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EX-10.1 - EXHIBIT 10.1 FORM OF LICENSE CO-DEVELOPMENT PARTICIPATION AGREEMENT. - Zivo Bioscience, Inc.f10q093020_ex10z1.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - Zivo Bioscience, Inc.f10q093020_ex32z2.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Zivo Bioscience, Inc.f10q093020_ex32z1.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - Zivo Bioscience, Inc.f10q093020_ex31z2.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Zivo Bioscience, Inc.f10q093020_ex31z1.htm

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____to_____

 

Commission file number: 000-30415

 

Zivo Bioscience, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

 

87-0699977

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

2804 Orchard Lake Rd., Suite 202, Keego Harbor, MI 48320

(Address of principal executive offices) (Zip code)

 

(248) 452 9866

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on

Which Registered

N/A

 

N/A

 

N/A

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 [X] 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 ST (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [   ]

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an “emerging growth company”. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

[   ]

Large accelerated filer

[X]

Smaller reporting company

[   ]

Accelerated filer

[   ]

Emerging growth company

[X]

Non-accelerated filer

 

 

 

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. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). Yes [   ] No [X]

 

There were 409,586,542 shares of common stock, $0.001 par value, outstanding at November 5, 2020.


1


 

 

FORM 10-Q

ZIVO BIOSCIENCE, INC.

INDEX

 

 

Page

PART I – FINANCIAL INFORMATION

3

Item 1. Condensed Consolidated Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 4T. Controls and Procedures

29

 

 

PART II – OTHER INFORMATION

30

Item 1A. Risk Factors

30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 5. Other information

31

Item 6. Exhibits

31

 

(Inapplicable items have been omitted)


2


 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

September 30,

2020

 

December 31,

2019

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash

$

55,367

$

346,111

Prepaid Expenses

 

75,073

 

23,282

Total Current Assets

 

130,440

 

369,393

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET

 

-

 

-

 

 

 

 

 

TOTAL ASSETS

$

130,440

$

369,393

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts Payable

$

1,900,889

$

1,372,428

Loans Payable, Related Parties

 

109,000

 

-

Convertible Debentures Payable

 

5,180,342

 

5,280,342

Deferred Revenue - Participation Agreements

 

1,384,907

 

-

Accrued Interest

 

2,328,287

 

1,952,606

Accrued Liabilities – Other

 

196,163

 

102,500

Total Current Liabilities

 

11,099,588

 

8,707,876

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

Loans Payable, Others

 

121,700

 

-

Total Long-Term Liabilities

 

121,700

 

-

 

 

 

 

 

TOTAL LIABILITIES

 

11,221,288

 

8,707,876

COMMITMENTS AND CONTINGENCIES

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

Common stock, $.001 par value,

1,200,000,000 shares authorized; 406,924,005 and 396,736,506

issued and outstanding at September 30, 2020 and December 31, 2019

 

406,924

 

396,737

Additional Paid-In Capital

 

85,672,742

 

81,222,726

Accumulated deficit

 

(97,170,514)

 

(89,957,946)

Total Stockholders' Deficit

 

(11,090,848)

 

(8,338,483)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

130,440

$

369,393

 

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


3


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the Three

Months ended

September 30,

2020

 

For the Three

Months ended

September 30,

2019

 

For the Nine

Months ended

September 30,

2020

 

For the Nine

Months ended

September 30,

2019

REVENUES:

 

 

 

 

 

 

 

 

Service Revenue

$

-

$

-

$

20,000

$

-

Total Revenues

 

-

 

-

 

20,000

 

-

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

General and Administrative

 

458,755

 

339,842

 

1,526,530

 

1,062,423

Professional fees and Consulting expense

 

1,610,931

 

708,578

 

1,986,417

 

1,677,128

Research and Development

 

1,294,921

 

525,581

 

3,307,716

 

1,839,547

 

 

 

 

 

 

 

 

 

Total Costs and Expenses

 

3,364,607

 

1,574,001

 

6,820,663

 

4,579,098

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(3,364,607)

 

(1,574,001)

 

(6,800,663)

 

(4,579,098)

 

 

 

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

Amortization of Debt Discount

 

-

 

-

 

-

 

(374,608)

Financing Costs

 

-

 

-

 

-

 

(581)

Interest expense

 

(24,281)

 

(26,725)

 

(72,890)

 

(80,175)

Interest expense – related parties

 

(113,867)

 

(180,402)

 

(339,015)

 

(2,343,808)

Total Other Expense

 

(138,148)

 

(207,127)

 

(411,906)

 

(2,799,172)

 

 

 

 

 

 

 

 

 

NET LOSS

$

(3,502,755)

$

(1,781,128)

$

(7,212,568)

$

(7,378,270)

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER SHARE

$

(0.01)

$

(0.01)

$

(0.02)

$

(0.03)

WEIGHTED AVERAGE BASIC AND

DILUTED SHARES OUTSTANDING

 

406,724,979

 

347,770,054

 

404,796,634

 

247,783,445

 

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


4


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2020

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Paid in

 

Accumulated

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

Balance, December 31, 2018

180,036,435

$

180,037

$

55,985,626

$

(78,447,780)

$

(22,282,117)

Issuance of warrants for services

-

 

-

 

19,745

 

-

 

19,745

Issuance of warrants for services – related party

-

 

-

 

4,767

 

-

 

4,767

Issuance of common stock for cash

1,500,000

 

1,500

 

148,500

 

-

 

150,000

Common stock issued on conversion of 11% Convertible Debt and accrued interest

4,649,291

 

4,649

 

460,280

 

-

 

464,929

Net loss for the three months ended March 31, 2019

-

 

-

 

-

 

(3,056,996)

 

(3,056,996)

Balance, March 31, 2019

186,185,726

 

186,186

 

56,618,918

 

(81,504,776)

 

(24,699,672)

 

 

 

 

 

 

 

 

 

 

Issuance of warrants for services

-

 

-

 

529,023

 

-

 

529,023

Issuance of warrants for services – related party

-

 

-

 

4,800

 

-

 

4,800

Issuance of common stock for cash

12,020,000

 

12,020

 

1,189,980

 

-

 

1,202,000

Common stock issued on conversion of 11% Convertible Debt and accrued interest

143,447,677

 

143,448

 

14,201,320

 

-

 

14,344,768

Net loss for the three months ended June 30, 2019

 

 

 

 

 

 

(2,540,146)

 

(2,540,146)

Balance, June 30, 2019

341,653,403

$

341,654

$

72,544,041

$

(84,044,922)

$

(11,159,227)

 

 

 

 

 

 

 

 

 

 

Issuance of warrants for services

-

 

-

 

231,032

 

-

 

231,032

Issuance of warrants for services – related party

-

 

-

 

3,850

 

-

 

3,850

Issuance of warrants for services – directors fees

-

 

-

 

192,614

 

-

 

192,614

Issuance of common stock for cash

12,980,000

 

12,980

 

1,285,020

 

-

 

1,298,000

Common stock issued on conversion of Loan Payable

3,118,359

 

3,118

 

308,718

 

-

 

311,836

Net loss for the three months ended September 30, 2019

-

 

-

 

-

 

(1,781,128)

 

(1,781,128)

Balance, September 30, 2019

357,751,762

$

357,752

$

74,565,275

$

(85,826,050)

$

(10,903,023)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Paid in

 

Accumulated

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

Balance, December 31, 2019

396,736,506

$

396,737

$

81,222,726

$

(89,957,946)

$

(8,338,483)

Issuance of warrants for services

-

 

-

 

898,975

 

-

 

898,975

Issuance of warrants for services – related party

-

 

-

 

297,248

 

-

 

297,248

Issuance of common stock for cash

156,252

 

156

 

24,844

 

-

 

25,000

Common stock issued on conversion of 11% Convertible Debt and accrued interest

1,362,247

 

1,362

 

134,863

 

-

 

136,225

Common stock issued on warrant exercise

5,636,690

 

5,637

 

370,363

 

-

 

376,000

Net loss for the three months ended March 31, 2020

-

 

-

 

-

 

(2,542,978)

 

(2,542,978)

Balance, March 31, 2020

403,891,695

 

403,892

 

82,949,019

 

(92,500,924)

 

(9,148,013)

 

 

 

 

 

 

 

 

 

 

Issuance of warrants for participation agreements

-

 

-

 

117,474

 

-

 

117,474

Common stock issued on warrant exercise

2,758,637

 

2,759

 

201,641

 

-

 

204,400

Net loss for the three months ended June 30, 2020

-

 

-

 

-

 

(1,166,835)

 

(1,166,835)

Balance, June 30, 2020

406,650,332

$

406,651

$

83,268,134

$

(93,667,759)

$

(9,992,974)

 

 

 

 

 

 

 

 

 

 

Issuance of warrants for services

-

 

-

 

713,647

 

-

 

713,647

Issuance of warrants for services – directors fees

-

 

-

 

1,248,616

 

-

 

1,248,616

Issuance of warrants for participation agreements

-

 

-

 

422,618

 

-

 

422,618

Common stock issued on warrant exercise

273,673

 

273

 

19,727

 

-

 

20,000

Net loss for the three months ended September 30, 2020

-

 

-

 

-

 

(3,502,755)

 

(3,502,755)

Balance, September 30, 2020

406,924,005

$

406,924

$

85,672,742

$

(97,170,514)

$

(11,090,848)

 

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


5


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

For the Nine

Months Ended

September 30,

2020

 

For the Nine

Months Ended

September 30,

2019

Cash Flows for Operating Activities:

 

 

 

 

Net Loss

$

(7,212,569)

$

(7,378,270)

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

Stock and warrants issued for services rendered – related party

 

297,248

 

13,417

Stock and warrants issued for services rendered

 

1,612,623

 

779,801

Warrants issued for Directors’ Fees

 

1,248,616

 

192,614

Amortization of debt issuance costs (interest expense – related parties)

 

-

 

1,187,817

Amortization of bond discount

 

-

 

374,608

Changes in assets and liabilities:

 

 

 

 

(Increase) in prepaid expenses

 

(51,791)

 

(31,858)

Increase in accounts payable

 

528,462

 

539,743

Increase in deferred revenue – participation agreements

 

1,384,907

 

-

Increase in accrued liabilities and interest

 

505,568

 

1,266,165

Net Cash (Used) by Operating Activities

 

(1,686,936)

 

(3,055,963)

 

 

 

 

 

Cash Flows from Investing Activities:

 

-

 

-

 

 

-

 

-

 

 

 

 

 

Cash Flow from Financing Activities:

 

 

 

 

Proceeds from Loan Payable, related party – net of repayments

 

129,000

 

32,500

Proceeds of Loan Payable, other

 

121,700

 

-

Proceeds from sale of common stock warrants – participation agreements

 

540,093

 

-

Proceeds from exercise of common stock warrants

 

580,400

 

-

Proceeds from sales of common stock

 

25,000

 

2,650,000

Net Cash Provided by Financing Activities

 

1,396,193

 

2,682,500

 

 

 

 

 

(Decrease) in Cash

 

(290,743)

 

(373,463)

Cash at Beginning of Period

 

346,111

 

388,890

Cash at End of Period

$

55,368

$

15,427

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

-

$

581

Income Taxes

$

-

$

-

 

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

 


6


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

Nine Months Ended September 30, 2020:

 

During the quarter ended March 31, 2020, $100,000 of 11% Convertible Notes, as well as $36,225 in related accrued interest were converted at $.10 per share into 1,362,247 shares of the Company’s common stock.

