MARIZYME, INC. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______ to _______

Commission File Number: 000-53223

MARIZYME, INC.

(Exact name of registrant as specified in its charter)

555 Heritage Drive, Suite 205, Jupiter, Florida 33458

(Address of principal executive offices) (Zip Code)

(561) 935-9955

(Registrant’s telephone number)

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒

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

As of November 14, 2023, the registrant had 46,666,760 shares of common stock ($0.001 par value) outstanding.

MARIZYME, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MARIZYME, INC.

Condensed Consolidated Balance Sheets

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

MARIZYME, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

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

MARIZYME, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Three and Nine Months Ended September 30, 2023 and 2022

(Unaudited)

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

MARIZYME, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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

MARIZYME, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023

NOTE 1 – DESCRIPTION OF BUSINESS

Marizyme, Inc. (the “Company” or “Marizyme”) is a Nevada corporation originally incorporated on March 20, 2007, under the name SWAV Enterprises, Ltd. On September 6, 2010, the Company name was changed to GBS Enterprises Inc. and from 2010, to September 2018, the Company was in the software products and advisory services business for email and instant messaging applications. The Company divested that business between December 2016 and September 2018, and focused on the acquisition of life science technologies.

On March 21, 2018, the Company’s name was changed to Marizyme, Inc., to reflect the new life sciences focus. Marizyme’s common stock is currently quoted on the OTCQB tier of OTC Markets Group, Inc. under the symbol “MRZM”.

NOTE 2 – GOING CONCERN

The Company’s unaudited condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have an established source of revenues sufficient to cover its operating costs, which require the Company to rely on investing and financing activities in order to continue as a going concern. The Company, since its inception, has incurred recurring operating losses and negative cash flows from operations and has an accumulated deficit of $141,570,688 at September 30, 2023 (December 31, 2022 - $85,989,433). At September 30, 2023, the Company has negative working capital of $47,354,926 (December 31, 2022 - $966,464) and $474,944 (December 31, 2022 - $510,865) of cash on hand, which may not be sufficient to fund operations for the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Under the going concern assumption, an entity is ordinarily viewed as continuing its business for the foreseeable future with neither the intention or necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to the laws and regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.

The ability of the Company to continue as a going concern is dependent upon its ability to continue to successfully develop its intangible assets and receive an approval from the U.S. Food and Drug Administration (“FDA”) to extend the selling of its products into the U.S. market which may result in the Company attaining profitable operations.

During the next twelve months from the date the unaudited condensed consolidated financial statements were issued, the Company’s foreseeable cash requirements will relate to continuous operations of its business, maintaining its good standing and making the required filing with the Securities and Exchange Commission (“SEC”), and the payment of expenses associated with its product development. The Company may experience a cash shortfall and be required to raise additional capital. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to continue to develop and expand its products and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of the Company and its wholly owned subsidiaries: My Health Logic Inc. (“My Health Logic” or “MHL”), Somahlution, Inc. (“Somahlution”), Somaceutica, Inc. (“Somaceutica”), and Marizyme Sciences, Inc. (“Marizyme Sciences”). All intercompany transactions have been eliminated on consolidation.

The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2023 (the “2022 Form 10-K”). The condensed consolidated balance sheet as of December 31, 2022 was derived from audited consolidated financial statements included in the 2022 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company’s significant accounting policies are described in Note 1 to those consolidated financial statements.

Interim results may not be indicative of the results that may be expected for the full year or any future periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements reflect all adjustments which in the opinion of management are necessary to fairly present the results of operations, financial condition, cash flows and stockholders’ equity (deficit) for the periods indicated. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.

Deferred Offering Cost

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process capital stock financings as deferred offering costs until such financings are consummated. After consummation of the financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations. As of September 30, 2023, the Company had deferred offering costs of $Nil (December 31, 2022 - $387,412) reported as a prepaid expense on the accompanying condensed consolidated balance sheets, and expensed an aggregate of $1,203,537 of deferred offering costs - $535,717 of which was related to the extinguishment of 2021 Unit Purchase Agreement (see Note 7) and $667,820 related to a planned uplisting, which was not pursued due to a management’s decision to seek different means to obtain financing.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to the recoverability of long-term assets including intangible assets and goodwill, amortization expense, valuation of warrants, stock-based compensation, derivative liabilities and contingent liabilities.

Fair Value Measurements

The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

The carrying amounts of certain accounts and other receivables, accounts payable and accrued expenses, notes payable, and amounts due to related parties approximate fair value due to the short-term nature of these instruments.

The fair value of lease obligations is determined using discounted cash flows based on the expected amounts and timing of the cash flows discounted using a market rate of interest adjusted for appropriate credit risk.

The contingent liabilities assumed on the acquisition of Somahlution in 2020 consist of present values of royalty payments, performance warrants and pediatric voucher warrants, future rare pediatric voucher sales, and liquidation preference. Management measured these contingencies in accordance with Level 3 of the fair value hierarchy.

The derivative liabilities consist of optional conversion feature and the share redemption feature attached to the convertible notes, issued pursuant to the convertible promissory notes and warrants transactions as described in Note 7.

The detachable warrants attached to the OID Convertible Notes (See Note 7) met the definition of a derivative liability. These warrants were valued using the Black-Scholes pricing method. The following weighted average assumptions were used in the Black-Scholes option pricing model: risk free rate of 4.76%, expected volatility of 253.46%, expected dividend of $Nil, and expected life of 0.56 years. For the three and nine months ended September 30, 2023, changes in these assumptions resulted in a $14,454,397 increase in fair value of this liability (September 30, 2022 – $Nil). At September 30, 2023, the fair market value of the detachable warrant liability was $25,555,092 (December 31, 2022 – $Nil).

The Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

Marizyme measures the following financial instruments at fair value on a recurring basis. As of September 30, 2023, and December 31, 2022, the fair values of these financial instruments were as follows:

 SCHEDULE OF FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table provides a rollforward of all liabilities measured at fair value using Level 3 significant unobservable inputs:

 SCHEDULE OF LIABILITIES FAIR VALUE MEASURED

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, for 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. Payments of these activities are based on the terms of the individual agreements which matches to the pattern of costs incurred. Payments made in advance 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 required 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

Stock-based compensation expense for employees and directors is recognized in the condensed consolidated statements 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 share-based awards vest.

New Accounting Standards and Updates from the Securities and Exchange Commission

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326)”. The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. In February 2020, the FASB issued ASU 2020-02, “Financial Instruments-Credit Losses (Topic 326)”, and “Leases (Topic 842)” - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. Current Expected Credit Losses estimates of expected credit losses on trade receivables over their life will be required to be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts. The Company adopted the standard in its first quarter of 2023. There was no material impact on the results of operations.

NOTE 4 – LEASES

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 an 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 the total expanded premises have increased from approximately $12,000 to $17,500 per month. The term of the lease remains unchanged. As of September 30, 2023, the remaining lease term was 2.83 years. The lease has been classified as an operating lease.

