terms, for
the purchase of 347,039 shares of common stock (the "Placement Agent Warrants").
The Placement Agent Warrants had an exercise price equal to the conversion price
of the Convertible Notes. The Placement Agent Warrants were exercisable, in
whole or in part, until June 26, 2027 by payment of cash or on a cashless net
exercise basis, and carried certain antidilution provisions and other exercise
price adjustments that were substantially identical to equivalent provisions of
the Class C Warrants.
Subsequently, the FINRA Staff determined that certain securities previously
received by each of Univest and Mr. Richmond in connection with the following
transactions with the Company constituted underwriting compensation in
connection with the Company's proposed public offering pursuant to FINRA Rule
5110, based on the FINRA Staff's interpretation of such rule: (a) the Units
Private Placement conducted between May 2021 and August 2022, (b) the Company's
December 2021 acquisition of My Health Logic, (c) a consulting agreement that
the Company entered into with Mr. Richmond in September 2020, and (d) a stock
option exercisable for 273,750 shares of common stock received by Mr. Richmond
from one of the Company's former executives in March 2022. Consequently, each of
Univest and Mr. Richmond, pursuant to the October 2022 Letter Agreement, agreed
to forego their applicable rights to an aggregate of 1,666,432 shares of common
stock beneficially owned by them collectively (including shares of common stock
and shares of common stock issuable upon exercise and conversion, as applicable,
of warrants, convertible notes and a stock option), which were issued pursuant
to the transactions listed above. Pursuant to the October 2022 Letter Agreement,
the parties thereto agreed that the cancellation or disposal of the
aforementioned securities shall be without recourse by either Univest or Mr.
Richmond. As part of this agreement, the Placement Agent Warrants were
cancelled.
Amendment and Designees' Purchase of Former Executive's Option
On July 13, 2019, we issued an option to purchase 1,100,000 shares of common
stock at $1.01 per share vesting over 24 months to James Sapirstein, a former
officer and director of the Company, for his services on our board of directors.
On April 6, 2020, Mr. Sapirstein exercised this option in part to purchase 5,000
shares of common stock. On September 2, 2020, our board of directors resolved to
immediately vest the unvested portion of this option such that the option became
fully vested. Pursuant to the option's forfeiture terms, the option was to
expire one year after Mr. Sapirstein's resignation on June 24, 2021. Under the
incentive stock option agreement relating to this option, the option was not
transferable except to a designated beneficiary upon the option holder's death
or by will or the laws of descent and distribution.
61
On March 3, 2022, we agreed to amend the incentive stock option agreement
relating to the option to allow for it to be transferred to the Company or its
designee(s), transferee(s), or assignee(s). We and our designees further agreed
to the purchase of the unexercised portion of the option, and Mr. Sapirstein
agreed to sell it to us or our designees. We and our designees agreed to pay
$100,000 as the purchase price. On March 17, 2022, each of four designated
individuals, acting individually, paid $25,000 for and purchased a one-fourth
portion of the unexercised balance of the option owned by Mr. Sapirstein equal
to 273,750 shares of common stock, which balance was transferred directly to
each purchaser designee. The Company recorded the changes in ownership upon
proof of payment from each purchaser designee for his respective portion of such
option. We simultaneously entered into amended stock option agreements with such
purchaser designees, which provide that the exercise period of the options are
extended to March 16, 2024. In all other respects, such options have the same
terms as the original fully-vested incentive stock option. The Company did not
pay or receive cash or other consideration for the repurchase and designation of
the stock option. Pursuant to the October 2022 Letter Agreement entered into
with us, Mr. Richmond, one of the Company's designees for the purchase of the
option, agreed to forego his rights to his option for 273,750 shares of common
stock, effectively unwinding such transaction, and we and Mr. Richmond agreed to
the transfer of the option to a Company designee who is unaffiliated with Mr.
Richmond, in accordance with the FINRA Staff's interpretation of Rule 5110 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Key Highlights of Fiscal Year 2022 - October 2022 Letter
Agreement").
