ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed financial statements and other financial information appearing elsewhere in this quarterly report on Form 10-Q. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as “plan,” “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Form 10-K filed with the Securities and Exchange Commission on March 3, 2019. Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of us, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements, and you should not unduly rely on such statements.
Overview
Marizyme, Inc., a Nevada corporation formerly known as GBS Enterprises Incorporated, conducted its primary business through its minority owned subsidiary, GBS Software AG, or GROUP, a German-based public-company whose stock trades on the Frankfurt Exchange. GROUP’s software and consulting business was focused on serving IBM’s Lotus Notes and Domino market. On March 21, 2018, GBS formed a wholly owned subsidiary named Marizyme, Inc., a Nevada Corporation and merged it with GBS Enterprises and renamed the Company Marizyme.
Marizyme currently is focused on bringing early stage biotechnology assets to market and on September 12, 2018, consummated an asset purchase agreement with ACB Holding AB, Reg. No. 559119-5762, a Swedish corporation.
The Company’s Common Stock is currently quoted on the OTC Markets’ Pink tier under the symbol “MRZM.” Upon the filing of this Annual Report, or shortly thereafter, we intend to solicit a market maker to apply to have our Common Stock quoted on the OTC Markets’ OTCQB tier, although no assurances can be given that we will be successful in soliciting a market maker or if we are, that its application with FINRA, or our application with the OTCQB, will be approved. We may also examine our options with respect to the listing of our Common Stock on the Nasdaq Stock market or the NYSE.
Going forward, the Company is focusing on the life sciences business and currently has acquired its first biotechnology assets. Marizyme is also seeking other assets to acquire.
Other than planning activities, Marizyme has not yet begun any active business activities with respect to the development, testing or marketing of any of the four product candidates that we purchased from ACB Holding AB.
Recent Events
On March 28, 2019, the Company accepted the resignation of Mr. Michael K. Handley as Chief Executive Officer and Director. Mr. Handley’s resignation was not a result of any disagreement with the Company, the Company’s management, or the Board of Directors.
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FINANCIAL OPERATIONS OVERVIEW
As of March 31, 2019, our accumulated deficit is approximately $29.99 million. We expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.
Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our accounting policies are described in ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA of our Form 10-K (“Form 10-K”) as of and for year ended December 31, 2018, filed with the SEC on March 6, 2019. There have been no changes to our critical accounting policies since December 31, 2018.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of March 31, 2019.
RECENT ACCOUNTING PRONOUNCEMENTS
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2019 and 2018
Three Months ended March 31, 2019 compared to Three Months ended March 31, 2018
Revenues
The Company generated revenue from Services and Other Revenue. Total revenue decreased to $0 for the three months ended March 31, 2019 from $5,553 for the three months ended March 31, 2018. The decrease resulted from diminished sales in services revenues.
Cost of Goods Sold
For the three months ended March 31, 2019, our Cost of Goods Sold were $0 from $0 for the three months ended March 31, 2018. Cost of Goods Sold consists of Cost for Services.
The Company achieved a gross profit of $-0- for the three months ended March 31, 2019, from the gross profit for three months ended March 31, 2018 of $5,553.
Operating Expenses
Operating Expenses includes Selling, General and Administrative Expenses.
For the three months ended March 31, 2019, the Company’s Operating Expense increased to $67,546 from $50,732 for the three months ended March 31, 2018. The increase was in General and Administrative Expenses primarily due to increased audit, legal, consulting, filing fees and insurance expenses.
Net Other Income (Expense
)
For the three months ended March 31, 2019 the Company had Net Other Income (Expense) of $-0- compared to Net Other Expenses of $2,792 for the three months ended March 31, 2018.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2019, we had $191 in cash, compared to $104 at December 31, 2018. At March 31, 2019, our accumulated stockholders’ deficit was $29,998,088 compared to $29,922,542 at December 31, 2018. There is substantial doubt as to our ability to continue as a going concern.
The Company's cash flow depended on the timely and successful market entry of its strategic offerings. Future cash flows from software products and services are expected to be very small as the company changed its strategic focus to life sciences and biotechnology.
Especially for strategic offerings for paradigm shifting technologies, the management's budget plan is based on a series of assumptions regarding regulatory approval, market acceptance, readiness and pricing. While management's assumptions are based on market research, assumptions bear the risk of being incorrect and may result in a delay in projects, delays in regulatory approvals and consequently a delay or a reduction in the related strategic offerings. In case these delays have an impact on the Company's liquidity and therefore its ability to support its operations with the necessary cash flow, the Company depends on its ability to generate cash flow from other resources, such as debt financing from related or independent resources or as equity financing from existing stockholders or through the stock market.
During the entire fiscal year 2018 and for the first quarter of 2019 the Company sought other strategic assets in the biotechnology space. The Company will look to utilize internal and external sources for financing future projects. These sources may provide the necessary funds to support the working capital needs of the Company. There can be no assurances, however, that the Company will be able to obtain additional funds from these or any other sources or that such funds will be sufficient to permit the Company to implement its intended business strategy. In the event, the Company is not able to generate additional funds, management will postpone any planned or proposed acquisitions until the available financing for such projects will be sufficient. Management believes, in accordance with the above-mentioned statement, the Company will need to raise money to support its standard operations for the current fiscal period.
Subsequent to March 31, 2019, we sold $125,000 of our common stock to three investors in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Regulation D under the Securities Act. In this private placement, we sold 113,637 shares priced at $1.10 per share and we included a three-year warrant to purchase one additional share for each share purchased in the private placement at an exercise price of $3.00 per share. If the price of our common stock reaches $4.00 for 20 consecutive days, we have the right to buy back the warrant for $0.01 per share if the investor elects not to exercise the warrant to acquire the additional shares.
Operating and Capital Expenditure Requirements
We believe our cash balance as reported in our financial statements is not sufficient to fund our growth plan for any period of time. In order to fully implement our plan of operations for the next 12-month period, we will need to raise a significant amount of capital through one or more future offerings. The discussion below is based on the assumption that we will be able to raise significant capital in the second and third quarters of 2019. We will need to raise $1.5 million to fund operations for the next 12 months, including up to $100,000 for governance and administrative purposes (assuming we hire a new Chief Executive Officer). After the next 12-month period, we most likely will need to raise additional financing. We do not currently have any arrangements for any such financing and there can be no assurances that we will be able to raise the required capital on acceptable terms, if at all.
We have generated minimal revenues to date and, although we expect to raise significant capital in the future, there can be no assurances that we will be successful in these endeavors. We believe that the actions presently being taken to further implement our business plan and generate revenues will provide the opportunity for us to develop into a successful business operation.
We will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available on acceptable terms, or at all. Recently worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain difficult for the foreseeable future. These developments will make it more difficult to obtain additional equity or credit financing, when needed. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize its self on unfavorable terms.
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ITEM 4. CONTROLS AND PROCEDURES
Our Executive Chairman and acting principal executive and financial officer, James Sapirstein, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, as of March 31, 2019, our acting principal executive and financial officer identified the following material weaknesses:
We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. To mitigate the current limited resources and limited employees, we rely heavily on the use of external legal and accounting professionals.
Our management has identified the steps necessary to address the material weaknesses, and as soon as we have available funds, we will implement the following remedial procedures:
We will hire personnel with technical accounting expertise to further support our current accounting personnel. As necessary, we will continue to engage consultants or outside accounting firms in order to ensure proper accounting for our financial statements.
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act, our management, including our acting principal executive and financial officer, James Sapirstein, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our acting principal executive and financial officer concluded there were no such changes during the quarter ended March 31, 2019.
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