The assets and liabilities from the lease were recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the discount rate of 3.95%, which is the average commercial interest available at the time.

The total rent expense for the three and nine months ended September 30, 2023 was $81,502 and $274,004, respectively (September 30, 2022 – $103,291 and $324,544, respectively).

The following table summarizes supplemental condensed consolidated balance sheet information related to the operating leases as of September 30, 2023, and December 31, 2022:

 SCHEDULE OF RIGHT-OF-USE ASSET AND RELATED LEASE LIABILITIES

As of September 30, 2023, the maturities of the lease liabilities for the periods ending December 31 are as follows:

 SCHEDULE OF MATURITIES OF THE LEASE LIABILITIES

NOTE 5 – INTANGIBLE ASSETS

Krillase

As part of the asset acquisition of ACB Holding AB, Reg. No. 559119-5762, completed on September 12, 2018, Marizyme acquired all rights, titles, and interest in the Krillase technology, a group of intangible assets worth $28,600,000. Krillase is a naturally occurring enzyme that acts to break protein bonds and has applications in wound debridement, wound healing, dental care and thrombosis. The useful lives of the intangible assets are based on the life of the patent and related technology. The patents and related technology for Krillase have not been amortized since the acquisition, as they have not yet been put into operations.

At December 31, 2022, management determined that the carrying value of Krillase exceeded its recoverable amount. Impairment of $24,350,000 was recognized on Krillase intangible assets and recorded in the impairment of intangible assets in the consolidated statements of operations for the year ended December 31, 2022. However, for the three and nine months ended September 30, 2023 and 2022, no impairment has been recognized on Krillase intangible assets.

DuraGraft

As part of Somahlution acquisition in 2020, Marizyme purchased $18,170,000 of intangible assets related to the DuraGraft® technology. No impairment has been recognized on DuraGraft intangible assets for the three and nine months ended September 30, 2023 and 2022.

My Health Logic

As part of My Health Logic acquisition completed on December 22, 2021, Marizyme purchased MHL’s lab-on-chip technology platform and its patient-centric, digital point-of-care diagnostic device, MATLOC, fair valued at an aggregate amount of $6,600,000. No impairment has been recognized on My Health Logic intangible assets for the three and nine months ended September 30, 2023 and 2022.

 SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE

 SCHEDULE OF GOODWILL

The following changes to the Company’s intangible assets had taken place in the periods indicated:

 SCHEDULE OF INTANGIBLE ASSETS

Future amortizations for DuraGraft and My Health Logic intangible assets for the remaining three months of the fiscal 2023 will be $210,293, for the next five years from 2024 through 2028 - $841,172 for each year, and for 2029 and thereafter - $5,649,241. Amortization related to in-process research and development will be determined upon the Company achieving commercialization.

NOTE 6 – NOTES PAYABLE

a) On October 23, 2022, the Company issued a note payable to Hub International 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 September 30, 2023, the note payable was paid in full (December 31, 2022 - $164,729).

b) On December 28, 2022, the Company issued a 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 (the “Hexin Promissory Note”). For the three and nine months ended September 30, 2023, the Company accrued $25,914 and $64,133 in interest on the promissory note, respectively (September 30, 2022 - $Nil and $Nil, respectively). Hexin agreed to cancel the Hexin Promissory Note with the outstanding balance of $814,133 (the aggregate amount of principal plus accrued and unpaid interest as of May 30, 2023) in exchange for the issuance of 9,578,040 OID Units (see Note 7), which the Company issued to Hexin on May 30, 2023.

c) On February 2, 2023, the Company issued an unsecured promissory note to Walleye Opportunities Master Fund Ltd. (the “Walleye Promissory Note”) for $1,000,000 with a maturity date of May 7, 2023. The note carried no interest and the principal amount was required to be repaid in full on the maturity date. In the event that the principal amount was not repaid in full on maturity date, the principal amount required to be increased to $1,250,000. As of the maturity date of the note, the principal amount was not repaid and therefore increased from $1,000,000 to $1,250,000. Walleye agreed to cancel the promissory note, with the outstanding balance of $1,250,000 in exchange for the issuance of 14,705,890 OID Units (see Note 7), which were issued to Walleye on May 30, 2023.

d) As part of the My Health Logic Inc. acquisition, completed in November 2021, Marizyme assumed an aggregate of $468,137 in notes payable, the notes were unsecured, 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 Unit Purchase Agreement issuances during the year ended December 31, 2022 (see Note 7). For the three and nine months ended September 30, 2023, the Company accrued $5,344 and $23,710 in interest on the notes payable, respectively (September 30, 2022 - $4,538 and $15,124, respectively), and recorded an unrealized gain of $5,832 and $894 for the three and nine months ended September 30, 2023, respectively (September 30, 2022 - $Nil and $Nil, respectively). As of September 30, 2023, balance of the remaining note payable was $240,916 (December 31, 2022 - $218,100).

NOTE 7 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS

2021 Convertible Notes and Warrants

From May 2021 to August 2022, the Company conducted a private placement (the “Units Private Placement”) of units (the “Units”) consisting of 10% secured convertible promissory notes (the “Convertible Notes”) and accompanying warrants (the “Class C Warrants”), as were modified or amended from time to time. The most recent terms of the Convertible Notes and Class C Warrants were as follows:

Convertible Notes Terms

The Convertible Notes mature in 24 months from the initial 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 the holder at a conversion price of $1.75 per share. In the event the Company consummates, while the Convertible Note is outstanding, an equity financing with a gross aggregate amount of securities sold of not less than $10,000,000 (“Qualified Financing”), then all outstanding principal, together with all unpaid accrued interest under the Convertible Notes, shall automatically convert into shares of the equity financing at the lesser of (i) 75% of the cash price per share paid in the financing and the conversion price of $1.75 per unit.

In the event that the Company consummates, while the Convertible Note is outstanding, an equity financing with a gross aggregate amount of securities sold less than $10,000,000 (“Unqualified Financing”), then the conversion price of the Convertible Notes of $1.75 per share and the exercise price of Class C warrants of $2.25 per share will change to the equity offering price. Moreover, in that event, the Class C Warrant holders may also apply a most-favored-nations clause in their warrants to request that their Class C Warrants provide that their warrant exercise rights should be further adjusted to allow them to purchase a proportionately higher number of additional shares equal to the initial number of shares which may be purchased by exercise of their Class C Warrants, multiplied by a fraction equal to the current exercise price divided by the adjusted exercise price, which would allow such Class C Warrant holders to purchase the same aggregate dollar amount of shares as initially provided such Class C Warrants. If the Convertible Notes and Class C Warrants’ conversion or exercise rights become so adjusted as a result of such an equity financing, then the Company would be required to register the additional shares of common stock that these securities may be converted into or exercised to purchase for resale. The Convertible Notes are secured by a first priority security interest in all assets of the Company.

Class C Warrants Terms

The Company determined that the optional and automatic conversion feature and the share redemption feature attached to the Convertible Notes met the definition of derivative liabilities and that the detachable warrants issued did not meet the definition of a liability and therefore was accounted for as an equity instrument.