 

During the quarter ended March 31, 2020, a principal shareholder and related party assigned warrants to purchase 3,750,000 shares of the Company’s Common Stock to third party investors and such warrants were exercised in the first quarter of 2020 at $.10 per share resulting in the issuance of 3,750,000 shares of common stock for gross proceeds of $375,000. The Company considered the warrants to be contributed capital from a majority shareholder and recorded equity related finance charges. The warrants were valued at $453,441 using the Black Scholes pricing model relying on the following assumptions: volatilities ranging from 128.20% to 142.46%; annual rate of dividends 0%; discount rates ranging from 0.66% to 1.65%.

 

During the quarter ended March 31, 2020, warrants to purchase 3,880,000 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 1,876,691 shares of common stock.

 

During the quarter ended June 30, 2020, a principal shareholder and related party assigned a warrant to purchase 500,000 shares of the Company’s Common Stock to a third party investor and such warrant was exercised in the second quarter of 2020 at $.10 per share resulting in the issuance of 500,000 shares of common stock for gross proceeds of $50,000. The Company considered the warrant to be contributed capital from a majority shareholder and recorded equity related finance charges. The warrants were valued at $42,090 using the Black Scholes pricing model relying on the following assumptions: volatility of 133.44%; annual rate of dividends 0%; discount rate of 0.41%.

 

During the quarter ended June 30, 2020, warrants to purchase 920,000 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 333,637 shares of common stock.

 

During the quarter ended September 30, 2020, $20,000 of Loan Payable, Related Parties were converted at $.10 per share into 200,000 shares of the Company’s common stock.

 

During the quarter ended September 30, 2020, warrants to purchase 800,000 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 73,673 shares of common stock.

 

Nine Months Ended September 30, 2019:

 

During the quarter ended March 31, 2019, $464,929 of Due to Related Party and Loans Payable – Related Party were converted at $.10 per share into 4,649,291 shares of the Company’s common stock.

 

During the quarter ended June 30, 2019, $12,080,298 of 11% Convertible Notes – Related Party, as well as $2,264,470 in related accrued interest were converted at $.10 per share into 143,447,677 shares of the Company’s common stock.

 

During the quarter ended September 30, 2019, $176,405 of Loan Payable, Related Parties and related accrued interest of $135,431 were converted at $.10 per share into 3,118,359 shares of the Company’s common stock.


7


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements include the accounts of ZIVO Bioscience, Inc. and its wholly- owned subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. These consolidated financial statements are condensed, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s December 31, 2019 consolidated audited financial statements and Notes thereto included in the Annual Report on Form 10-K filed with the SEC on March 26, 2020.

 

The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2020, or any other period.

 

The Company incurred a net loss of $7,212,569 for the nine months ended September 30, 2020. In addition, the Company had a working capital deficiency of $10,969,148 and a stockholders’ deficit of $11,090,848 at September 30, 2020. These factors continue to raise substantial doubt about the Company's ability to continue as a going concern. During the nine months ended September 30, 2020, the Company raised $625,400 from the issuance of common stock and exercise of common stock warrants; $1,925,000 from the proceeds from the sale of Participation Agreements and related warrants; $121,700 in Loans Payable, Other and $129,000 in loans from related parties. There can be no assurance that the Company will be able to raise additional capital.

 

The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of ZIVO Bioscience, Inc. and its wholly-owned subsidiaries, Health Enhancement Corporation, HEPI Pharmaceuticals, Inc., Wellmetrix, LLC (formerly known as WellMetris, LLC), Zivo Bioscience, LLC and Zivo Biologic, Inc. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Accounting Estimates

 

The Company’s condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management uses its best judgment in valuing these estimates and may, as warranted, solicit external professional advice and other assumptions believed to be reasonable.

 

Cash and Cash Equivalents

 

For the purpose of the statements of cash flows, cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At September 30, 2020, the Company did not have any cash equivalents.

 

Property and Equipment

 

Property and equipment consist of furniture and office equipment and are carried at cost less allowances for depreciation and amortization. Depreciation and amortization is determined by using the straight-line method over the estimated useful lives of the related assets. Repair and maintenance costs that do not improve service potential or extend the economic life of an existing fixed asset are expensed as incurred.


8


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Debt Issuance Costs

 

The Company follows authoritative guidance for accounting for financing costs (as amended) as it relates to convertible debt issuance costs. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Debt Issuance Costs are reported on the balance sheet as a direct deduction from the face amount of the related notes. Amortization of debt issuance costs amounted to $-0- and $1,187,817 and are included in Interest Expense – Related Parties on the condensed consolidated Statements of Operations for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, and December 31, 2019 there were no unamortized Debt Issuance costs included in the condensed consolidated Balance Sheets as presented in these financial statements.

 

Revenue Recognition

 

Revenue is recognized in accordance with revenue recognition accounting guidance, which utilizes five steps to determine whether revenue can be recognized and to what extent: (i) identify the contract with a customer; (ii) identify the performance obligation(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) determine the recognition period. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, Revenue from Contracts with Customers, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

Significant judgments exercised by management include the identification of performance obligations, and whether such promised goods or services are considered distinct. The Company evaluates promised goods or services on a contract by contract basis to determine whether each promise represents a good or service that is distinct or has the same pattern of transfer as other promises. A promised good or service is considered distinct if the customer can benefit from the good or service independently of other goods/services either in the contract or that can be obtained elsewhere, without regard to contract exclusivity, and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contact. If the good or service is not considered distinct, the Company combines such promises and accounts for them as a single combined performance obligation.

 

For nine months ended September 30, 2020 and 2019, the Company had $20,000 and $-0- of service revenue, respectively.

 

Shipping and Handling Costs

 

Shipping and handling costs are expensed as incurred. For the nine months ended September 30, 2020 and 2019, no shipping and handling costs were incurred.

 

Research and Development

 

Research and development costs are expensed as incurred. The Company's research and development costs, including internal expenses, consist of clinical study expenses as it relates to the BioTech business and the development and growing of algae as it relates to the AgTech business. These consist of fees, charges, and related expenses incurred in the conduct of business with Company development by independent outside contractors. External clinical studies study expenses were approximately $1,431,000 and $1,650,000 for the nine months ended September 30, 2020 and 2019, respectively. Internal expenses, composed of staff salaries compose approximately $1,877,000 and $190,000 for the nine months ended September 30, 2020 and 2019, respectively.

 

Stock Based Compensation

 

We account for stock-based compensation in accordance with FASB ASC 718, Compensation – Stock Compensation, as amended by (ASU) No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period. The Company generally issues grants to its employees, consultants and board members. At the date of grant, the Company determines the fair value of the stock option or warrant award and recognizes compensation expense over the requisite service period. The fair value of the stock option or warrant award is calculated using the Black Scholes option pricing model.

 


9


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

During the nine months ended September 30, 2020 and 2019, stock options and warrants were granted to employees, the Board of Directors and consultants of the Company. As a result of these grants, the Company recorded compensation expense of $3,158,487 and $985,832 for these periods, respectively.

 

The fair value of stock options and warrants was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:

 

 

Nine Months Ended September 30,

 

2020

 

2019

Expected volatility

144.39% to 184.19%

 

176.10% to 185.11%

Expected dividends

0%

 

0%

Expected term

5-10 years

 

5 years

Risk free rate

0.28% to 2.31%

 

1.58% to 2.77%

 

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee warrants have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models may not necessarily provide a reliable single measure of the fair value of the warrants.

 

Loss Per Share

 

Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of options, warrants and conversions of debentures. Potentially dilutive securities as of September 30, 2020, consisted of 76,578,752 common shares issuable upon the conversion of convertible debentures and related accrued interest and 237,547,006 common shares issuable upon the exercise of outstanding stock options and warrants. Potentially dilutive securities as of September 30, 2019, consisted of 101,203,285 common shares issuable upon the conversion of convertible debentures and related accrued interest and 203,130,756 common shares issuable upon the exercise of outstanding warrants. For the nine months ended September 30, 2020 and 2019 diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive.

 

Advertising

 

Advertising costs are charged to operations when incurred. There were no advertising costs for the nine months ended September 30, 2020 and 2019.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company, from time to time, maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (“FDIC”) limit of $250,000.

 

Reclassifications

 

Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.

 

Recently Enacted Accounting Standards

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), “Revenue from Contracts with Customers.” ASU 2014-09 superseded the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. Historically the Company has had insignificant revenues.


10


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” to require lessees to recognize all leases, with limited exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. Subsequently, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842”, ASU No. 2018-11, “Targeted Improvements,” and ASU No. 2018-20, “Narrow-Scope Improvements for Lessors,” to clarify and amend the guidance in ASU No. 2016-02. ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period.

 

The Company has adopted each of the ASUs. Prior comparative periods were not required to be restated and the ASUs have not had an impact on the Company’s consolidated financial statements.

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following:

 

 

 

September 30,

2020

 

December 31,

2019

 

 

(Unaudited)

 

 

Furniture and fixtures

$

20,000

$

20,000

Equipment

 

80,000

 

80,000

 

 

100,000

 

100,000

Less accumulated depreciation and amortization

 

(100,000)

 

(100,000)

 

$

-

$

-

 

There were no depreciation and amortization expenses for the nine months ended September 30, 2020 and 2019 respectively.

 

NOTE 4 – DUE TO RELATED PARTY

 

The Company pays HEP Investments, LLC, a related party, a 5.4% cash finance fee for monies invested in the Company in the form of convertible debt (see Note 6). During the quarter ended March 31, 2019, the balance of $432,429 was converted at $.10 per share into 4,324,291 shares of the Company’s common stock. As of September 30, 2020, and December 31, 2019, there were no outstanding balances due to related parties related to the Company’s convertible debt.