Consultant Warrants
On January 26, 2022, we granted Mr. Richmond, in his capacity as a consultant to
the Company at such time, a warrant to purchase up to 150,000 shares of common
stock at an exercise price of $0.01 per share, issuable immediately. On February
14, 2022, we granted Mr. Richmond an additional warrant to purchase up to
150,000 shares of the Company's common stock at an exercise price of $0.01 per
share. The warrants were issued in exchange for services that Mr. Richmond
rendered to us under his consulting agreement. Mr. Richmond fully exercised both
of the warrants for 300,000 shares of common stock in March 2022. Pursuant to
the October 2022 Letter Agreement entered into with the Company, Mr. Richmond
agreed to forego his rights to such shares of common stock in accordance with
the FINRA Staff's determination that such shares constituted underwriting
compensation in connection with this public offering based on the FINRA Staff's
interpretation of FINRA Rule 5110 (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Key Highlights of Fiscal Year
2022 - October 2022 Letter Agreement").
Public Offering
On February 14, 2022, Marizyme filed the initial registration statement on Form
S-1 relating to the Company's proposed public offering. As of March 24, 2023,
the SEC had not declared the registration statement effective, the final
prospectus had not been filed, and the common stock had not been approved for
listing on the Nasdaq Capital Market. The offering is contingent upon the
listing of our securities on the Nasdaq Capital Market. There is no guarantee or
assurance that our securities will be approved for listing on the Nasdaq Capital
Market. Any proceeds from the offering will be used by the Company (i) to
develop its DuraGraft, MATLOC, and Krillase platforms; (ii) to commercialize and
produce its products, (iii) repayment of indebtedness used for working capital
consisting of principal and accrued interest outstanding under the December 2022
Promissory Note and the February 2023 Promissory Note, and (iv) for general
working capital and other corporate purposes. As of March 24, 2023, management
anticipates, but cannot guarantee, that the offering will close in the second
quarter of 2023.
Funding Requirements and Other Liquidity Matters
The Company expects to continue to incur expenses and operating losses for the
foreseeable future. We anticipate that our expenses will increase as a result of
the following operational and business development efforts:
? Increase our expertise and knowledge through hiring and retaining qualified
operational, financial and management personnel, who are expected to develop
an efficient infrastructure to support development and commercialization of
therapies and devices;
? Increase in research and development and legal expenses as we continue to
develop our products, conduct clinical trials and pursue FDA clearances;
? Expand our product portfolio through the identification and acquisition of
additional life science assets; and
? Seek to increase awareness about our products to boost sales and distributions
internationally.
Until such time, if ever, as we can generate substantial product revenues to
support our cost structure, the Company will continue to have to raise funds
beyond its current working capital balance in order to finance future
development of products, potential acquisitions, and meet its debt obligations
until such time as future profitable revenues are achieved.
.
62
We expect to finance our cash needs through a combination of private and public
equity offerings, debt financings, government or other third-party funding, and
collaborations, arrangements or acquisitions. To the extent that we raise
additional capital through the sale of common stock, convertible securities or
other equity securities, the ownership interest of our stockholders may be
materially diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect the interests of our stockholders. Debt
financing and preferred equity financing, if available, would result in
increased fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends,
that could adversely impact our ability to conduct our business. Securing
additional financing could require a substantial amount of time and attention
from our management and may divert a disproportionate amount of their attention
away from day-to-day activities, which may adversely affect our management's
ability to oversee the development or acquisition of product.
If we raise additional funds through collaborations, strategic alliances or
marketing, distribution, or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, future revenue streams,
research programs or product candidates or grant licenses on terms that may not
be favorable to us. If we are unable to raise additional funds through equity or
debt financings when needed, we may be required to delay, limit, reduce or
terminate our product development or future commercialization efforts or grant
rights to develop and market product candidates that we would otherwise prefer
to develop and market ourselves. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each
of the periods indicated:
Years Ended December 31,
2022 2021 $ Change
Net cash provided by/(used in):
Operating activities $ (10,852,148 ) $ (5,787,095 ) $ (5,065,053 )
Investing activities - - -
Financing activities 7,290,674 6,956,672 334,002
Net change in cash $ (3,561,474 ) $ 1,169,577 $ (4,731,051 )
Operating Activities
Net cash used in operating activities was approximately $10.85 million and $5.79
million for the years ended December 31, 2022 and 2021, respectively. The net
cash used in operating activities for the year ended December 31, 2022 was due
to approximately $3.98 million spent on research and development, approximately
$2.42 million spent on salaries and related compensation expenses, $1.92 million
in other general and administrative expenses and approximately $2.08 million
spent on professional fees. The net cash used in operating activities for the
year ended December 31, 2021 was due to approximately $2.27 million spent on
professional fees, $2.89 million spent on salaries and related compensation
expenses and $1.68 million spent on research and development activities . The
increase in net cash used in operating activities in 2022 compared to 2021 was
primarily due to the increase in the Company's research and development expenses
and other general and administrative expenses.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2022
was due to approximately $6.5 million of funds raised from the issuance of
convertible notes in the Units Private Placement, net of issuance costs, and
$0.78 million received from the issuance of other promissory notes, net of
repayments. During 2022 the Company also repaid approximately $0.1 million in
aggregate notes payable as part of the Units Private Placement issuances and
repaid approximately $0.1 million in notes payable assumed on the acquisition of
My Health Logic. Net cash provided by financing activities for the year ended
December 31, 2021 was due to $6.69 million of funds raised from the issuance of
convertible notes in the Units Private Placement, net of issuance costs, and
$0.26 million obtained from issuance of promissory notes to related parties. The
increase in net cash provided by financing activities in 2022 compared to 2021
was due to the combined increase in funds raised from the Units Private
Placement and the issuance of other promissory notes.