The fair value of the warrants issued and the fair value of derivative liabilities issued have been recorded as debt discount and are being amortized to interest and accretion expense using the effective interest method over the term of the Convertible Notes.

In 2021, the Company issued an aggregate of 4,260,594 Units for the proceeds of $6,692,765 net of issuance costs. In 2022, the Company issued additional 4,180,071 units for the proceeds of $6,500,743 net of issuance cost.

Adjustment to Conversion Price of Convertible Notes and Exercise Price of Class C Warrants

On April 13, 2023, the Company obtained exercise and conversion rights waivers and amendments from holders of the Convertible Notes and Class C Warrants (“Original Securities”), pursuant to which, the conversion price of the Convertible Notes and the exercise price of the Class C Warrants was adjusted to $0.10 per share (“New Securities”) and all other terms remained the same. On April 13, 2023, outstanding Convertible Notes had underlying principle of $14,432,996, and outstanding Class C Warrants were exercisable to purchase a total of 16,538,486 shares of common stock.

The Company determined that the terms of the New Securities were substantially different from the Original Securities, and, as such the exchange of the Original Securities for the New Securities was accounted for as an extinguishment of debt on April 13, 2023, and the New Securities accounted for as a new debt issuance.

As a result of this substantial modification, a total of 8,269,237 Units outstanding were replaced with an aggregate of 190,584,260 pro rata Units, and a loss on debt extinguishment of $684,682 was recorded in condensed consolidated statements of operations for the nine months ended September 30, 2023 (September 30, 2022 - $Nil).

Additionally, during the nine months ended September 30, 2023, the Company issued to Univest Securities, LLC (“Univest”) and Mr. Bradley Richmond, Convertible Notes (the “Replacement Placement Agent Notes”) with a principal of $137,984 and $206,975, respectively, maturing on July 25, 2025, convertible into up to 1,683,131 and 2,524,697 shares of common stock if held to maturity, respectively, to replace Convertible Notes that were issued and cancelled, pursuant to October 2022 Letter Agreement, in previous years.

The Company determined that the optional conversion feature attached to the Convertible Notes did not meet the definition of derivative liabilities and that the detachable warrants issued did not meet the definition of a liability and therefore was accounted for as an equity instrument. The fair value of $19,403,385 of the warrants issued has been recorded as a component of equity and a debt discount and is being amortized to interest and accretion expense using the effective interest method over the term of the Convertible Notes.

During the three and nine months ended September 30, 2023, the Company recognized interest and accretion expense of $6,418,297 and $13,705,189, respectively, on the Original and New Securities in aggregate (September 30, 2022 - $805,849 and $1,622,730, respectively) in the condensed consolidated statements of operations.

Each of the Convertible Notes provides that any default on indebtedness of more than $100,000, other than indebtedness under the respective Convertible Notes, will also result in default under the Convertible Notes. Due to the non-repayment of the initial principal amount of $1,000,000 under the Walleye Promissory Note by its maturity date of May 7, 2023 (see Note 6), the Company also defaulted under the Convertible Notes on the same date. The Convertible Notes provide that due to this default, the Company became obligated to pay 135% of the outstanding principal amount under each of the Convertible Notes on the date on which the default occurred (the “Mandatory Default Amount”). The Mandatory Default Amount may be declared due by each holder immediately. The aggregate Mandatory Default Amount that may be due under the Convertible Notes was $28,461,827 on the date of the default, or $7,378,992 more than would otherwise have been due under the Convertible Notes on the date of the default. Therefore, as a result of the event of the default, the Company accreted $7,378,992 to the value of the Convertible Notes and included this amount in interest and accretion expenses on the condensed consolidated statement of operations. The holders of the Convertible Notes have not exercised any remedies applicable to the Convertible Notes as of the date of this report. In the event that the balance owed under the Convertible Notes, including the respective Mandatory Default Amount, is not repaid upon demand, the holders of the Convertible Notes may seek to take possession of some or all of the Company’s and its subsidiaries’ assets, force the Company and its subsidiaries into bankruptcy proceedings, or seek other legal remedies against the Company and its subsidiaries . In such an event, the Company’s business, operating results and financial condition may be materially adversely affected.

The following table summarizes supplemental balance sheet information related to the convertible notes, net of debt discount outstanding, as of September 30, 2023, and December 31, 2022:

SCHEDULE OF CONVERTIBLE NOTES

SCHEDULE OF CONVERTIBLE NOTES NET OF DEBT DISCOUNT

2023 Convertible Notes and Warrants

On May 12, 2023, the Company conducted the initial closing (the “OID Units Initial Closing”) of a private placement of up to $10,000,000 for an aggregate of up to 100,000,000 units (the “OID Units”) under a Unit Purchase Agreement, dated as of the same date, with accredited investors (the “OID Purchase Agreement”), each consisting of (i) a 15% original issue discount unsecured subordinated convertible promissory note (each, a “OID Convertible Note” and collectively, the “OID Convertible Notes”), convertible into shares of common stock plus additional shares based on accrued interest at $0.10 per share, subject to adjustment, (ii) a warrant for the purchase of 125% of the shares of common stock into which the related OID Convertible Notes may be converted at $0.10 per share, subject to adjustment (the “Class E Warrant”), and (iii) a warrant for the purchase of 125% of the shares of common stock into which the related OID Convertible Note may be converted at $0.20 per share, subject to adjustment (each, a “Class F Warrant,” and each Class F Warrant together with each Class E Warrant collectively, the “OID Warrants”).

As part of the OID Units Initial Closing and on the same date, Walleye Opportunities Master Fund Ltd. (“Walleye”) paid a subscription amount of $1,000,000 and the Company issued Walleye 11,764,710 OID Units consisting of (i) an OID Convertible Note in the principal amount of $1,176,471, convertible into 11,764,710 shares of common stock plus additional shares based on accrued interest at $0.10 per share, (ii) a Class E Warrant for the purchase of 14,705,880 shares of common stock, and (iii) a Class F Warrant for the purchase of 14,705,880 shares of common stock at $0.20 per share.

On May 30, 2023, the Company conducted the second closing (the “OID Units Second Closing”) of the OID Units Private Placement. In the OID Units Second Closing, Hexin Global Ltd. (“Hexin”) and Walleye agreed to the cancellation of the Hexin Promissory Note and the Walleye Promissory Note (see Note 6), respectively, and Frank Maresca (“Maresca”), a consultant to the Company, agreed to the cancellation of certain indebtedness, in exchange for OID Units and related agreements, as described below.

First, under a Cancellation and Exchange Agreement, dated as of May 30, 2023, between the Company and Hexin (the “Hexin Cancellation Agreement”), Hexin agreed to cancel the Hexin Promissory Note (see Note 6) in exchange for the issuance of 9,578,040 OID Units consisting of (a) an OID Convertible Note in the principal amount of $957,804 for a subscription equal to $814,133, convertible into 9,578,040 shares of common stock plus additional shares based on accrued interest at $0.10 per share, (b) a Class E Warrant for the purchase of 11,972,550 shares of common stock at $0.10 per share, and (c) a Class F Warrant for the purchase of 11,972,550 shares of common stock at $0.20 per share.