 

NOTE 5 – LOAN PAYABLE, RELATED PARTIES

 

Christopher Maggiore

 

During the nine months ended September 30, 2020, Mr. Christopher Maggiore, a director and a significant shareholder of the Company, advanced $20,000 to the Company. On September 15, 2020, he applied $20,000 of the loan balance to fund the purchase of 200,000 shares of a warrant for 250,000 shares of common stock at an exercise price of $.10 per share. The remaining 50,000 warrants were cashlessly exercised into 3,704 shares. The Company has agreed to pay interest of 11% per annum on these loans and as of September 30, 2020 owes accrued interest of $542.

 

During the nine months ended September 30, 2020 and September 30, 2019, the Company recorded interest expense on loans payable to Mr. Maggiore of $1,254 and $24,061, respectively.

 

HEP Investments, LLC

 

During the nine months ended September 30, 2020, HEP Investments, LLC advanced the Company $139,000, of which $30,000 has been repaid during this period. As of September 30, 2020, HEP Investments, LLC is owed $109,000.


11


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE DEBT

 

HEP Investments, LLC – Related Party

 

On December 2, 2011, the Company and HEP Investments, LLC, a Michigan limited liability company (the “Lender”), entered into the following documents, effective as of December 1, 2011, as amended through May 16, 2018: (i) a Loan Agreement under which the Lender has agreed to advance up to $20,000,000 to the Company, subject to certain conditions, (ii) an 11% Convertible Secured Promissory Note in the principal amount of $20,000,000 (“Note”) (of which a total of $18,470,640 has been funded, with a total of $14,380,298 converted into 143,702,981 shares of common stock, leaving a balance advanced of $4,090,342 as of September 30, 2020), (iii) a Security Agreement, under which the Company granted the Lender a security interest in all of its assets, (iv) issue the Lender warrants to purchase 1,666,667 shares of common stock at an exercise price of $.12 per share (including a cashless exercise provision) which expired September 30, 2016 (from the original December 1, 2011 agreement), (v) enter into a Registration Rights Agreement with respect to all the shares of common stock issuable to the Lender in connection with the Loan transaction, in each case subject to completion of funding of the full $20,000,000 called for by the Loan Agreement, and (vi) an Intellectual Property security agreement under which the Company and its subsidiaries granted the Lender a security interest in all their respective intellectual properties, including patents, in order to secure their respective obligations to the Lender under the Note and related documents. The Lenders Notes are convertible into the Company’s restricted common stock at $.10 per share and bear interest at the rate of 11% per annum. In addition, the Company’s subsidiaries have guaranteed the Company’s obligations under the Note. The Company has also made certain agreements with the Lender which shall remain in effect as long as any amount is outstanding under the Loan. These agreements include an agreement not to make any change in the Company’s senior management, without the prior written consent of the Lender. Two representatives of the Lender will have the right to attend Board of Director meetings as non-voting observers.

 

On March 29, 2019, the Company and the Lender entered into a “Debt Extension Agreement” whereby the Lender extended the maturity date of the Note to June 30, 2019. The Lender received no additional consideration related to this debt extension. The Company determined that the modification of these Notes was not a substantial modification in accordance with ASC 470-50, “Modifications and Extinguishments.”

 

As of September 30, 2020, the Company has not made the required annual interest payments and principal payments to the Lender. As the Company has not received a notice of default, pursuant to the terms of the Notes, the Company does not currently consider itself in default. Were the Company to be in default, additional interest would accrue at a rate of 16% per annum.

 

Based on the above, as of September 30, 2020, the total shares of common stock, if the Lender converted the complete $4,090,342 convertible debt, including related accrued interest of $1,859,832, would be 59,501,746 shares, not including any future interest charges which may be converted into common stock.

 

Paulson Investment Company, LLC - Related Debt

 

On August 24, 2016, the Company entered into a Placement Agent Agreement with Paulson Investment Company, LLC (Paulson). The agreement provided that Paulson could provide up to $2 million in financings through “accredited investors” (as defined by Regulation D of the Securities Act of 1933, as amended). As of December 31, 2016, the Company received funding of $1,250,000 through seven (7) individual loans (the “New Lenders”). Each loan included a (i) a Loan Agreement of the individual loan, (ii) a Convertible Secured Promissory Note (“New Lenders Notes”) in the principal amount of the loan, (iii) a Security Agreement under which the Company granted the Lender a security interest in all of its assets and (iv) an Intercreditor Agreement with HEP Investments, LLC (HEP) whereby HEP and the New Lenders agree to participate in all collateral on a pari passu basis. The loans have a two-year term and mature in September 2018 ($600,000) and October 2018 ($650,000). Paulson received a 10% cash finance fee for monies invested in the Company in the form of convertible debt, along with 5 year, $.10 warrants equal to 15% of the number of common shares for which the debt is convertible into at $.10 per share. The New Lenders Notes are convertible into the Company’s restricted common stock at $.10 per share and bear interest at the rate of 11% per annum.

 

On September 24, 2018, one New Lender converted $300,000 of the debt and $64,280 of accrued interest into 3,642,800 shares of the Company’s common stock (at $.10 per share). On May 8, 2019, one of the New Lenders bought the note of another New Lender.

 

On January 15, 2020, two New Lenders converted $100,000 of the debt and $36,225 of accrued interest into 1,362,246 shares of the Company’s common stock (at $.10 per share).

 

The New Lenders Notes state that they will be repaid as follows: accrued interest must be paid on the first and second anniversary of the Note and unpaid principal not previously converted into common stock must be repaid on the second anniversary of the Note.


12


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE DEBT (continued)

 

As of September 30, 2020, the Company has not made the required annual interest payments to the three (3) remaining New Lenders. As the Company has not received notices of default, pursuant to the terms of the Notes, we do not currently consider ourselves in default to the three (3) remaining investors. Were the Company to be considered in default, additional interest would accrue at a rate of 16% per annum.

 

Other Debt

 

In September 2014, the Lender of the 1% convertible debentures agreed to rolling 30-day extensions until notice is given to the Company to the contrary. As of September 30, 2020, that agreement is still in place. The Company determined that the modification of these Notes is not a substantial modification in accordance with ASC 470-50, “Modifications and Extinguishments.”

 

Convertible debt consists of the following:

 

 

 

 

 

 

September 30,

2020

(Unaudited)

 

December 31,

2019

1% Convertible notes payable, due November 30, 2020 (at September 30, 2020)

$

240,000

$

240,000

 

 

 

 

 

11% Convertible note payable – HEP Investments LLC, a related party, past due September 30, 2019 (as of September 30, 2020 no notice of default has been received)

 

4,090,342

 

4,090,342

 

 

 

 

 

11% Convertible note payable – New Lenders; placed by Paulson, past due at various dates ranging from September 2018 to October 2019 (as of September 30, 2020 no notice of default has been received)

 

850,000

 

950,000

 

 

5,180,342

 

5,280,342

Less: Current portion

 

5,180,342

 

5,280,342

Long term portion

$

-

$

-

 

Amortization of debt discounts was $-0- and $374,608 for the nine months ended September 30, 2020 and 2019, respectively.

 

NOTE 7 – LOANS PAYABLE - OTHERS

 

Paycheck Protection Program Loan

 

On May 7, 2020, The Company received $121,700 in loan funding from the Paycheck Protection Program (the "PPP") established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") and administered by the U.S. Small Business Administration ("SBA"). The unsecured loan (the "PPP Loan") is evidenced by a promissory note of the Company, dated April 29, 2020 (the "Note") in the principal amount of $121,700 with Comerica Bank (the "Bank"), the lender.

 

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the Company will be obligated to make equal monthly payments of principal and interest beginning on the date that is seven months from the date of the Note, until the maturity date. The Note may be prepaid in part or in full, at any time, without penalty.

 

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for forgiveness for all or a part of the PPP Loan. The amount of loan proceeds eligible for forgiveness, as amended, is based on a formula that takes into account a number of factors, including: (i) the amount of loan proceeds that are used by the Company during the covered period after the loan origination date for certain specified purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the loan amount is used for eligible payroll costs; (ii) the Company maintaining or rehiring employees, and maintaining salaries at certain levels; and (iii) other factors established by the SBA. Subject to the other requirements and limitations on loan forgiveness, only that portion of the loan proceeds spent on payroll and other eligible costs during the covered period will qualify for forgiveness. Although the Company currently intends to use the entire amount of the PPP Loan for qualifying expenses, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.


13


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – LOANS PAYABLE – OTHERS (continued)

 

The Note contains customary events of default as follows. The Company:

 

·Fails to make a scheduled payment; 

 

·Fails to do anything required by the Note and other Loan Documents; 

 

·Defaults on any other loan with Lender; 

 

·Is not eligible to receive a loan under the PPP when the Loan is made; 

 

·Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA; 

 

·Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA; 

 

·Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect the Company's ability to pay the Note; 

 

·Fails to pay any taxes when due; 

 

·Becomes the subject of a proceeding under any bankruptcy or insolvency law; 

 

·Has a receiver or liquidator appointed for any part of its business or property; 

 

·Makes an assignment for the benefit of creditors; 

 

·Has any adverse change in financial condition or business operation that Lender believes may materially affect the Company's ability to pay the Note, provided that this provision shall not apply to adverse changes or conditions resulting from the Covid-19 pandemic and the circumstances giving rise to the CARES Act; 

 

·Reorganizes, merges, consolidates, or otherwise changes ownership or business structure, (2) makes any distribution of the Company's assets that would adversely affect its financial condition, or (3) transfers (including by pledge) or disposes of any assets except in the ordinary course of business, in each case without Lender's prior written consent; or 

 

·Becomes the subject of a civil or criminal action that Lender believes may materially affect the Company's ability to pay the Note. 

 

Upon the occurrence of an event of default, the Lender has customary remedies and may, among other things, require immediate payment of all amounts owed under the Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

 

NOTE 8 - DEFERRED REVENUE - PARTICIPATION AGREEMENTS

 

During the quarter ended September 30, 2020, the Company entered into twelve (12) License Co-Development Participation Agreements (“Agreements”) totaling $1,925,000 with third parties (“Participants”). The Agreements provide for payments by the Company to the Participants of an aggregate of 28.875% of fees generated by the Company from licensing or selling bioactive ingredients or molecules (including its TLR4 Inhibitor molecule) derived from the Company’s algae cultures and actually received from any licensee of the Company (the “Revenue Share”). The Agreements also call for the issuance of warrants to purchase an aggregate of 5,325,000 shares of common stock with a term of five years and at exercise prices of either $.11 or $.12 per share (See the Table below).