Contractual Obligations and Commitments
Royalties and Other Commitments
On December 15, 2019, the Company entered into an asset purchase agreement (the
"Somahlution Agreement"), as amended on March 31, 2020 and May 29, 2020 to
extend the termination date, with Somahlution, LLC, Somahlution, Inc., and
Somaceutica, LLC (collectively, "Somahlution") to acquire the Somahlution Assets
and none of the liabilities of Somahlution, 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.
63
On July 31, 2020, the Company and Somahlution entered into Amendment No. 3 to
the Somahlution Agreement ("Amendment No. 3") and the Somahlution 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., in addition to the Somahlution Assets. This change to the
Somahlution Agreement was made to accommodate the 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 Somahlution related to clinical and medical expenses. The parties
also orally agreed that the payments on the assumed debts would be recorded as a
prepaid royalty against future royalties.
Pursuant to the Somahlution Agreement and in consideration of the outstanding
capital stock of Somahlution, Inc., the Company agreed to pay to certain
beneficial owner designees of Somahlution, among other consideration:
? The following contingent consideration upon receiving FDA final approval and
insurance reimbursement approval on the products, and in the amounts,
specified below, subject to certain expiration terms, none of which had been
earned or granted as of December 31, 2022:
? DuraGraft products:
? Royalties to be paid on all net sales of the product 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 on a pro rata basis of 10% of the cash value of rare pediatric voucher
sales following FDA approval and subsequent sale to an unaffiliated third
party of a rare pediatric voucher based on Somahlution's DuraGraft product;
? Following the FDA approval and subsequent sale to an unaffiliated third party
of a rare pediatric voucher based on Somahlution's DuraGraft product, grant of
warrants on a pro rata basis to purchase an aggregate of 250,000 shares of
common stock with a term of five years and a strike price determined based on
the average of the closing prices of the common stock for the 30 calendar days
following the date of the public announcement of FDA approval; and
? Upon the sale of DuraGraft products, the Company will pay pro rata the
Somahlution designees 15% of the net sale proceeds towards the liquidation
preference maximum amount of $20 million described below;
? Somahlution derived solid organ transplant products:
? Royalties to be paid on all net sales of the product of 6% on the first $50
million of international net sales, 4% for greater than $50 million up to $200
million, and 2% for greater than $200 million;
? Upon the sale of DuraGraft products, the Company will pay pro rata the
Somahlution designees 15% of the net sale proceeds towards the liquidation
preference maximum amount of $20 million described below;
? Somahlution Assets-derived over-the-counter products:
? Royalties to be paid on all net sales of the product of 6% on the first $50
million of international net sales, 4% for greater than $50 million up to $200
million, and 2% for greater than $200 million;
? Other Somahlution Assets-derived products from existing Somahlution pipelines:
? Royalties to be paid on all net sales of the product of 1%; and
? A liquidation preference, up to a maximum of $20 million, and the Company will
pay 15% of the net sale proceeds towards the liquidation preference maximum
amount upon the sale by the Company of all or substantially all of the
Somahlution Assets.
For additional discussion of this transaction, see "Item 13. Certain
Relationships and Related Transactions, and Director Independence - Transactions
with Related Persons".
64
Office and Laboratories Space Lease
On December 11, 2020, the Company entered into a five-and-a-half-year lease
agreement for approximately 10,300 square feet of administrative office and
laboratories space, which commenced in December 2020 at a monthly rent of
approximately $10,800, increasing by 2.5% annually beginning in the second year
of the lease until the end of the term. Additionally, pursuant to the agreement,
the Company would pay approximately $12,000 per month in operating expenses.