Second, under a Cancellation and Exchange Agreement, dated as of May 30, 2023, between the Company and Walleye (the “Walleye Cancellation Agreement”), Walleye agreed to cancel the Walleye Promissory Note (see Note 6) in exchange for the issuance of 14,705,890 Units consisting of (a) an OID Convertible Note in the principal amount of $1,470,589 for a subscription equal to $1,250,000, convertible into 14,705,890 shares of common stock plus additional shares based on accrued interest at $0.10 per share, (b) a Class E Warrant for the purchase of 18,382,362 shares of common stock at $0.10 per share, and (c) a Class F Warrant for the purchase of 18,382,362 shares of common stock at $0.20 per share.

Third, under a Cancellation and Exchange Agreement, dated as of May 30, 2023, between the Company and Maresca (the “Maresca Cancellation Agreement” and together with the Hexin Cancellation Agreement and the Walleye Cancellation Agreement, the “Cancellation and Exchange Agreements”), Maresca agreed to cancel $150,000 of the aggregate short-term indebtedness to Maresca, which arose in the ordinary course of business for certain consulting services provided by Maresca to the Company, in exchange for the issuance of 1,764,710 Units consisting of (a) an OID Convertible Note in the principal amount of $176,471 for a subscription equal to $150,000 (the amount of the indebtedness being cancelled), convertible into 1,764,710 shares of common stock plus additional shares based on accrued interest at $0.10 per share, (b) a Class E Warrant for the purchase of 2,205,887 shares of common stock at $0.10 per share, and (c) a Class F Warrant for the purchase of 2,205,887 shares of common stock at $0.20 per share.

On July 10, 2023, Marizyme conducted the third closing (the “Third OID Units Closing”) of the private placement. In connection with the Third OID Units Closing Hexin paid a subscription amount of $1,000,000, and the Company issued 11,764,710 OID Units consisting of (i) an OID Convertible Note in the principal amount of $1,176,471, convertible into 11,764,710 shares of common stock plus additional shares based on accrued interest at $0.10 per share, (ii) a Class E Warrant for the purchase of 14,705,887 shares of common stock at $0.10 per share, and (iii) a Class F Warrant for the purchase of 14,705,880 shares of common stock at $0.20 per share.

On August 30, 2023, the Company conducted the fourth closing (the “Fourth OID Units Closing”) of the private placement of up to $10,000,000 for an aggregate of up to 100,000,000 units, under a unit purchase agreement between the Company and each of 13 investors (the “August 2023 OID Units Purchase Agreement”). In connection with the Fourth OID Units Closing, 12 of the investors paid an aggregate subscription amount of $825,000, and the Company issued to these investors 9,705,960 OID Units consisting of (i) OID Convertible Notes in the aggregate principal amount of $970,596, convertible into 9,705,960 shares of common stock plus additional shares based on accrued interest at $0.10 per share, (ii) Class E Warrants for the purchase of 12,132,448 shares of common stock at $0.10 per share, and (iii) Class F Warrants for the purchase of 12,132,448 shares of common stock at $0.20 per share.

Also in connection with the Fourth OID Units Closing, under a Cancellation and Exchange Agreement, dated as of August 30, 2023, between the Company and Frank Maresca (the “August 2023 Maresca Cancellation Agreement”), Mr. Maresca agreed to cancel $200,000 of aggregate short-term indebtedness to Mr. Maresca, which arose in the ordinary course of business for certain consulting services provided by Mr. Maresca to the Company, in exchange for: (i) the issuance of 2,352,950 OID Units consisting of (a) an OID Convertible Note in the principal amount of $235,295 for a subscription equal to $200,000, convertible into 2,352,950 shares of common stock plus additional shares based on accrued interest at $0.10 per share (the “August 2023 Maresca OID Convertible Note”), (b) a Class E Warrant for the purchase of 2,941,187 shares of common stock at $0.10 per share, and (c) a Class F Warrant for the purchase of 2,941,187 shares of common stock at $0.20 per share. The August 2023 Maresca Cancellation Agreement contains a release of claims against the Company relating to the cancelled indebtedness.

The Company determined that the optional conversion feature attached to the OID Convertible Notes did not meet the definition of derivative liability and that the detachable warrants issued met the definition of a liability and therefore was accounted for as a derivative liability instrument. The warrants were fair valued at $11,100,695 and recorded as derivative liabilities on the condensed consolidated balance sheets at September 30, 2023. As a result of the warrant liability exceeding the value of the debt principal, the Company recorded a $6,352,562 loss on issuance of debt that was recorded in condensed consolidated statements of operations for the nine months ended September 30, 2023 (June 30, 2022 - $Nil). These warrants were valued using the Black-Scholes pricing method. The changes in the assumptions used to value the warrants as of September 30, 2023, resulted in a $14,454,397 increase in fair value of this liability. At September 30, 2023, the fair market value of detachable warrant liability was $25,555,092 (December 31, 2022 – $Nil).

During the three and nine months ended September 30, 2023, the Company recognized interest and accretion expense of $843,699 and $993,785, respectively (September 30, 2022 - $Nil and $Nil, respectively), in the condensed consolidated statements of operations.

The following table summarizes supplemental balance sheet information related to the OID Convertible Notes, net of debt discount outstanding, as of September 30, 2023, and December 31, 2022:

SCHEDULE OF CONVERTIBLE NOTES

SCHEDULE OF CONVERTIBLE NOTES NET OF DEBT DISCOUNT

2023 Convertible Notes Terms

The OID Convertible Notes will mature in nine months from the date of the OID Units Initial Closing and accrue 10% of interest per annum on the outstanding principal amount. The OID Convertible Notes will be unsecured and subordinated to any senior indebtedness of the Company. The OID Convertible Notes’ principal and accrued interest may generally be converted at any time at a conversion price of $0.10 per share, subject to adjustment, at the option of the holder, into shares of common stock, subject to certain limitations: (i) conversion would not cause the holder to beneficially own more than 4.99% of the Company’s common stock, or more than 9.99% if the holder beneficially owns more than 4.99% of common stock based on ownership of equity securities of the Company other than the OID Convertible Notes or the respective warrants; and (ii) the Company’s articles of incorporation have been amended to increase the number of authorized shares of common stock to a sufficient amount to permit the full conversion of the OID Convertible Notes (the “Capital Event Amendment”).

2023 Warrants Terms

The Class E Warrants and Class F Warrants are generally exercisable for a period from the date of the Capital Event Amendment until five years from the date of issue. The exercise right is subject to a similar beneficial ownership limitation that applies to conversion of the OID Convertible Notes above, i.e., exercise is permitted only if it would not cause the holder to beneficially own more than 4.99% of the Company’s common stock, or more than 9.99% if the holder beneficially owns more than 4.99% of common stock based on ownership of equity securities of the Company other than the OID Convertible Notes or the Class E Warrants and Class F Warrants.

NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)

The Company is authorized to issue a total number of 25,000,000 shares of “blank check” preferred stock with a par value of $0.001. As of September 30, 2023, and December 31, 2022, there were no shares of preferred stock issued or outstanding.

The Company is authorized to issue a total number of 2,000,000,000 shares of common stock with a par value of $0.001.

As of September 30, 2023, there were 46,666,760 (December 31, 2022 - 40,528,191) shares of common stock issued and outstanding.

During the nine months ended September 30, 2023, the Company completed the following issuances:

On May 18, 2021, the Company’s Board of Directors approved the Marizyme, Inc. Amended and Restated 2021 Stock Incentive Plan (“SIP”). The SIP incorporates stock options issued prior to May 18, 2021. The SIP authorized 5,300,000 options for issuance. On December 27, 2022, the Board of Directors requested that stockholders ratify an amendment to the SIP to increase the maximum number of shares of common stock available for issuance pursuant to awards granted under the SIP by 1,900,000 to 7,200,000, which was approved by the stockholders. As of September 30, 2023, there remains 2,924,057 options available for issuance (December 31, 2022 – 2,924,057).

During the three and nine months ended September 30, 2023, the Company granted Nil (December 31, 2022 – 400,000) share purchase options to directors of the Company.

The summary of option activity for the nine months ended September 30, 2023, is as follows:

SCHEDULE OF STOCK OPTION ACTIVITY

As of September 30, 2023, the Company had the following options outstanding:

SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE

During the year ended December 31, 2021, the Company granted restricted share awards for an aggregate of 350,000 shares of common stock to directors, senior officers and consultants of the Company, with underlying performance conditions. As of September 30, 2023, only two out of four performance conditions have been achieved. Compensation cost of $Nil for the restricted share awards was recognized in stock-based compensation for the three and nine months ended September 30, 2023 (September 30, 2022 - $Nil and $295,750, respectively).

As of September 30, 2023 and December 31, 2022, there were 575,466,865 and 20,048,487 warrants outstanding, respectively.

SCHEDULE OF WARRANTS OUTSTANDING

As a result of this warrant exercise, pursuant to the terms applicable to the Convertible Notes and the Class C Warrants (see Note 7), the conversion price of the Convertible Notes adjusted from $1.75 per share to $0.10 per share, the exercise price of the Class C Warrants adjusted from $2.25 per share to $0.10 per share, and the number of shares that the Class C Warrants may be exercised to purchase was increased proportionately. In connection with these developments and the lack of sufficient authorized shares of common stock under the Company’s articles of incorporation to meet its obligations under outstanding convertible or exercisable securities, the Company also obtained additional conversion and exercise rights waivers from Convertible Note and Class C Warrant holders. As a result of these adjustment provisions and the conversion and exercise terms applicable to the Class C Warrants, including the effect of the applicable waivers, the number of shares that the Class C Warrants may be exercised to purchase adjusted from 5,109,904 shares of common stock to 114,973,110 shares.

During the three and nine months ended September 30, 2023, the Company recorded $86,132 and $457,860 in non-cash share-based compensation, respectively (September 30, 2022 - $271,517 and $1,664,191, respectively).

NOTE 9 – RELATED PARTY TRANSACTIONS

As at September 30, 2023, the Company owed an aggregate of $187,097 (December 31, 2022 - $Nil) to related parties of the Company.

For the three and nine months ended September 30, 2023, the Company incurred and settled $72,000 and $216,000, respectively (September 30, 2022 -$43,000 and $129,600, respectively), in professional service rendered by related parties of the Company and incurred and settled $216,000 of various expenses incurred by these parties in relation to their services rendered to the Company. The services were provided by entities which are controlled by management and are pursuant to various consulting agreements.

During the three and nine months ended September 30, 2023, the Company also incurred $332,750 and $998,250 in compensation to Directors and Executive Officers for their services rendered, respectively (September 30, 2022 – $328,083 and $815,583, respectively), and settled $65,750 and $947,250 in compensation, respectively.

Additionally, as part of the Somahlution acquisition in 2020, the Company recorded a prepaid royalty to the shareholders of Somahlution. The former primary beneficial owner is Dr. Vithal Dhaduk, currently a director, and significant shareholder of the Company. During the three and nine months ended September 30, 2023, the Company accrued $10,854 and $58,102 in royalties payable incurred on sales of the DuraGraft product outside of the U.S., respectively. This amount was offset against the prepaid royalty receivable.

During the nine months ended September 30, 2023, the Company and shareholders of Somahlution agreed to reduce the prepaid royalty balance by 50% or by $151,000. As at September 30, 2023, the Company had $129,989 in prepaid royalties (December 31, 2022 - $339,091) which had been classified as non-current in the condensed consolidated balance sheets.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Legal Matters

Under a Confidential Settlement Agreement, dated November 18, 2022, the Company and Nicholas DeVito agreed that Mr. DeVito would dismiss a Complaint that Mr. DeVito filed on June 7, 2022 in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, Case No. 50-2022-CA-005437. The parties also agreed that following an anticipated reverse split, the Company was required to issue Mr. DeVito 16,000 “post-split” shares to be delivered in paper certificate form within three (3) business days of the reverse split. The 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 60,000 “pre-split” shares. In addition, the parties agreed that no further continuous service is required pursuant to Section 2 of the Mutual Release of Claims Agreement between Mr. DeVito and the Company dated as of August 27, 2020. Pursuant to the agreement, on January 5, 2023, the Company issued 240,000 shares of common stock to Mr. DeVito (see Note 8b).

Contingencies

Royalties on U.S. sales equal to:

Royalties on sales outside of the U.S.:

The royalties are in perpetuity. During the three and nine months ended September 30, 2023, the Company had not earned any revenues from Krillase, however the Company did incur sales of the DuraGraft products outside of the U.S., on which $10,854 and $58,102 in royalties have been accrued and offset against the prepaid royalties receivable, respectively (see Note 9).

Upon receiving FDA clearance for the DuraGraft product and insurance reimbursement approval on the products pursuant to section 2(b) of the Asset Purchase Agreement dated December 15, 2019, the Company will:

NOTE 11 - SUBSEQUENT EVENT

In October 2023, the Company was granted a De Novo – U.S. Food and Drug Administration for its first-in-class product, DuraGraft. With the granting of this de novo, DuraGraft is the first and only medical product that is FDA cleared for use as an intra-operative vascular conduit storage and flushing solution during Coronary Artery Bypass Grafting or CABG surgeries and is also the only approved product available for this indication in Europe and other countries.

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

This discussion covers the three and nine months ended September 30, 2023 and the subsequent period up to the date of issuance of this Quarterly Report on Form 10-Q. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, research and development plans and costs, the impact of COVID-19, the timing and likelihood of regulatory filings and approvals, commercialization plans, pricing and reimbursement, the potential to develop future product candidates, the timing and likelihood of success of the plans and objectives of management for future operations, and future results of anticipated product development efforts, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in the Part II, Item 1A under the heading “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

We use various trademarks, trade names and service marks in our business. For convenience or readability, we may not include the ℠, ^® or ^™ symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks, trade names or service marks referred to in this report are the property of their respective owners.