14


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 - DEFERRED REVENUE - PARTICIPATION AGREEMENTS (Continued)

 

According to the terms of the Agreements, and pursuant to ASC 470-10-25 “Debt – Sales of Future Revenues” the Company has bifurcated the proceeds of $1,925,000 as follows: 1) the 5,325,000 warrants sold were attributed a value of $540,093 based on the Black Scholes pricing model using the following assumptions: volatilities ranging from 145.13% to 154.38%; annual rate of dividends 0%; discount rates ranging from 0.29% to 0.44%, and recorded as Additional Paid In Capital; 2) the remaining $1,384,907 was recorded as Deferred Revenue – Participation Agreements. Since the Company believes there is a rebuttable presumption pursuant to ASC 470-10-25.2, the Deferred Revenue – Participation Agreements will be amortized into income, using an estimate to be determined by Management, if and when the Company derives income from the license or sale of bioactive ingredients or molecules (including its TLR4 Inhibitor molecule) derived from the Company’s algae cultures.

 

Agreements #1 through #4 allow the Company the option (“Option”) to buy back the right, title and interest in the Revenue Share for an amount equal to the amount funded plus a forty percent (40%) premium. The Company may exercise its Option by delivering written notice to the Participant of its intent to exercise the Option, along with repayment terms of the amount funded, which may be paid, in the Company’s sole discretion, in one lump sum or in four (4) equal quarterly payments.

 

Agreements #5 through #12 allow the Company the Option to buy back the right, title and interest in the Revenue Share for an amount equal to the amount funded plus a forty percent (40%) premium, if the Option is exercised in less than 18 months, or a fifty percent (50%) premium, if the Option is exercised after 18 months. Pursuant to the terms of Agreements #5 through #12, the Company may not exercise its Option until it has paid the Participant a revenue share equal to a minimum of thirty percent (30%) of the amount initially funded. Once this minimum threshold is met, the Company may exercise its Option by delivering written notice to the Participant of its intent to exercise the Option, along with repayment terms of the amount funded, which may be paid, in the Company’s sole discretion, in one lump sum or in four (4) equal quarterly payments. If the Company does not make such quarterly payments timely for any quarter, then the Company shall pay the prorate Revenue Share amount, retroactive on the entire remaining balance owed, that would have been earned during such quarter until the default payments are made and the payment schedule is no longer in default.

 

Agreement

#

 

Date of

Funding

 

Amount

Funded

 

Warrants

 

Term

 

Exercise

Price

 

Revenue

Share

 

Minimum

Payment

Threshold

 

Buy-back

Premium

%

pre-18

mos.

 

Buy-back

Premium

%

post 18

mos.

1

 

April 13, 2020

$

100,000

 

300,000

 

5 Years

$

0.12

 

1.500%

 

-

 

40%

 

40%

2

 

April 13, 2020

 

150,000

 

450,000

 

5 Years

 

0.12

 

2.250%

 

-

 

40%

 

40%

3

 

April 13, 2020

 

150,000

 

450,000

 

5 Years

 

0.12

 

2.250%

 

-

 

40%

 

40%

4

 

May 7, 2020

 

250,000

 

750,000

 

5 Years

 

0.12

 

3.750%

 

-

 

40%

 

40%

5

 

June 1, 2020

 

275,000

 

825,000

 

5 Years

 

0.11

 

4.125%

$

82,500

 

40%

 

50%

6

 

June 3, 2020

 

225,000

 

675,000

 

5 Years

 

0.11

 

3.375%

 

67,500

 

40%

 

50%

7

 

July 8, 2020

 

100,000

 

300,000

 

5 Years

 

0.12

 

1.500%

 

30,000

 

40%

 

50%

8

 

Aug. 24, 2020

 

125,000

 

375,000

 

5 Years

 

0.12

 

1.875%

 

37,500

 

40%

 

50%

9

 

Sept. 14, 2020

 

150,000

 

450,000

 

5 Years

 

0.12

 

2.250%

 

45,000

 

40%

 

50%

10

 

Sept.15, 2020

 

50,000

 

150,000

 

5 Years

 

0.12

 

0.750%

 

15,000

 

40%

 

50%

11

 

Sept.15, 2020

 

50,000

 

150,000

 

5 Years

 

0.12

 

0.750%

 

15,000

 

40%

 

50%

12

 

Sept.25, 2020

 

300,000

 

450,000

 

5 Years

 

0.12

 

4.500%

 

420,000

 

40%

 

50%

 

 

 

$

1,925,000

 

5,325,000

 

 

 

 

 

28.875%

$

712,500

 

 

 

 

 

NOTE 9 - STOCKHOLDERS’ DEFICIT

 

Board of Directors fees

 

On September 26, 2019, the board of directors granted to each of its directors warrants to purchase 500,000 shares of common stock at an exercise price of $.08 per share. The warrants have a term of five years and vest immediately. The warrants were valued at $192,614 using the Black Scholes pricing model relying on the following assumptions: volatility 185.11%; annual rate of dividends 0%; discount rate 1.66%. In addition, three (3) directors received $10,000 for each annual term served.

 

On September 30, 2020, the board of directors granted to three of its directors warrants to purchase 500,000 shares of common stock and the Chairman of the Board warrants to purchase 10 million shares of common stock at an exercise price of $.10 per share. The warrants have a term of five years and vest immediately. The warrants were valued at $1,248,616 using the Black Scholes pricing model relying on the following assumptions: volatility 144.93%; annual rate of dividends 0%; discount rate 0.28%. In addition, each director is entitled to receive $10,000 for each annual term served.

 

The Company recorded aggregate directors’ fees of $1,272,866 and $222,614 during the nine months ended September 30, 2020 and 2019, respectively, representing common stock warrants and cash fees paid or accrued.


15


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ DEFICIT (Continued)

 

Stock Based Compensation

 

In May 2019, in connection with a Supply Chain Consulting Agreement, the Company issued a warrant to purchase 5,000,000 shares of common stock at an exercise price of $.10 for a term of five years. The warrants were valued at $529,023 using the Black Scholes pricing model relying on the following assumptions: volatility 181.49%; annual rate of dividends 0%; discount rate 2.34% (See Note 10).

 

Stock Issuances

 

During the nine months ended September 30, 2020, the Company issued 156,252 shares at $.16 per share for proceeds of $25,000, to private investors.

 

During the nine months ended September 30, 2019, the Company issued 26,500,000 shares of its common stock at $.10 per share, for proceeds of $2,650,000, to private investors. The Company also issued warrants to purchase 1,060,000 shares of common stock at an exercise price of $.10 with a term of 5 years in connection with these issuances.

 

Stock Warrants Exercised

 

During the nine months ended September 30, 2020, HEP Investments, a principal shareholder and related party, assigned warrants to purchase 4,250,000 shares of the Company’s Common Stock to third party investors. These warrants were exercised at $.10 per share resulting in proceeds of $425,000. Due to the nature of this transaction, the Company considered the warrants to be contributed capital from a majority shareholder and recorded equity related finance charges. The warrants were valued at $495,501 using the Black Scholes pricing model relying on the following assumptions: volatilities ranging from 128.20% to 142.46%; annual rate of dividends 0%; discount rates ranging from 0.41% to 1.65%.

 

During the nine months ended September 30, 2020, warrants to purchase 5,600,000 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 2,284,001 shares of common stock.

 

In addition, the Company issued 6,185,000 shares of the Company’s Common Stock at an average price of $.09 per share for proceeds of $580,400 from the exercise of warrants.

 

Sale of Common Stock Warrants

 

In connection with the License Co-Development Participation Agreements (“Participation Agreements”) (see Note 8), the Company sold warrants to purchase 5,325,000 shares of common stock for $540,093. The warrants were valued based on the Black Scholes pricing model relying on the following assumptions: volatility 145.06% to 154.26%; annual rate of dividends 0%; discount rate 0.26% to 0.44%.

 

2019 Omnibus Long-Term Incentive Plan

 

On November 29, 2019, after approval from the Board, the Company entered into and adopted the 2019 Omnibus Long-Term Incentive Plan (the “2019 Incentive Plan”) for the purpose of enhancing the Registrant’s ability to attract and retain highly qualified directors, officers, key employees and other persons and to motivate such persons to improve the business results and earnings of the Company by providing an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. The 2019 Incentive Plan will be administered by the compensation committee of the Board who will, amongst other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2019 Incentive Plan. Pursuant to the 2019 Incentive Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, unrestricted shares and dividend equivalent rights. The Plan has a duration of 10 years.


16


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ DEFICIT (continued)

 

Subject to adjustment as described in the 2019 Incentive Plan, the aggregate number of common shares (“Shares”) available for issuance under the 2019 Incentive Plan is One Hundred Two Million (102,000,000) Shares. The exercise price of each Share subject to an Option (as defined in the 2019 Incentive Plan) shall be at least the Fair Market Value (as defined in the 2019 Incentive Plan) (except in the case of an incentive stock option granted to more than 10% shareholder of the Company, in which case the price should not be less than 110% of the Fair Market Value) on the date of the grant of a Share and shall have a term of no more than ten years. As of September 30, 2020, 49,000,000 Options have been issued with terms between 5 years and 10 years. Based on certain performance milestones, the grant agreements also provide for the issuance of an additional 13,000,000 options of the Company’s common stock at an exercise price of at least the Fair Market Value (as defined in the 2019 Omnibus Long-term Incentive Plan) on the date of the grant of a Share and with a term of no more than ten years.