Effective April 1, 2022, the Company amended its lease agreement for
administrative office and laboratories to add additional 3,053 square feet of
space. The monthly cost of total expended lease space is approximately $15,260
increasing to $15,641 in 2023 and will continue to increase by 2.5% annually
thereafter until the end of the term. The monthly operating expenses for total
expanded premises have increased from approximately $12,000 to $17,500 per
month. The term of the lease remains unchanged. As of December 31, 2022, the
remaining lease term was 3.42 years. The lease has been classified as an
operating lease.
The total rent expense under the lease for the years ended December 31, 2022 and
2021 was $370,945 and $118,084, respectively.
As of December 31, 2022 and 2021, minimum lease payments in relation to lease
commitments were payable as follows:
2022 2021
Within 1 year $ 423,495 $ 277,142
After 1 year and within 5 years 1,145,050 962,376
Total lease commitments
$ 1,568,545 $ 1,239,518
We enter into contracts in the normal course of business for our contract
research services, contract manufacturing services, professional services and
other services and products for operating purposes. These contracts generally
provide for termination after a notice period, and, therefore, are cancelable
contracts and not included in the discussion above.
Promissory Notes
On October 23, 2022, the Company issued a promissory note to Hub International
Limited for $204,050 bearing interest at the annual rate of 6.75% per annum, due
September 23, 2023, payable monthly starting November 23, 2022. As of December
31, 2022, the balance due under the promissory note was $164,729. During 2021, a
promissory note in the principal amount of $127,798 bearing interest at the
annual rate of 5.22% per annum, due August 24, 2022, payable monthly starting
November 24, 2021, was issued to the same creditor and was repaid with interest
prior to entry into the note issued on October 23, 2022.
On October 28, 2022, following the October 2022 Letter Agreement, the Company
extinguished convertible promissory notes held by Univest and Mr. Richmond in
the aggregate principal amount of $300,000, as well as related Class C Warrants.
The parties agreed to forgo compensation previously received for no
consideration in exchange.
On December 28, 2022, the Company issued the December 2022 Promissory Note for
the principal amount of $750,000 bearing interest at the annual rate of 20% per
annum, due June 28, 2023. Pursuant to the December 2022 Promissory Note, the
Company agreed to issue warrants to purchase common stock equal to $1,500,000
with the same terms as any warrants issued in the Company's next financing round
and which will be immediately exercisable. Default in the payment of principal
or interest or other material covenant under the note triggers a default penalty
equal to 0.666% of $750,000 per month during the period of default, and other
lender rights, including the demand of immediate payment of all amounts due
including accrued but unpaid interest, and recovery of all costs, fees including
attorney's fees and disbursements, and expenses relating to collection and
enforcement of the promissory note. As of December 31, 2022, the balance due
under this note was $750,000.
As part of the Somahlution acquisition, Marizyme assumed an aggregate of
$468,137 in notes payable. These notes were unsecured, and bore interest at a
rate of 9% per annum with no maturity date. The Company settled an aggregate of
$278,678 of these notes payable as part of the Units Private Placement issuances
during the year ended December 31, 2022. As of December 31, 2022, the balance of
the remaining note payable was $218,100 (2021 - $469,252).
Going Concern
The Company had a net loss for the year ended December 31, 2022 of approximately
$38.17 million, negative working capital as of December 31, 2022 of
approximately $0.97 million, and had cash used in operations of approximately
$10.85 million for the year ended December 31, 2022. Without further funding,
these conditions raise substantial doubt about the Company's ability to continue
as a going concern.
The accompanying consolidated financial statements have been prepared in
conformity with U.S. GAAP, which contemplate continuation of the Company as a
going concern and the realization of assets and satisfaction of liabilities in
the normal course of business. The ability of the Company to continue its
operations is dependent on the execution of management's plans, which include
the raising of capital through the debt and/or equity markets, until such time
that funds provided by operations are sufficient to fund working capital
requirements. If the Company were not to continue as a going concern, it would
likely not be able to realize its assets at values comparable to the carrying
value or the fair value estimates reflected in the balances set out in the
preparation of the consolidated financial statements.
There can be no assurances that the Company will be successful in generating
additional cash from the equity/debt markets or other sources to be used for
operations. The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and classification of assets and
liabilities that might be necessary. Based on the Company's current resources,
the Company will not be able to continue to operate without additional immediate
funding. Should the Company not be successful in obtaining the necessary
financing to fund its operations, the Company would need to curtail certain or
all operational activities and/or contemplate the sale of its assets, if
necessary.