OVERVIEW

Marizyme is a medical technology company seeking to change the landscape of cardiac care by delivering innovative solutions for coronary artery bypass, or CABG, surgery.

We are focused on commercializing or developing three medical technologies and related products – DuraGraft^®, MATLOC^® and MAR-FG-001. DuraGraft is a first-in- class De Novo granted and CE marked intra-operative vascular graft storage and flushing solution used during CABG surgeries. MATLOC is a point-of-care, lab-on-chip digital screening and diagnostic device platform, initially being developed for quantitative chronic kidney disease, or CKD, assessment. MAR-FG-001 is a technology in development for use in fat grafting procedures formulated as a tumescent solution base for protecting adipose tissue during adipose tissue harvesting and storage. DuraGraft, MATLOC and MAR-FG-001 are expected to serve an unmet significant market need in several areas, including, cardiac surgery, CKD assessment, and fat grafting.

Since October 2023, DuraGraft has been authorized for marketing by the U.S. Food and Drug Administration, or FDA, for use as an intra-operative vascular conduit storage and flushing solution used during CABG surgeries in the United States, subject to applicable risks, mitigation requirements, and control provisions. Since August 2014, DuraGraft has also had the CE marking required to be sold in the EEA, and DuraGraft has therefore been assessed as meeting the EEA safety, health, and environmental protection requirements.

We intend to continue the advancement of our other two primary product technologies, MATLOC and MAR-FG-001. Our MATLOC CKD point-of-care device is being developed toward a functional prototype, mainly through the development of its lab-on-chip technology under a Sponsored Research Agreement, or SRA. An SRA is an agreement (which may be classified as a grant, contract or cooperative agreement) under which one party (the “Sponsor”) provides funding to a second party to support the performance of a specified research project or related activity. The Sponsor may be a foundation, government agency, for-profit entity, research institute, or another university. We will also continue to ready MAR-FG-001 for viability for development and manufacturing. We intend to fully develop and market MAR-FG-001 in the U.S. for fat grafting for procedures such as plastic and cosmetic surgery.

In the near term, we expect to generate revenue primarily from the sale of DuraGraft through the expansion of our international marketing efforts by our distribution partners in Europe and in other countries that accept CE marking.

We intend to commercialize DuraGraft in the U.S. primarily through hospital integrated networks using our own direct sales force. We anticipate that once we commence marketing and sales operations for DuraGraft in the U.S., we will be able to generate sustainable revenue growth, accelerate the development of a functional MATLOC device prototype, and expedite the development of MAR-FG-001 into medical products.

Key elements of our strategy include:

Our net loss was approximately $32.5 million and $55.6 million for the three and nine months ended September 30, 2023, respectively (September 30, 2022 - $1.6 million and $14.6 million, respectively). During the nine months ended September 30, 2023 and 2022, we used approximately $3.5 million and $9.3 million in operating activities, respectively, and financing activities provided approximately $3.4 million and $6.4 million, 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.

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 diversify and expand its operations were delayed as a result. Moreover, the impact of the COVID-19 pandemic 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.

The Company’s inventory production of DuraGraft returned to its pre-pandemic level at the end of the second quarter of 2022. There can be no assurance that future supply chain disruptions and other effects of 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:

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 30^th, 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 30^th.

FINANCIAL OPERATIONS REVIEW

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 had the required regulatory approvals during the three and months ended September 30, 2023 and 2022..

Cost of Goods Sold

Cost of goods sold 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. Cost of goods sold also includes losses from excess, slow-moving or obsolete inventory and inventory purchase commitments, if any.

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 certain related party relate to certain consulting services. Increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with SEC requirements and with securities exchange rules in future periods are likely to occur, including likely increases in costs of compliance with SEC regulations of public companies in general any costs incurred from corporate actions and filings that may be required in order for the Company’s listing application with The Nasdaq Stock Market LLC (“Nasdaq”) to list the Company’s common stock on the Nasdaq Capital Market tier of Nasdaq to be approved, and, should such listing application be approved, costs of compliance with Nasdaq’s continuing listing requirements.

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.

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.

Depreciation and Amortization

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.

Royalty Expenses

In connection with the Somahlution Acquisition (as defined in “—Liquidity and Capital Resources – Funding Requirements and Other Liquidity Matters – Exercise of Somahlution Warrants with Reduced Exercise Price”), the Company entered into the Somahlution Agreement (as defined in “—Liquidity and Capital Resources – Funding Requirements and Other Liquidity Matters – Exercise of Somahlution Warrants with Reduced Exercise Price”), under which the Company became legally obligated to pay royalties on all net sales of certain products. Royalty expenses consists of royalty payable accrued on net sales of DuraGraft product within and outside of the U.S.

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 all of the assets of Somahlution, Inc., Somahlution, LLC, and Somaceutica LLC (collectively, “Somahlution”), including our DuraGraft-related assets (the “Somahlution Assets”) and interest and accretion expenses related to our Convertible Notes.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:

Revenue

We recognized revenue of approximately $0.18 million for the three months ended September 30, 2023 compared to $0.08 million for the three months ended September 30, 2022. In 2022, the Company experienced a lack of significant revenue due to the impact of the COVID-19 pandemic on its supply chain and the production of DuraGraft inventory. However, with the Company’s inventory production returning to pre-pandemic levels by the end of the second quarter of 2022 and subsequent sales resumption, there was a notable increase in revenue period over period.

Cost of Goods Sold

Cost of goods sold increased by approximately $0.03 million or 228.9% to approximately $0.05 million for the three months ended September 30, 2023 compared to approximately $0.02 million for the three months ended September 30, 2022. The increase was due to increased sales period over period.

Professional Fees

Professional fees increased by approximately $0.6 million or 203.6% to approximately $0.9 million for the three months ended September 30, 2023 compared to approximately $0.3 million for the three months ended September 30, 2022. The increase was due to legal and placement agent fees related to the Company’s Units Private Placement (as defined in “—Liquidity and Capital Resources – Funding Requirements and Other Liquidity Matters – Issuance of Replacement Securities”), the OID Units Private Placement (as defined in “—Liquidity and Capital Resources – Funding Requirements and Other Liquidity Matters – Third Closing of OID Units Private Placement”), and consulting services expenses for DuraGraft FDA regulatory support during the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022.

Salary Expenses

Salary expenses for the three months ending September 30, 2023, amounted to approximately $0.33 million, reflecting minimal change from the corresponding period in 2022, which also stood at $0.33 million. Salary expenses experienced a slight reduction during the quarter ending September 30, 2023, in comparison to the same quarter in 2022. This decrease is attributed to the strategic effort to streamline the Company’s operations while maintaining employee salaries.