 

Common Stock Options

 

A summary of the status of the Company’s Options related to the 2019 Incentive Plan is presented below:

 

 

 

September 30, 2020

 

December 31, 2019

 

 

Number of

Options

 

Weighted

Average

Exercise

Price

 

Number of

Options

 

Weighted

Average

Exercise

Price

Outstanding, beginning of year

 

29,000,000

$

0.10

 

-

$

-

Issued

 

20,000,000

 

0.14

 

29,000,000

 

0.10

Outstanding, end of period

 

49,000,000

$

0.12

 

29,000,000

$

0.10

 

Options outstanding and exercisable by price range as of September 30, 2020 were as follows:

 

Outstanding Options

 

Exercisable Options

 

Range of

 

Number

 

Average

Weighted

Remaining

Contractual

Life in Years

 

 

Exercise

Price

 

Number

 

Weighted

Average

Exercise Price

$

0.10

 

28,000,000

 

9.13

 

$

0.10

 

28,000,000

$

0.10

 

0.11

 

1,500,000

 

4.99

 

 

0.11

 

1,500,000

 

0.11

 

0.12

 

3,000,000

 

4.88

 

 

0.12

 

0

 

-

 

0.13

 

3,500,000

 

4.45

 

 

0.13

 

3,500,000

 

0.13

 

0.14

 

1,000,000

 

9.19

 

 

0.14

 

1,000,000

 

0.14

 

0.15

 

2,000,000

 

9.43

 

 

0.15

 

2,000,000

 

0.15

 

0.16

 

10,000,000

 

4.37

 

 

0.16

 

3,000,000

 

0.16

 

 

 

49,000,000

 

7.45

 

$

0.12

 

39,000,000

$

0.11


17


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ DEFICIT (continued)

 

Executive Compensation

 

On March 4, 2020, the Company entered into an employment letter with Philip Rice, Chief Financial Officer of the Company (“Agreement”). Under the terms of the Agreement, Mr. Rice will serve as Chief Financial Officer of the Company for one year, with successive automatic renewals for one year terms, unless either party terminates the Agreement on at least sixty days’ notice prior to the expiration of the then current term of the Agreement. Mr. Rice will receive an annual base salary, commencing on January 1, 2020, of $280,000 (“Base Salary”). The Base Salary shall increase to $300,000, when the following event occurs: within one (1) year after the Effective Date, the Company enters into a term sheet and receives the related financing to receive at least $15,000,000 in equity or other form of investment or debt (“Third Party Financing”) on terms satisfactory to the board of directors of the Company (the “Board”). On the date the Agreement was executed, Mr. Rice received a $25,000 retention bonus and was issued a fully-vested nonqualified stock option to purchase 2,000,000 shares of the Company’s common stock at a price $0.15 per share with a term of 10 years (these options were valued at $297,248 using the Black Scholes pricing model relying on the following assumptions: volatility 163.68%; annual rate of dividends 0%; discount rate 1.02%).

 

Mr. Rice shall also receive a bonus of $50,000 and a fully-vested nonqualified stock option to purchase 2,000,000 shares of the Company’s common stock exercisable at a price equal to the sixty (60) day trailing quoted price of the Common Stock of the Company in the OTC market, 10 year term, upon the closing, prior to December 31, 2020, of Third Party Financing which raises at least $15,000,000, as long as Mr. Rice was employed at the time of closing or was employed within one year prior to the closing. If, upon the closing prior to December 31, 2021 of Third Party Financing which raises at least $10,000,000 for the Company, Mr. Rice shall receive an additional bonus of $50,000, as long as Mr. Rice was employed at the time of closing or if employed within one year prior to the closing.

 

Mr. Rice’s Agreement provides that if a Change of Control (as defined in the Agreement) occurs and Mr. Rice resigns for Good Reason (as defined in the Agreement) or Mr. Rice’s employment is terminated without Cause (as defined in the Agreement) during the 24-month period following the Change of Control or during the sixty (60) days immediately preceding the date of a Change of Control, 100% of Mr. Rice’s unvested options will be fully vested and the restrictions on his restricted shares will lapse. Mr. Rice’s Agreement also provides for severance payments of, amongst other things, a lump sum payment of 300% of base salary and payment of 24 months of the base salary in such event.

 

Mr. Rice will receive the following severance benefits following a termination (as defined) of employment: a continuation of his Base Salary for one (1) year and a fully-vested, nonqualified stock option to purchase 1,000,000 shares of the Company’s common stock at a price equal to the sixty (60) day trailing quoted price of the Common Stock of the Company in the OTC market, 10 year term.

 

Prior to this Agreement, as compensation for serving as Chief Financial Officer, the Company, quarterly, issued warrants to purchase 50,000 shares of common stock to Philip M. Rice at the prevailing market price with a term of 5 years, provided that the preceding quarterly and annual filings were submitted in a timely and compliant manner, at which time such warrants would vest. On February 12, 2019, the Company issued the CFO warrants to purchase 50,000 shares of common stock at $.10. The warrants were valued at $4,766 using the Black Scholes pricing model relying on the following assumptions: volatility 180.46%; annual rate of dividends 0%; discount rate 2.53%. On May 13, 2019, the Company issued the CFO warrants to purchase 50,000 shares of common stock at $.10. The warrants were valued at $4,800 using the Black Scholes pricing model relying on the following assumptions: volatility 181.72%; annual rate of dividends 0%; discount rate 2.18%.

 

Employment Agreements

 

In the nine months ended September 30, 2020, the Company entered into Employment Letters (“Agreements”) with five of its employees. The Agreements provide, among other items, for immediate issuance of 7,250,000 options of the Company’s common stock at an exercise price of at least the Fair Market Value (as defined in the 2019 Omnibus Long-term Incentive Plan) on the date of the grant of a Share and shall have a term of five years (these options were valued at $1,581,776 using the Black Scholes pricing model relying on the following assumptions: volatility 145.44% and 184.19%; annual rate of dividends 0%; discount rate 0.28% and 2.31%). Based on certain performance milestones, the Agreements also provide for the issuance of an additional 10,000,000 options of the Company’s common stock at an exercise price of at least the Fair Market Value (as defined in the 2019 Omnibus Long-term Incentive Plan) on the date of the grant of a Share and shall have a term of five years. The agreements provide for a base salary and cash performance bonuses. The vesting of the 10,000,000 options for the year ends are as follows: 2020: 1,750,000; 2021: 5,500,000 and 2022: 2,750,000.


18


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ DEFICIT (continued)

 

Common Stock Warrants

 

A summary of the status of the Company’s warrants is presented below:

 

 

September 30, 2020

 

December 31, 2019

 

Number of

Warrants

 

Weighted

Average

Exercise

Price

 

Number of

Warrants

 

Weighted

Average

Exercise

Price

Outstanding, beginning of year

194,204,339

$

0.09

 

192,148,956

$

0.09

Issued

16,825,000

 

0.12

 

12,783,672

 

0.10

Exercised

(11,815,000)

 

0.10

 

(9,688,917)

 

0.10

Cancelled

-

 

-

 

(345,205)

 

0.11

Expired

(2,667,333)

 

0.08

 

(694,167)

 

0.17

Outstanding, end of period

196,547,006

$

0.09

 

194,204,339

$

0.09


19


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ DEFICIT (continued)

 

Warrants outstanding and exercisable by price range as of September 30, 2020 were as follows:

 

Outstanding Warrants

 

Exercisable Warrants

 

Exercise

Price

 

Number

 

Weighted

Remaining

Contractual

Life in Years

 

 

Exercise

Price

 

Number

 

Weighted

Average

Exercise

Price

$

0.05

 

1,000,000

 

0.95

 

$

0.05

 

1,000,000

$

0.05

 

0.06

 

16,050,000

 

1.84

 

 

0.06

 

16,050,000

 

0.06

 

0.07

 

2,500,000

 

1.95

 

 

0.07

 

2,500,000

 

0.07

 

0.08

 

30,468,477

 

1.71

 

 

0.08

 

30,468,477

 

0.08

 

0.09

 

225,000

 

1.06

 

 

0.09

 

225,000

 

0.09

 

0.10

 

124,573,734

 

2.61

 

 

0.10

 

124,573,734

 

0.10

 

0.11

 

3,704,795

 

3.48

 

 

0.11

 

3,704,795

 

0.11

 

0.12

 

15,375,000

 

4.93

 

 

0.12

 

15,375,000

 

0.12

 

0.14

 

2,550,000

 

3.00

 

 

0.14

 

2,550,000

 

0.14

 

0.18

 

400,000

 

4.24

 

 

0.18

 

400,000

 

0.18

 

 

 

196,547,006

 

2.60

 

 

 

 

196,547,006

$

0.09

 

NOTE 10- COMMITMENTS AND CONTINGENCIES

 

Dahl Employment Agreement

 

The Company’s Chief Executive Officer, Andrew Dahl, is serving as Chief Executive Officer under the terms of an employment agreement dated November 29, 2019 (“Agreement”) that superseded and replaced all prior employment agreements and understandings. Under the terms of the Agreement, Mr. Dahl’s agreement provides for a term of three years, with successive automatic renewals for one year terms, unless either party terminates the Dahl Agreement on at least 60 days’ notice prior to the expiration of the then current term of Mr. Dahl’s employment. Mr. Dahl has received an annual base salary, commencing on June 1, 2019, of $440,000 (“Base Salary”), of which $7,500 per month will be deferred until either of the following events occur: (i) within five (5) years after the Effective Date, the Company enters into a term sheet to receive at least $25,000,000 in equity or other form of investment or debt on terms satisfactory to the board of directors of the Company (the “Board”) including funding at closing on such terms of at least $10 million; or (ii) within twelve (12) months after the Effective Date that the Company receives revenue of at least $10 million. The Company has accrued $120,000 of the deferred salary as of September 30, 2020, reflected in accrued expenses on the Balance Sheet. The Base Salary is subject to annual review and increase (but not decrease) by the Board during the Employment Term with minimum annual increases of 4% over the previous year’s Base Salary.

 

Mr. Dahl is entitled to a Revenue Bonus (as defined in the Agreement) equal to 2% of the Company’s revenue contribution in accordance with a formula as detailed in the Agreement. No Revenue Bonus is payable in any year where there is an Operating Net Loss (as defined in the Agreement). For the 2020 fiscal year (January 1, 2020 to December 31, 2020) (“Year One”), the Company shall pay Mr. Dahl a bonus equal to 50% of his Base Salary if the Company achieves revenues for Year One which are (w) at least $500,000; and (x) greater than that for the 12-month period immediately preceding Year One. In addition, for 2021 fiscal year (January 1, 2021 through December 31, 2021) (“Year Two”), the Company shall pay Mr. Dahl a bonus equal to 50% of the Base Salary if the Company achieves revenues for Year Two which are (y) at least $500,000; and (z) greater than that for Year One.

 

Mr. Dahl was awarded a non-qualified option to purchase 28 million shares of the Company’s common stock at a price equal to the greater of $0.10 per share and the Fair Market Value (as defined in the 2019 Omnibus Long-term Incentive Plan).