The Company has been impacted by the COVID-19 pandemic and related supply chain
shortages and other economic conditions, and some of its earlier plans to
further diversify its operations and expand its operating subsidiaries were
delayed as a result. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Impact of COVID-19 Pandemic".
Off-Balance Sheet Arrangements
As of December 31, 2022, the Company has no off-balance sheet arrangements that
have or are reasonably likely to have a current or future material effect on its
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States,
or GAAP. The preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and expenses and the disclosure of contingent assets and liabilities
in our financial statements and accompanying notes. We evaluate these estimates
and judgments on an ongoing basis. We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
While our significant accounting policies are more fully described in Note 1,
Organization, Basis of Presentation and Summary of Significant Accounting
Policies, included in "Item 8. Financial Statements and Supplementary Data" of
this Annual Report on Form 10-K, we believe that the following accounting
policies are the most critical for fully understanding and evaluating our
financial condition and results of operations.
65
Revenue Recognition
Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with
Customers ("Topic 606" or the "new revenue standard").
Pursuant to Topic 606, the Company recognizes revenue to depict the transfer of
promised goods or services to a customer in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those
goods or services. To achieve this core principle, Topic 606 outlines a
five-step process for recognizing revenue from customer contracts that includes
i) identification of the contract with a customer, ii) identification of the
performance obligations in the contract, iii) determining the transaction price,
iv) allocating the transaction price to the separate performance obligations in
the contract, and v) recognizing revenue associated with performance obligations
as they are satisfied.
At contract inception, the Company assesses the goods or services promised
within each contract and assess whether each promised good or service is
distinct and determine those that are performance obligations. The Company then
recognizes as revenue the amount of the transaction price that is allocated to
the respective performance obligation when the performance obligation is
satisfied.
The Company has identified one performance obligation which is related to
DuraGraft product sales. For the Company's distribution partner channel, the
Company recognizes revenue for product sales at the time of delivery of the
product to its distribution partner (customer). As products have an expiration
date, if a product expires, the Company will replace the product at no charge.
There were no significant judgements made in applying this topic.
66
Intangible Assets and Goodwill
Intangible assets are recorded at cost less accumulated amortization and
accumulated impairment losses. Intangible assets acquired as a result of an
acquisition or in a business combination are measured at fair value at the
acquisition date.
The useful lives of intangible assets are assessed as either finite or
indefinite. Intangible assets with finite lives are amortized over the estimated
useful economic life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The estimated useful life and
amortization method are reviewed at the end of each reporting period, with the
effect of any changes in estimates being accounted for on a prospective basis.
Goodwill represents the excess of the purchase price paid for the acquisition of
subsidiaries over the fair value of the net assets acquired. Following the
initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
In-Process Research and Development
The Company evaluates whether acquired intangible assets are a business under
applicable accounting standards. Additionally, the Company evaluates whether the
acquired assets have a future alternative use. Intangible assets that do not
have future alternative use are considered acquired in-process research and
development ("IPR&D"). When the acquired in-process research and development
assets are not part of a business combination, the value of the consideration
paid is expensed on the acquisition date. Future costs to develop these assets
are recorded to research and development expense as they are incurred.
Impairment
? Impairment of long-lived assets: The Company reviews long-lived assets,
including property, plant and equipment, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. An impairment loss would be recognized
when estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition are less than the carrying amount.
The impairment loss, if recognized, would be based on the excess of the
carrying value of the impaired asset over its respective fair value.
? Goodwill: Goodwill is recorded at the time of purchase for the excess of the
amount of the purchase price over the fair values of the identifiable assets
acquired and liabilities assumed. The fair value is determined using the
estimated discounted future cash flows of the reporting unit. Goodwill is not
amortized and instead is tested at least annually for impairment, or more
frequently when events or changes in circumstances indicate that goodwill
might be impaired. This impairment test is performed annually at December 31.
Future adverse changes in market conditions or poor operating results of
underlying assets could result in an inability to recover the carrying value
of the goodwill, thereby possibly requiring an impairment charge.
? In-process research and development assets: IPR&D assets are reviewed for
impairment annually, or sooner if events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable, and upon
establishment of technological feasibility or regulatory approval. An
impairment loss, if any, is calculated by comparing the fair value of the
asset to its carrying value. If the asset's carrying value exceeds its fair
value, an impairment loss is recorded for the difference and its carrying
value is reduced accordingly. Similar to the impairment test for goodwill, the
Company may perform a qualitative approach for testing indefinite-lived
intangible assets for impairment.