Research and Development

Research and development expenses for the three months ended September 30, 2023 were approximately $0.5 million, an approximately $0.2 million or 30.5% decrease from approximately $0.7 million for the three months ended September 30, 2022. This reduction in research and development expenses is primarily attributed to the Company’s suspension of a European study on DuraGraft as well the Company’s decision to suspend expenditures related to FDA approvals for MATLOC and Krillase-related assets during the quarter ending September 30, 2023.

The Company previously sought to develop and commercialize FDA-approved products based on its Krillase and MATLOC assets simultaneously with its DuraGraft products. Since the first quarter of 2023, the Company has prioritized the completion of regulatory processes to obtain FDA approval for the commercialization of DuraGraft in the United States and the development of a functional MATLOC device prototype and MAR-FG-001-based viable products. The Company intends to maintain the Krillase assets for potential future development and commercialization or disposition. Any determination as to these matters would be based on a number of factors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Principal Factors Affecting Our Financial Performance” for a summary of factors that we may consider in this respect. There is no assurance that any of the Company’s intellectual property assets will ever be developed and fully commercialized and generate significant revenues or will ever attract significant interest from potential buyers or investors. See “Item 1A. Risk Factors – Risks Related to Our Business – We may not be able to monetize intangible assets, which may result in the need to record an impairment charge.” in the 2022 Form 10-K.

Stock-Based Compensation

Stock-based compensation decreased by approximately $0.2 million or 68.3% to approximately $0.09 million for the three months ended September 30, 2023 from approximately $0.27 million for the three months ended September 30, 2022. A significant portion of options completed their vesting period during the nine months ended September 30, 2022 and no options were granted during the nine months ended September 30, 2023, which caused the decrease in stock-based compensation during the three months ended September 30, 2023.

Depreciation and Amortization

Depreciation and amortization remained relatively constant at approximately $0.2 million for each of the three months ended September 30, 2023 and 2022. The Company did not acquire any new tangible or intangible capital assets during either of these periods.

Royalty Expense

For the three months ended September 30, 2023, the Company recorded an aggregate of approximately $0.01 million in royalty expense, most of which was accrued on sales of DuraGraft sales outside of the U.S. No royalties were accrued for the three months ended September 30, 2022 as minimal sales of DuraGraft occurred during the period.

Other General and Administrative Expenses

Other general and administrative expenses increased approximately $2.5 million or 524.9% to approximately $2.9 million for the three months ended September 30, 2023 compared to $0.5 million for the three months ended September 30, 2022. The increase was due to the valuation of Replacement Placement Agent Warrants (as defined in “—Funding Requirements and Other Liquidity Matters – Issuance of Replacement Securities”) and OID Units Placement Agent Warrants (as defined in “—Funding Requirements and Other Liquidity Matters – Issuance of OID Units Placement Agent Warrants”) issued in the three months ended September 30, 2023.

Other Income (Expenses)

For the three months ended September 30, 2023, the Company incurred approximately $7.4   million of interest and accretion costs compared to approximately $0.8 million for the three months ended September 30, 2022, an increase of 813.6%. The interest and accretion costs were associated with certain securities issued at discount relating to the Units Private Placement and the OID Units Private Placement, compared to $0.8 million of interest and accretion costs recorded in the third quarter of 2022 on the Company’s 10% Secured Convertible Promissory Notes (the “Convertible Notes”).

Additionally, the Company recognized $1.7 million of fair value loss from mark-to-market adjustments on the contingent liabilities assumed on the acquisition of the Somahlution Assets due to the change of the fair value of the contingent consideration compared to $1.5 million of fair value gain, a decrease of $3.2 million from mark-to-market adjustment on the contingent liabilities in the comparative quarter ended September 30, 2022.

The Company recognized a $14.5 million increase in fair value of the detachable warrants issued in the OID Units Private Placement transactions during the nine months ended September 30, 2023. No such warrants were issued in 2022.

The Company recorded a loss of $4.0 million on issuance of 15% OID Convertible Notes due to the fair value of Class E and F Warrants (as defined in “—Liquidity and Capital Resources – Funding Requirements and Other Liquidity Matters – OID Units Private Placement – First Closing of OID Units Private Placement”) exceeding the value of the debt principal.

Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:

Revenue

We recognized revenue of approximately $0.50 million for the nine months ended September 30, 2023 compared to approximately $0.14 million for the nine months ended September 30, 2022. During the nine months ending September 30, 2022, the Company experienced a lack of significant revenue due to the impact of the COVID-19 pandemic on its supply chain and the production of DuraGraft inventory. However, with the Company’s inventory production returning to pre-pandemic levels by the end of the second quarter of 2022 and subsequent sales resumption, there was a notable increase in revenue period over period.

Cost of Goods Sold

Cost of goods sold increased by approximately $0.11 million or 427.3% to approximately $0.14 million in the nine months ended September 30, 2023 compared to approximately $0.03 million in the nine months ended September 30, 2022. The increase was due to increased sales period over period.

Professional Fees

Professional fees increased by approximately $0.10 million or 5.6% to approximately $1.8 million for the nine months ended September 30, 2023 compared to approximately $1.7 million for the nine months ended September 30, 2022. Period over period, the Company saw a reduction in legal and placement agent fees, however this decrease was offset by increased spending on consulting services for DuraGraft FDA regulatory and clinical support.

Salary Expenses

Salary expenses for the nine months ended September 30, 2023 were approximately $0.9 million, an approximately $1.2 million or 56.6% decrease from approximately $2.1 million for the nine months ended September 30, 2022. The decrease was attributable to reductions in employee salaries as part of efforts to streamline the Company’s operations.

Research and Development

Research and development expenses for the nine months ended September 30, 2023 were approximately $1.8 million, an approximately $1.5 million or 45.7% decrease from approximately $3.3 million for the nine months ended September 30, 2022. This reduction in research and development expenses is primarily attributed to the Company’s suspension of a European study on DuraGraft as well the Company’s decision to suspend expenditures related to FDA approvals for MATLOC and Krillase-related assets during the quarter ending September 30, 2023.

The Company previously sought to develop and commercialize FDA-approved products based on its Krillase and MATLOC assets simultaneously with its DuraGraft products. Since the first quarter of 2023, the Company has prioritized the completion of regulatory processes to obtain FDA approval for the commercialization of DuraGraft in the United States and the development of a functional MATLOC device prototype and MAR-FG-001-based viable products. The Company intends to maintain the Krillase assets for potential future development and commercialization or disposition. Any determination as to these matters would be based on a number of factors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Principal Factors Affecting Our Financial Performance” for a summary of factors that we may consider in this respect. There is no assurance that any of the Company’s intellectual property assets will ever be developed and fully commercialized and generate significant revenues or will ever attract significant interest from potential buyers or investors. See “Item 1A. Risk Factors – Risk Factors – Risks Related to Our Business – We may not be able to monetize intangible assets, which may result in the need to record an impairment charge.” in the 2022 Report.