20


 

 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES (Continued)

 

Mr. Dahl will be entitled to non-qualified performance-based options having an exercise price equal to the greater of $.10 per share and the Fair Market Value (as defined in the 2019 Omnibus Long-term Incentive Plan), upon the attainment of specified milestones as follows: (i) Non-qualified option to purchase 1,000,000 common shares upon identification of bioactive agents in the Company product and filing of a patent with respect thereto; (ii) Non-qualified option to purchase 1,500,000 common shares upon entering into a contract under which the Company receives at least $500,000 in cash payments; (iii) Non-qualified option to purchase 1,500,000 common shares upon the Company entering into a co-development agreement with a research company to develop medicinal or pharmaceutical applications (where the partner provides at least $2 million in cash or in-kind outlays); (iv) Non-qualified option to purchase 1,500,000 common shares upon the Company entering into a co-development agreement for nutraceutical or dietary supplement applications (where the partner provides at least $2 million in cash or in-kind outlays); and (v) Non-qualified option to purchase 1,500,000 common shares upon the Company entering into a pharmaceutical development agreement.

 

As it relates to the Company‘s wholly-owned subsidiary, Wellmetrix, LLC (“Wellmetrix”), if and when at least $2 million in equity capital is raised from a third party and invested in Wellmetrix in an arms-length transaction, Mr. Dahl shall be granted a warrant to purchase an equity interest in Wellmetrix that is equal to the equity interest in Wellmetrix owned by the Company at the time of the first tranche of any such capital raise (the “Wellmetrix Warrant”). The Wellmetrix Warrant shall be fully vested as of the date it is granted and shall expire on the tenth (10th) anniversary of the grant date. Once granted, the Wellmetrix Warrant may be exercised from time to time in whole or in part, with Mr. Dahl retaining any unexercised portion. The exercise price for the Wellmetrix Warrant shall be equal to the fair market value of the interest in Wellmetrix implied by the pricing of the first tranche of any such capital raise.

 

Mr. Dahl’s Employment Agreement provides that if a Change of Control (as defined in the Agreement) occurs Mr. Dahl’s employment is terminated without Cause (as defined in the Agreement) or Mr. Dahl resigns for Good Cause (as defined in the Dahl Agreement) during the 24-month period following the Change of Control or during the sixty (60) days immediately preceding the date of a Change of Control, 100% of Mr. Dahl’s unvested options will be fully. Mr. Dahl’s Employment Agreement also provides for severance payments of, amongst other things, 300% of base salary and 2x the amount of the Revenue Bonus in such event.

 

As of December 31, 2019, the milestone relating to the identification of bioactive agents in the Company product and the filing of a patent with respect thereto was met, thereby triggering the option to purchase 1,000,000 common shares. As per the Agreement, the Company issued a non-qualified option to purchase 1 million shares of the Company according to the 2019 Incentive Plan at an exercise price of $.14 with a term of 10 years (these options were valued at $138,806 using the Black Scholes pricing model relying on the following assumptions: volatility 164.37%; annual rate of dividends 0%; discount rate 1.84%).

 

The Company issued a non-qualified option to purchase 28 million shares of the Company according to the 2019 Incentive Plan at an exercise price of $.10 with a term of 10 years (these options were valued at $2,497,161 using the Black Scholes pricing model relying on the following assumptions: volatility 164.20%; annual rate of dividends 0%; discount rate 1.84%).

 

Corporate Advisory Agreement

 

On September 30, 2019, effective July 9, 2019, the Company entered into an agreement with an Investment Opportunity Provider (IOP). The IOP has been engaged as an exclusive financial advisor in connection with the proposed securities offering and sale of up to $35 million of the Company’s Common Stock. The Company has agreed to pay the IOP, upon the acceptance of a successful funding transaction, a fee of 1% of the aggregate value of the transaction and a warrant to purchase up to 6,000,000 shares of common stock at an exercise price of $.10 for a term of five years. As of September 30, 2020, in connection with this agreement, no successful funding transactions have taken place and no warrants have been issued.

 

Financial Consulting Agreement – May 2020

 

On May 4, 2020, the Company entered into a Financial Consulting and Corporate Advisory Agreement (“Agreement”). The Agreement calls for a non-refundable initial fee of $25,000 and two additional monthly fees of $15,000 per month. To the extent a transaction (defined as the sale of equity securities, hybrid debt and equity securities or the entering into any fund capital, joint venture, buy out, or similar transactions) is entered into, then the Company will pay an 8% fee based on the value of the transaction. A 50% credit of the initial fee and monthly fees will be credited against the 8% fee. This Agreement can be cancelled at any time by either party, however, there is a 24-month period where the 8% transaction will be payable based on identified transaction participants. This Agreement was cancelled in July 2020.


21


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES (Continued)

 

Financial Consulting Agreement – July 2020

 

On July 16, 2020, the Company entered into an Advisory Agreement (“Agreement”). The Agreement calls for monthly fees of $10,000 per month. The Agreement is on a month to month renewal basis. Upon each renewal (starting with the second month), the Company shall issue a warrant to purchase 150,000 shares of common stock at an exercise price of $.12 for a term of five years. The Company issued warrants to purchase 300,000 shares of common stock at an exercise price of $.12 for a term of five years valued at $30,846 using the Black Scholes pricing model relying on the following assumptions: volatility 144.93% to 145.50%; annual rate of dividends 0%; discount rate 0.29% The Company terminated this Agreement in October 2020.

 

Supply Chain Consulting Agreement

 

On February 27, 2019, the Company entered into a Supply Chain Consulting Agreement with a consultant (“Consultant”) (see Note 8 – Stockholders’ Deficiency). In May 2019, the Company issued a warrant to purchase 5,000,000 shares of common stock at an exercise price of $.10 for a term of five years to the Consultant. The warrants were valued at $529,023 using the Black Scholes pricing model relying on the following assumptions: volatility 181.49%; annual rate of dividends 0%; discount rate 2.34%. In October 2019, 2,000,000 of those warrants were returned to the Company resulting in a reduction in the value of $211,609. On September 14, 2019, the parties entered into a First Amendment to the Supply Chain Consulting Agreement (“Supply Consulting Agreement Amendment”). The Supply Consulting Agreement Amendment provides that the Consultant will identify and help negotiate the terms of potential joint ventures involving algae production development projects or related transactions or business combinations (“Development Project”). The Supply Consulting Agreement provides for exclusivity in Southeast Asia; Oceania; Indian subcontinent; and Africa; with regions in the Middle East by mutual agreement. The closing of a Development Project (as acceptable to the Company) is defined as the date that the Company is able, financially and otherwise, to proceed with engineering and construction of algae production facilities, processing or warehousing facilities and supply chain development, or related business combinations rendering an equivalent outcome (in the reasonable determination of the Company), for the production, processing, transport, compliance, marketing and resale of its proprietary algae biomass. Upon the closing of a Development Project, the Company will pay cash fees of $300,000 to Consultant, pay an on-going monthly fee of $50,000 for 24 months and issue to Consultant a cashless warrant with a five-year term to purchase nineteen million (19,000,000) shares of the Company’s common stock at an exercise price of $0.10 per share. As of September 30, 2020, the Development Project has not closed, and the warrants have not yet been issued. The Board of Directors has also authorized the Company to issue to Consultant a cashless warrant with a five-year term to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share at its discretion. As of September 30, 2020, such warrant has not been issued.

 

Marketing / Public Relations Agreement

 

On December 27, 2019, the Company entered into a Marketing / Public Relations Agreement (“Agreement”) with a consultant (“Consultant”). The Agreement provides that the Consultant will assist the Company in identifying and assist in the negotiation of potential licensing, product sales, joint ventures and venture financing of projects outside of the United States and provide advice for the Company’s long-term business strategy and commercial relationships. The Agreement calls for the issuance of warrants to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price based on the closing market price on the day of issuance, with a five-year term. For commercial transactions whose value is determined and agreed to by both parties exceeding $1,000,000 (“Qualifying Transaction”), the Company shall issue to Consultant a warrant to purchase common stock in the amount of 500,000 shares. For each successive Qualifying Transaction of at least $1,000,000, the Consultant shall be issued 300,000 shares up to a maximum cumulative award of 5,000,000 shares in warrant form in total. Further, the Company will pay a 4% commission on the revenue received on the sale of Company algal product to one or more entities identified and cultivated by Consultant, and on the revenue received from licensing the Company’s intellectual property to such entities identified and cultivated by Consultant, for a period of three (3) years from the effective date of a qualifying transaction. The Agreement also calls for a $5,000 payment upon signing and monthly payments of $5,000 once a Qualifying Transaction, the sale of an algal product or revenue from a licensing transaction occurs. As of September 30, 2020, a commercial transaction has not closed, and the warrants have not yet been issued and no commissions have been paid.

 

Legal Contingencies

 

We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operation or cash flows.


22


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 - RELATED PARTY TRANSACTIONS

 

Due to Related Party

 

See Note 4 Due to Related Party for disclosure of payable to related Party.

 

Loan Payable – Related Party

 

See Note 5 Loan Payable – Related Parties for disclosure of loans payable to related Parties.

 

Executive Compensation

 

See Note 9 – Stockholder’ Deficiency for disclosure of compensation to the Chief Financial Officer.

 

Employment Agreement

 

See Note 10 – Commitments and Contingencies for disclosure of the Employment Agreement with the Chief Executive Officer.

 

NOTE 12 – SUBSEQUENT EVENTS

 

Loan Payable - Related Party:

 

Christopher Maggiore

 

On October 21, 2020, Christopher Maggiore converted $1,254 of its accrued interest expense on loans payable into 12,537 shares of the Company’s common stock at $.10 per share.

 

HEP Investments, LLC

 

On October 4, 2020, HEP Investments, LLC converted $100,000 of its Loan Payable into a License Co-Development Participation Agreement (“Agreement”). The net amount remaining of $9,000 remains recorded as a Loan Payable, Related Party.

 

The Agreement provides for, among other items, the partner (the “Participant”) to participate in the fees (the “Fees”) from licensing or selling bioactive ingredients or molecules derived from the Company’s algae cultures. Based upon the agreement signed, the Company will issue to the Participant warrants with a five-year term to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.12 per share and provide to the Participant a 1.50% “Revenue Share” of all license fees generated by ZIVO from any Licensee.

 

The Agreement allows the Company the Option to buy back the right, title and interest in the Revenue Share for an amount equal to the amount funded plus a forty percent (40%) premium. Pursuant to the terms of the Agreement, the Company may not exercise its Option until it has paid the Participant a revenue share equal to a minimum of thirty percent (30%) of the amount initially funded. Once this minimum threshold is met, the Company may exercise its Option by delivering written notice to the Participant of its intent to exercise the Option, along with repayment terms of the amount funded, which may be paid, in the Company’s sole discretion, in one lump sum or in four (4) equal quarterly payments. If the Company does not make such quarterly payments timely for any quarter, then the Company shall pay the prorate Revenue Share amount, retroactive on the entire remaining balance owed, that would have been earned during such quarter until the default payments have been made and the payment schedule is no longer in default.