Leases
At the inception of a contractual arrangement, the Company determines whether
the contract contains a lease by assessing whether there is an identified asset
and whether the contract conveys the right to control the use of the identified
asset in exchange for consideration over a period of time. If both criteria are
met, the Company records the associated lease liability and corresponding
right-of-use asset upon commencement of the lease using the implicit rate or a
discount rate based on a credit-adjusted secured borrowing rate commensurate
with the term of the lease. The Company additionally evaluates leases at their
inception to determine if they are to be accounted for as an operating lease or
a finance lease. A lease is accounted for as a finance lease if it meets one of
the following five criteria: the lease has a purchase option that is reasonably
certain of being exercised, the present value of the future cash flows is
substantially all of the fair market value of the underlying asset, the lease
term is for a significant portion of the remaining economic life of the
underlying asset, the title to the underlying asset transfers at the end of the
lease term, or if the underlying asset is of such a specialized nature that it
is expected to have no alternative uses to the lessor at the end of the term.
Leases that do not meet the finance lease criteria are accounted for as an
operating lease. Operating lease assets represent a right to use an underlying
asset for the lease term and operating lease liabilities represent an obligation
to make lease payments arising from the lease. Operating lease liabilities with
a term greater than one year and their corresponding right-of-use assets are
recognized on the balance sheet at the commencement date of the lease based on
the present value of lease payments over the expected lease term. Certain
adjustments to the right-of-use asset may be required for items such as initial
direct costs paid or incentives received. As the Company's leases do not
typically provide an implicit rate, the Company utilizes the appropriate
incremental borrowing rate, determined as the rate of interest that the Company
would have to pay to borrow on a collateralized basis over a similar term and in
a similar economic environment. Lease cost is recognized on a straight-line
basis over the lease term and variable lease payments are recognized as
operating expenses in the period in which the obligation for those payments is
incurred. Variable lease payments primarily include common area maintenance,
utilities, real estate taxes, insurance, and other operating costs that are
passed on from the lessor in proportion to the space leased by the Company. The
Company has elected the practical expedient to not separate between lease and
non-lease components.
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and
consist primarily of salaries, payroll taxes, and employee benefits, those
individuals involved in research and development efforts, external research and
development costs incurred under agreements with contract research organizations
and consultants to conduct and support the Company's ongoing clinical trials of
DuraGraft, and costs related to manufacturing DuraGraft for clinical trials. The
Company has entered into various research and development contracts with various
organizations and other companies. Payments of these activities are based on the
terms of the individual agreements which matches to the pattern of costs
incurred. Payments made in advances are reflected in the accompanying balance
sheets as prepaid expenses. The Company records accruals for estimated costs
incurred for ongoing research and development activities. When evaluating the
adequacy of the accrued liabilities, the Company analyzes progress of the
services, including the phase or completion of events, invoices received and
contracted costs. Significant judgments and estimates may be made in determining
the prepaid or accrued balances at the end of any reporting period. Actual
results could differ from the Company's estimates.
Stock-Based Compensation
Share-based compensation expense for employees and directors is recognized in
the Consolidated Statement of Operations based on estimated amounts, including
the grant date fair value and the expected service period. For stock options,
the Company estimates the grant date fair value using a Black-Scholes valuation
model, which requires the use of multiple subjective inputs including estimated
future volatility, expected forfeitures and the expected term of the awards. The
Company estimates the expected future volatility based on the stock's historical
price volatility. The stock's future volatility may differ from the estimated
volatility at the grant date. For restricted stock unit ("RSU") equity awards,
the Company estimates the grant date fair value using its closing stock price on
the date of grant. The Company recognizes the effect of forfeitures in
compensation expense when the forfeitures occur. The estimated forfeiture rates
may differ from actual forfeiture rates which would affect the amount of expense
recognized during the period. The Company recognizes the value of the awards
over the awards' requisite service or performance periods. The requisite service
period is generally the time over which the Company's share-based awards vest.
Recently Issued Accounting Pronouncements
The Company assesses the adoption impacts of recently issued accounting
standards by the Financial Accounting Standards Board or other standard setting
bodies on the Company's consolidated financial statements as well as material
updates to previous assessments. There were no new material accounting standards
issued or adopted in year of 2022 that impacted the Company.
© Edgar Online, source Glimpses