United States

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

 

     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

Common Stock, par value $0.001 per share

ZIVO

The Nasdaq Stock Market LLC

Warrants

 

ZIVOW

 

The Nasdaq Stock Market LLC

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ☒    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 and files). Yes ☒    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

Smaller reporting company

Accelerated filer

Emerging growth company

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 ☒

 

There were 9,419,660 shares of common stock, $0.001 par value, outstanding at November 11, 2021.

 

 

 

 

FORM 10-Q

ZIVO BIOSCIENCE, INC.

INDEX

 

 

 

 

Page

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020

 

 

3

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)

 

 

4

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the three and nine months ended September 30, 2021 and 2020 (unaudited)

 

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)

 

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

9

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

29

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

 

 

35

 

Item 4.

Controls and Procedures

 

 

35

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

36

 

Item 1A.

Risk Factors

 

 

36

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

36

 

Item 3.

Defaults upon Senior Securities

 

 

36

 

Item 4.

Mine Safety Disclosures

 

 

36

 

Item 5.

Other information

 

 

36

 

Item 6.

Exhibits

 

 

37

 

  

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

As of

September 30,

2021

 

 

As of

December 31,

2020

 

 

 

(Unaudited)

 

 

 

ASSETS

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$10,803,398

 

 

$137,862

 

Prepaid Expenses

 

 

132,085

 

 

 

29,953

 

Total Current Assets

 

 

10,935,483

 

 

 

167,815

 

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Right of Use Asset, net

 

 

33,107

 

 

 

49,364

 

Deposits

 

 

3,000

 

 

 

3,000

 

Total Other Assets

 

 

36,107

 

 

 

52,364

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$10,971,590

 

 

$220,179

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts Payable

 

$728,814

 

 

$1,559,627

 

Loans Payable, Related Parties

 

 

-

 

 

 

9,000

 

Convertible Debentures Payable

 

 

240,000

 

 

 

5,180,342

 

Deferred Revenue - Participation Agreements

 

 

2,031,103

 

 

 

1,936,800

 

Accrued Interest

 

 

95,282

 

 

 

2,464,724

 

Lease Liability, current portion

 

 

21,064

 

 

 

29,172

 

Accrued Liabilities – Other

 

 

431,397

 

 

 

214,250

 

Total Current Liabilities

 

 

3,547,660

 

 

 

11,393,915

 

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Note -Payable – SBA Paycheck Protection Loan

 

 

-

 

 

 

121,700

 

Lease Liability, long term portion

 

 

3,400

 

 

 

15,178

 

Total Long-Term Liabilities

 

 

3,400

 

 

 

136,878

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

3,551,060

 

 

 

11,530,793

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Common stock, $.001 par value, 150,000,000 and 1,200,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 9,417,160 and 5,162,945 issued and outstanding at September 30, 2021, and December 31, 2020.

 

 

9,417

 

 

 

5,163

 

Additional Paid-In Capital

 

 

112,473,855

 

 

 

87,747,898

 

Accumulated deficit

 

 

(105,062,742)

 

 

(99,063,675)

Total Stockholders' Equity (Deficit)

 

 

7,420,530

 

 

 

(11,310,614)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

$10,971,590

 

 

$220,179

 

 

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

 

 
3

Table of Contents

   

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the Three

Months ended

September 30,

2021

 

 

For the Three

Months ended

September 30,

2020

 

 

For the Nine

Months ended

September 30,

2021

 

 

For the Nine

Months ended

September 30,

2020

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Service Revenue

 

$-

 

 

$-

 

 

 

 

$

20,000

 

Total Revenues

 

 

 

 

 

 

-

 

 

 

 

 

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

736,014

 

 

 

458,755

 

 

 

2,972,810

 

 

 

1,526,530

 

Professional fees and Consulting expense

 

 

527,476

 

 

 

1,610,931

 

 

 

1,008,991

 

 

 

1,986,417

 

Research and Development

 

 

792,439

 

 

 

1,294,921

 

 

 

1,907,109

 

 

 

3,307,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Costs and Expenses

 

 

2,055,929

 

 

 

3,364,607

 