 

Deferred Revenue - Participation Agreement – Related Party:

 

On October 8, 2020, Strome Mezzanine Fund, LP entered into a License Co-Development Participation Agreement (“Agreement”) for $500,000. The Agreement provides for, among other items, the partner (the “Participant”) to participate in the fees (the “Fees”) from licensing or selling bioactive ingredients or molecules derived from the Company’s algae cultures. Based upon the agreements signed to date, the Company will issue to the Participant warrants with a five-year term to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.12 per share and provide to the Participant a 7.50% “Revenue Share” of all license fees generated by ZIVO from any Licensee.


23


 

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 – SUBSEQUENT EVENTS (Continued)

 

The Agreement allows the Company the Option to buy back the right, title and interest in the Revenue Share for an amount equal to the amount funded plus a forty percent (40%) premium. Pursuant to the terms of the Agreements, the Company may not exercise its Option until it has paid the Participant a revenue share equal to a minimum of thirty percent (30%) of the amount initially funded. Once this minimum threshold is met, the Company may exercise its Option by delivering written notice to the Participant of its intent to exercise the Option, along with repayment terms of the amount funded, which may be paid, in the Company’s sole discretion, in one lump sum or in four (4) equal quarterly payments. If the Company does not make such quarterly payments timely for any quarter, then the Company shall pay the prorate Revenue Share amount, retroactive on the entire remaining balance owed, that would have been earned during such quarter until the default payments have been made and the payment schedule is no longer in default.

 

Deferred Revenue - Participation Agreement:

 

From October 1, 2020 through the date of this filing, the Company entered into two License Co-Development Participation Agreements (“Agreements”) for $300,000. The Agreements provide for, among other items, the partners (the “Participants”) to participate in the fees (the “Fees”) from licensing or selling bioactive ingredients or molecules derived from the Company’s algae cultures. Based upon the agreements signed to date, the Company will issue to the Participants warrants with a five-year term to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.12 per share and provide to the Participants a 4.50% “Revenue Share” of all license fees generated by ZIVO from any Licensee.

 

The Agreements allows the Company the Option to buy back the right, title and interest in the Revenue Share for an amount equal to the amount funded plus a forty percent (40%) premium. Pursuant to the terms of the Agreements, the Company may not exercise its Option until it has paid the Participant a revenue share equal to a minimum of thirty percent (30%) of the amount initially funded. Once this minimum threshold is met, the Company may exercise its Option by delivering written notice to the Participant (s) of its intent to exercise the Option, along with repayment terms of the amount funded, which may be paid, in the Company’s sole discretion, in one lump sum or in four (4) equal quarterly payments. If the Company does not make such quarterly payments timely for any quarter, then the Company shall pay the prorate Revenue Share amount, retroactive on the entire remaining balance owed, that would have been earned during such quarter until the default payments have been made and the payment schedule is no longer in default.

 

Financial Consulting Agreement – July 2020

 

As discussed in NOTE 10 – COMMITMENTS AND CONTINGENCIES, in July 2020, the Company entered into an Advisory Agreement (“Agreement”). In October, the Company issued a warrant to purchase 150,000 shares of common stock at an exercise price of $.12 for a term of five years. The Company terminated this Agreement in October 2020.

 

Stock Issuances

 

From October 1, 2020 through the date of this filing, the Company received proceeds of $265,000 from the issuance of 2,650,000 shares of common stock at $.10 per share.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Some of the statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to statements regarding:

 

·our ability to raise the funds we need to continue our operations;  

·our goal to generate revenues and become profitable; 

·regulation of our product; 

·market acceptance of our product and derivatives thereof;  

·the results of current and future testing of our product;  

·the anticipated performance and benefits of our product;  

·the ability to generate licensing fees; and 

·our financial condition or results of operations. 

 

In some cases, you can identify forward-looking statements by terms such as “may”, “will”, “should”, “could”, “would”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”, “predicts”, “potential” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. We qualify all of our forward-looking statements by these cautionary statements.

 

Critical Accounting Policies

 

The accompanying discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and all available information. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. US GAAP requires us to make estimates and judgments in several areas, including those related to recording various accruals, income taxes, the useful lives of long-lived assets, such as property and equipment and intangible assets, and potential losses from contingencies and litigation. We believe the policies discussed above are the most critical to our financial statements because they are affected significantly by management's judgments, assumptions and estimates.

 

Overview:

 

For ZIVO, we have put in place a business model in which we would derive future income from licensing and selling natural bioactive ingredients that may be derived from or are initially based on the algae cultures. We expect that these planned new products will likely be sold to much larger, better-financed animal, food, dietary supplement and medical food manufacturers. The anticipated income streams are to be generated from a) royalties and advances for licensed natural bioactive ingredients, and b) a toll on bulk sales of such ingredients. These bulk ingredients will likely be made by contracted ingredient manufacturers and then sold by us to animal food, dietary supplement and medical food processors and/or name-brand marketers. Further, we expect to license our bioactive molecules as lead compounds or templates for synthetic variants intended for therapeutic applications.

 

For our Wellmetrix, LLC subsidiary (“Wellmetrix”) the Board and management agreed to halt active product development and instead focus on prospective out-licensing of the existing intellectual property, consisting of a patent and several patents pending. An ongoing commitment to patent prosecution and maintenance of the existing patent has been approved by the Board.


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Results of Operations for the three months ended September 30, 2020 and 2019

 

Net Sales.

 

We had no sales during the three months ended September 30, 2020 and 2019.

 

Cost of Sales.

 

We had no cost of sales during the three months ended September 30, 2020 and 2019.

 

General and Administrative Expenses.

 

General and administrative expenses were $458,755 for the three months ended September 30, 2020, as compared to $339,842 for the comparable prior period. The increase of approximately $119,000 in general and administrative expense during 2020 is due primarily to the following: $152,000 increase in salary expenses, of which $85,000 was due to a stock options issued to employees, a non-cash expense, a $2,000 increase in office expenses offset by a $22,000 decrease in travel expenses, a $10,000 decrease in in public communication expenses, a $2,000 decrease in rent and a $1,000 decrease in insurance.

 

Professional and Consulting Expenses.

 

Professional and consulting expenses were $1,610,931 for the three months ended September 30, 2020, as compared to $708,578 for the comparable prior period. The increase of approximately $902,000 in professional and consulting expense during 2020 is mainly due to the following: an increase in Director Fees of $1,054,000 (the non-cash portion of Director Fees in 2020 was $1,249,000 for the issuance of 11,500,000 warrants for the purchase of common stock compared the 2019 issuance of 2,500,000 warrants for the purchase of common stock valued at to $193,000, as difference of $1,056,000) an increase of $97,000 in legal fees, an increase of $25,000 in investor relations fees, an increase of $24,000 in filing and listing fees and an increase of $5,000 in accounting fees offset by a decrease of $303,000 in financial consulting fees (of which a net non-cash value is $200,000 represented by a value of $31,000 relating to warrants issued in 2020 for 300,000 shares of common stock offset by a value of $231,000 relating to warrants issued in 2019 for 3 million shares of common stock).

 

Research and Development Expenses.

 

For the three months ended September 30, 2020, we incurred $1,294,921 in research and development expenses, as compared to $525,581 for the comparable period in 2019.

 

Of these expenses, approximately $1,295,000 and $491,000 for the three months ended September 30, 2020 and 2019, respectively, are costs associated with research relating to Zivo. Of these costs in 2020, $593,000 are a non-cash charge relating to Stock Options granted to employees involved with Research and Development. Subject to the availability of funding, our research and development costs will grow as we work to complete the research in the development of natural bioactive compounds for use as dietary supplements and food ingredients, as well as biologics for medicinal and pharmaceutical applications in humans and animals. The Company’s scientific efforts are focused on the metabolic aspects of oxidation and inflammation, with a parallel program to validate and license products for healthy immune response. The decrease of $32,000 of cash expenses from the prior period is due to the reduced availability of cash during this period.

 

With respect to our Wellmetrix, LLC subsidiary, we incurred approximately $-0- and $35,000 in research and development expenses for the three months ended September 30, 2020 and 2019, respectively. The R&D effort to date has centered on optimizing dry chemistry, developing lower-cost alternatives for the proprietary analyzer device, negotiating and collaborating with offshore manufacturers and assembling the FDA pre-submission package for product classification and approval. The decrease of $35,000 from the prior period is due to a halting of activities for research and development. As noted above, the Company has halted active product development and instead is focusing on prospective out-licensing of the existing intellectual property, consisting of a patent and several patents pending.

 

Results of Operations for the nine months ended September 30, 2020 and 2019

 

Net Sales.

 

ZIVO had no sales during the nine months ended September 30, 2020 and 2019.

 

For Wellmetrix, we had $20,000 and $-0- of service revenue during the nine months ended September 30, 2020 and 2019, respectively. The Wellmetrix service revenue related to a study design for a pre-clinical trial.


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Cost of Sales.

 

We had no cost of sales during the nine months ended September 30, 2020 and 2019.

 

General and Administrative Expenses.

 

General and administrative expenses were $1,526,530 for the nine months ended September 30, 2020, as compared to $1,062,423 for the comparable prior period. The approximate $464,000 increase in general and administrative expense during 2020 is due primarily to the following: an increase of $581,000 in salary expense, of which $386,000 was due to a stock options issued to employees, a non-cash expense, an increase in insurance expense of $39,000, an increase in rent expense of $20,000, offset by a decrease in recruiting expenses of $107,000, a decrease in travel expense of $56,000 and a decrease in public communication expenses of $13,000.

 

Professional and Consulting Expenses.

 

Professional and consulting expenses were $1,986,417 for the nine months ended September 30, 2020, as compared to $1,677,128 for the comparable prior period. The approximate $309,000 increase in professional and consulting expense during 2020 is mainly due to the following: an increase in Director Fees of $1,050,000 (the non-cash portion of Director Fees in 2020 was $1,249,000 for the issuance of 11,500,000 warrants for the purchase of common stock compared the 2019 issuance of 2,500,000 warrants for the purchase of common stock valued at to $193,000, as difference of $1,056,000) an increase of $34,000 in accounting fees, an increase of $27,000 in legal fees, offset by a decrease of $692,000 in financial consulting (of which a net non-cash value is $729,000 represented by a value of $31,000 relating to warrants issued in 2020 for 300,000 shares of common stock offset by a value of $760,000 relating to warrants issued in 2019 for 8 million shares of common stock), a decrease of $102,000 in investment banking fees, a decrease of $5,000 in investor relations fees and a decrease in filing and listing fees of $3,000.