Stock-Based Compensation

Stock-based compensation decreased by approximately $1.2 million to approximately $0.5 million for the nine months ended September 30, 2023 from approximately $1.7 million for the nine months ended September 30, 2022, which represents a 72.5% decrease period over period. A significant portion of options completed their vesting period during the nine months ended September 30, 2022 and no options were granted during the nine months ended September 30, 2023, which caused the decrease in stock-based compensation period over period.

Depreciation and Amortization

Depreciation and amortization remained relatively constant at approximately $0.6 million for each of the nine months ended September 30, 2023 and 2022. The Company did not acquire any new tangible or intangible capital assets during either of these periods.

Royalty Expense

For the nine months ended September 30, 2023, the Company recorded an aggregate of approximately $0.2 million in royalty expense - $0.05 million in royalties payable was incurred on sales of DuraGraft outside of the U.S.; the remaining $0.15 million in royalty expense was recorded as a 50% reduction of the prepaid royalty balance owed to the former beneficial owners of Somahlution. No royalties were accrued for the nine months ended September 30, 2022 as minimal sales of DuraGraft occurred during the nine months ended September 30, 2022.

Other General and Administrative Expenses

Other general and administrative expenses increased by approximately $4.8 million, or 326.7%, to approximately $6.3 million for the nine months ended September 30, 2023 compared to approximately $1.5 million for the nine months ended September 30, 2022. Approximately $0.5 million of the increase can be attributed to the deferred offering costs expensed as a result of adjustments to the Convertible Notes and $0.7 million of the deferred offering costs that were expensed due to the Company’s withdrawal of its registration statement for a public offering in April 2023. Additionally, $1.3 million of other general and administrative expenses can be attributed to the valuation of Class E and F Warrants issued on May 22, 2023 in connection with the First OID Units Closing pursuant to the terms of the Hexin Promissory Note. In addition, approximately $2.6 million of the increase can be attributed to the valuation of Replacement Placement Agent Warrants and OID Units Placement Agent Warrants issued in the nine months ended September 30, 2023

Other Income (Expenses)

For the nine months ended September 30, 2023, the Company incurred approximately $22.5  million of interest and accretion costs associated with certain securities issued at discount relating to the Units Private Placement and the OID Units Private Placement, compared to $1.6 million of interest and accretion costs recorded for the nine months ended September 30, 2022 on the Convertible Notes. Additionally, due to the non-repayment of the initial principal amount of $1.0 million under an unsecured promissory note to Walleye Opportunities Master Fund Ltd. (“Walleye”) for $1,000,000 with a maturity date of May 7, 2023 (the “Walleye Promissory Note”) by its maturity date of May 7, 2023, the Company also defaulted under the Convertible Notes on the same date, resulting in a default amount of $7.4 million accreted to the principal of the Convertible Notes. This represents an approximately $20.9 million or 1,273.3% increase over the nine months ended September 30, 2022.

Additionally, the Company recognized $0.3 million of fair value gain from mark-to-market adjustments on the contingent liabilities assumed on the acquisition of the Somahlution Assets due to the change of the fair value of the contingent consideration compared to $2.1 million of fair value loss, an increase of $2.4 million from mark-to-market adjustment on the contingent liability for the nine months ended September 30, 2022.

The Company recognized a $14.5 million increase in fair value of the detachable warrants issued in the OID Convertible Notes transactions during the nine months ended September 30, 2023. No such warrants were issued in the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, due to the substantial reduction of the conversion price of the Convertible Notes in April 2023, the Company recorded a loss of approximately $0.76 million on the extinguishment of the Convertible Notes. The Company also recorded a loss of $6.3 million on issuance of OID Convertible Notes due to the fair value of Class E and F Warrants exceeding the value of the debt principal.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have incurred significant net losses and negative cash flows from operations. As of September 30, 2023, we had available cash of approximately $0.5 million and accumulated deficit of approximately $136.2 million. We have funded our operations primarily from capital raises.

Recent Developments

FDA De Novo Grant Issued for DuraGraft

On October 4, 2023, DuraGraft was classified as a Class II device and authorized for marketing by the FDA for use and marketing as an intra-operative vascular conduit storage and flushing solution used during CABG surgeries, subject to applicable risks, mitigation requirements, and control provisions. The FDA granted this classification and authorization in response to our application under the De Novo request process of the Food, Drug, and Cosmetic Act (“FD&C Act”). As a Class II device, DuraGraft is subject to special controls to provide reasonable assurance of the safety and effectiveness of the device type. The FDA identified the following risks and mitigation measures: risk of adverse tissue reaction requiring mitigation through biocompatibility evaluation; risk of damage to vascular grafts leading to major adverse cardiac events or vascular injury requiring mitigation through clinical performance data, non-clinical performance testing, shelf life testing, and labeling; risk of particulate matter contamination leading to vascular occlusion, coronary artery embolization and occlusion, phlebitis, infarction, and death requiring mitigation through clinical performance data, non-clinical performance testing, shelf life testing, and labeling; and risk of infection requiring mitigation through sterilization validation.

In addition to the general controls of the FD&C Act, use of DuraGraft is subject to the following special controls: (1) Clinical data must evaluate adverse events associated with clinical use of the device. Devices indicated for vascular grafts for coronary artery bypass graft surgeries must include an evaluation of the incidence of major adverse cardiac events, vein graft occlusion, and mortality. (2) Non-clinical performance testing must demonstrate that the device performs as intended under anticipated conditions of use. The following performance characteristics must be tested: (i) Maintenance of cell viability and structural integrity of vascular conduits during storage at the labeled temperature and storage duration; and (ii) Evaluation of visible and non-visible particulates in the final mixed solution. (3) Shelf life testing must demonstrate the stability of the device’s chemical components over the identified shelf life. (4) The device must be demonstrated to be biocompatible. (5) Performance data must demonstrate the sterility of the device. (6) Labeling must include: (i) The maximum storage duration for vascular autografts in the solution; (ii) A description of all additives or supplements that are added at the point of care; (iii) The need for visual inspection of the solution for particulate matter prior to use; (iv) A statement regarding the duration of stability of the final solution after preparation; (v) A summary of the non-clinical performance testing that supports use of the device as a flushing and storage solution for vascular autografts; and (vi) A summary of the clinical data that supports use of the device as a flushing and storage solution for vascular autografts. In addition, DuraGraft is a prescription device and must comply with 21 CFR 801.109. DuraGraft must also comply with applicable requirements under the FD&C Act, including registration and listing, labeling, medical device reporting (reporting of medical device-related adverse events) for devices or postmarketing safety reporting for combination products, good manufacturing practice requirements as set forth in the quality systems regulation for devices or current good manufacturing practices for combination products, and if applicable, the electronic product radiation control provisions.

In connection with the FDA’s review of our De Novo request, the FDA did not exempt DuraGraft as a Class II device from the premarket notification requirements under section 510(k) of the FD&C Act. Future products that use DuraGraft as a predicate device for vascular graft storage and flushing solutions used during CABG surgery may be required to comply with premarket notification requirements under Section 510(k) of the FD&C Act.