 

Research and Development Expenses.

 

For the nine months ended September 30, 2020, we incurred $3,307,716 on research and development expenses, as compared to $1,839,547 for the comparable period in 2019.

 

Of these expenses, approximately $3,167,000 and $1,771,000 for the nine months ended September 30, 2020 and 2019, respectively, are costs associated with research relating to Zivo. Of these costs in 2020, $1,492,000 are a non-cash charge relating to Stock Options granted to employees involved with Research and Development. Subject to the availability of funding, our research and development costs will grow as we work to complete the research in the development of natural bioactive compounds for use as dietary supplements and food ingredients, as well as biologics for medicinal and pharmaceutical applications in humans and animals. The Company’s scientific efforts are focused on the metabolic aspects of oxidation and inflammation, with a parallel program to validate and license products for healthy immune response. The decrease of $96,000 of cash expenses from the prior period is due to the reduced availability of cash during this period.

 

With respect to our Wellmetrix, LLC subsidiary, we incurred $141,000 and $68,000 in research and development expenses for the nine months ended September 30, 2020 and 2019, respectively. The R&D effort to date has centered on optimizing dry chemistry, developing lower-cost alternatives for the proprietary analyzer device, negotiating and collaborating with offshore manufacturers and assembling the FDA pre-submission package for product classification and approval. The increase of $72,000 from the prior period is due to reinitiating certain limited projects for research and development. As noted above, the Company has halted active product development and instead is focusing on prospective out-licensing of the existing intellectual property, consisting of a patent and several patents pending.

 

Liquidity and Capital Resources

 

The unaudited condensed consolidated financial statements contained in this Quarterly Report have been prepared on a “going concern” basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a near term need for additional capital. For the reasons discussed herein, there is a significant risk that we will be unable to continue as a going concern, in which case, you could suffer a total loss of your investment in our company.

 

As of November 12, 2020, we had a cash balance of approximately $220,000. We have incurred significant net losses since inception. We have, since inception, consistently incurred negative cash flow from operations. During the nine months ended September 30, 2020, we incurred negative cash flows from operations of $1,686,936. As of September 30, 2020, we had a working capital deficiency of $10,969,148 and a stockholders’ deficiency of $11,090,848. Although we recently received funding of $800,000 from the proceeds from the sale of Co-Partnership License Agreements and $265,000 from the sale of 2,650,000 shares of the Company’s Common Stock through November 12, 2020, we have a near term need for additional capital.

 


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During the nine months ended September 30, 2020, our operating activities used $1,686,936 in cash, an decrease of $1,369,027 from the comparable prior period. The approximate $1,369,000 decrease in cash used by operating activities was primarily attributable to the following (all of which are approximated): a $166,000 decrease in net loss, an increase in non-cash expenses of $610,000 (an increase of stock and warrants issued for services of $2,173,000, offset by a decrease in amortization of debt issuance costs of $1,188,000, a decrease in amortization of bond discount of $375,000), and $593,000 of changes made up of an increase in deferred revenue of $1,385,000 offset by a decrease in accrued liabilities - $761,000, a decrease in prepaid expenses - $20,000 and a decrease in accounts payable - $11,000.

 

During the nine months ended September 30, 2020 and 2019, there were no investing activities.

 

During the nine months ended September 30, 2020, our financing activities generated $1,396,000, a decrease of approximately $1,286,000 from the comparable prior period. The decrease in cash provided by financing activities was due to an increase in proceeds of approximately $580,000 from the exercise of common stock warrants, $122,000 from the proceeds of loan payable - other, $540,000 of proceeds from the sale of common stock warrants - License Co-Development Participation Agreements and $97,000 from proceeds of loans payable from a related party, offset by a decrease of $2,625,000 from proceeds the sale common stock as compared to the prior period.

 

Although we raised a limited amount of capital during 2019 and the first nine months of 2020, we continue to experience a shortage of capital, which is materially and adversely affecting our ability to run our business. As noted above, we have been largely dependent upon external sources for funding. We have in the past had difficulty in raising capital from external sources. We are still heavily reliant upon external financing for the continuation of our research and development program.

 

We estimate that we will require approximately $6,000,000 in cash over the next 12 months in order to fund our normal operations and to fund our research and development initiatives. Based on this cash requirement, we have a near term need for additional funding. Historically, we have had substantial difficulty raising funds from external sources. If we are unable to raise the required capital, we will be forced to curtail our business operations, including our research and development activities.

 

COVID-19 STATEMENT

 

The Company is carefully monitoring the effects the COVID-19 global pandemic is having on its operations. The COVID-19 pandemic and other outbreaks have resulted in, and may continue to result in delays in or the suspension of product development activities, regulatory work streams, research and development activities and other important commercial functions. The Company is also dependent upon third parties for the production and growth of our proprietary algae strains. As the COVID-19 pandemic continues, the Company has experienced, and may continue to experience additional disruptions that could severely impact the business and planned trials, including:

 

·diversion of contract research organization (“CRO”) resources away from the conduct of studies, including the diversion of available test sites supporting the conduct of clinical trials;  

 

·changes in local regulations as part of a response to the COVID-19 which may require changes to the way in which trials are conducted and may result in unexpected costs; and 

 

·delays in necessary interactions with academic researchers at universities, life science research labs, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees. 

 

Further, prolonged government disruptions, global pandemics and other natural disasters or geopolitical actions, including related to the COVID-19 pandemic, could affect the Company’s ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations. Prior to the COVID-19 pandemic, the expectation was that there would be forward moment with the production of our algal biomass, validation and purification. However, these were temporarily suspended and/or delayed, and many continue in diminished capacity.

 

Significant elements of income or loss not arising from our continuing operations

 

We do not expect to experience any significant elements of income or loss other than those arising from our continuing operation.


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Seasonality

 

Based on our business model, anticipated income streams are to be generated from (i) royalties and advances for licensed natural bioactive ingredients, isolated natural compounds and synthetic variants thereof, and (ii) bulk sales of such ingredients.

 

Staffing

 

We have conducted all of our activities since inception with a minimum level of qualified staff. We currently do not expect a significant increase in staff.

 

Off-Balance Sheet arrangements

 

We have no off-balance sheet arrangements that would create contingent or other forms of liability.

 

Item 4T. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible changes or additions to our controls and procedures.

 

As of September 30, 2020, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our principal executive and principal financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, are effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period.

 

Changes in Internal Control Over Financial Reporting.

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION

 

Item 1A.  Risk Factors

 

In addition to the other information set forth elsewhere in this Report, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Those factors, if they were to occur, could cause our actual results to differ materially from those expressed in our forward-looking statements in this Report, and materially adversely affect our financial condition or future results. Although we are not aware of any other factors that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

 

The COVID-19 pandemic and measures taken to contain it have significantly adversely affected, and are likely to continue to significantly adversely affect, our business, results of operations, financial condition, cash flows, liquidity and stock price.

We face risks related to health pandemics and outbreaks of communicable diseases, and in particular, the recent outbreak around the world of the highly transmissible and pathogenic COVID-19 coronavirus. The COVID-19 pandemic and other outbreaks have resulted in, and may continue to result in delays in or the suspension of our product development activities, our regulatory work streams, our research and development activities and other important commercial functions. We are also dependent upon third parties for the production and growth of our proprietary algae strains.

As the COVID-19 pandemic continues, we have experienced, and may continue to experience additional disruptions that could severely impact our business and planned trials, including:

·diversion of contract research organization (“CRO”) resources away from the conduct of studies, including the diversion of available test sites supporting the conduct of clinical trials;  

·changes in local regulations as part of a response to the COVID-19 which may require us to change the way in which trials are conducted and may result in unexpected costs; and 

·delays in necessary interactions with academic researchers at universities, life science research labs, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees. 

Further, in our operations as a public company, prolonged government disruptions, global pandemics and other natural disasters or geopolitical actions, including related to the COVID-19 pandemic, could affect our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations. Prior to the COVID-19 pandemic, our expectation was that we would move forward with the production of our algal biomass, validation and purification. However, these were temporarily suspended and/or delayed, and many continue in diminished capacity.

In addition to the risks specifically described above, the COVID-19 pandemic has exacerbated and precipitated the other risks described herein, and may continue to do so, in ways that we are not currently able to predict, any of which could significantly adversely affect our business, results of operations, financial condition, cash flows, liquidity or stock price


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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months September 30, 2020, the Company issued 285,424 shares of common stock according to the following schedule:

 

 

 

 

 

Common Stock

 

Amount

Form

 

Date

 

Shares

 

Received

Warrant exercise (cashless) – related party

 

26-Jun-20

 

15,455

 

-

Warrant exercise (cashless) – related party

 

18-Aug-20

 

41,667

 

-

Warrant exercise (cashless) – related party

 

8-Sep-20

 

3,704

 

-

Warrant exercise – related party

 

8-Sep-20

 

200,000

 

20,000

Warrant exercise (cashless) – related party

 

9-Sep-20

 

14,151

 

-

Warrant exercise (cashless) – related party

 

9-Sep-20

 

14,151

 

-

 

 

 

 

285,424

$

20,000

 

 

 

 

 

 

 

Such shares were issued pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933. These issuances qualified for exemption from registration because (i) the Company did not engage in any general solicitation or advertising to market the securities; (ii) the recipients were provided the opportunity to ask questions and receive answers from the Company regarding the Company; (iii) the securities were issued to a person with knowledge and experience in financial and business matters capable of evaluating the merits and risks of an investment in the Company; and (iv) the recipients received “restricted securities”.

 

Item 5. Other Information

 

During the quarter the Company entered into License Co-Development Participation Agreements as described in Note 8 to the financial statements.

 

Item 6. Exhibits

 

Exhibit

Number

 

Description

10.1

 

Form of License Co-Development Participation Agreement.

 

 

 

31.1

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended *

 

 

 

31.2

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended *

 

 

 

32.1

 

Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

 

 

 

32.2

 

Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

 

 

 

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*Furnished herewith (all other exhibits are deemed filed)


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SIGNATURES

 

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

 

 

ZIVO BIOSCIENCE, INC.

Date: November 12, 2020

 

 

 

 

 

 

By:

/s/ Andrew Dahl

 

 

Andrew Dahl

 

 

Chief Executive Officer

 

 

 

 

By:

/s/ Philip Rice

 

 

Philip Rice

 

 

Chief Financial Officer


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