 

 

5,888,910

 

 

 

6,820,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(2,055,929)

 

 

(3,364,607)

 

 

(5,888,910)

 

 

(6,800,663)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on Forgiveness of Debt

 

 

121,700

 

 

 

-

 

 

 

121,700

 

 

 

-

 

Interest expense

 

 

(210)

 

 

(24,281)

 

 

(43,253)

 

 

(72,890)

Interest expense – related parties

 

 

-

 

 

 

(113,867)

 

 

(188,604)

 

 

(339,015)

Total Other Income (Expense)

 

 

121,491

 

 

 

(138,148)

 

 

(110,157)

 

 

(411,906)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$(1,934,438)

 

$(3,502,755)

 

$(5,999,067)

 

$(7,212,568)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER SHARE

 

$(0.21)

 

$(0.69)

 

$(0.86)

 

$(1.43)

WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING

 

 

9,240,007

 

 

 

5,084,062

 

 

 

6,987,271

 

 

 

5,059,958

 

 

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

  

 
4

Table of Contents

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2021

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Common Stock

 

 

Paid in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, June 30, 2020

 

 

5,083,129

 

 

$5,083

 

 

$83,669,702

 

 

$(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

 

 

3,421

 

 

 

3

 

 

 

19,997

 

 

 

-

 

 

 

20,000

 

Net loss for the three months ended September 30, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,502,755)

 

 

(3,502,755)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

5,086,550

 

 

$5,086

 

 

$86,074,580

 

 

$(97,170,514)

 

$(11,090,848)

  

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid in

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, June 30, 2021

 

 

9,068,657

 

 

$9,069

 

 

$110,452,207

 

 

$(103,128,304)

 

$7,332,972

 

Issuance of warrants for services

 

 

 

 

 

 

 

 

 

 

256,920

 

 

 

 

 

 

 

256,920

 

Public offering issue of stock, overallotment

 

 

150,000

 

 

 

150

 

 

 

748,350

 

 

 

 

 

 

 

748,500

 

Underwriting and other expenses for public offering

 

 

 

 

 

 

 

 

 

 

(75,191)

 

 

 

 

 

 

(75,191)

Common stock issued on registered warrant exercise

 

 

198,503

 

 

 

198

 

 

 

1,091,569

 

 

 

 

 

 

 

1,091,767

 

Net loss for the three months ended September 30, 2021

 

 

-

 

 

 

 

 

 

 

 

 

 

 

(1,934,438)

 

 

(1,934,438)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

9,417,160

 

 

$9,417

 

 

$112,473,855

 

 

$(105,062,742)

 

$7,420,530

 

 

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

  

 
5

Table of Contents

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2021

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid in

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, December 31, 2019

 

 

4,959,206

 

 

$4,959

 

 

$81,614,504

 

 

$(89,957,946)

 

$(8,338,483)

Issuance of warrants for services

 

 

-

 

 

 

-

 

 

 

1,612,622

 

 

 

 

 

 

 

1,612,622

 

Issuance of warrants for services – related party

 

 

-

 

 

 

-

 

 

 

297,248

 

 

 

 

 

 

 

297,248

 

Issuance of warrants for services – directors fees

 

 

-

 

 

 

-

 

 

 

1,248,616

 

 

 

 

 

 

 

1,248,616

 

Issuance of warrants for participation agreements

 

 

-

 

 

 

-

 

 

 

540,092

 

 

 

 

 

 

 

540,092

 

Issuance of common stock for cash

 

 

1,953

 

 

 

2

 

 

 

24,998

 

 

 

 

 

 

 

25,000

 

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

 

 

17,028

 

 

 

17

 

 

 

136,208

 

 

 

 

 

 

 

136,225

 

Common stock issued on warrant exercise

 

 

79,813

 

 

 

80

 

 

 

600,320

 

 

 

 

 

 

 

600,400

 

Cashless exercises of stock warrants

 

 

28,550

 

 

 

28

 

 

 

(28)

 

 

 

 

 

 

-

 

Net loss for the nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,212,568)

 

 

(7,212,568)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

5,086,550

 

 

$5,086

 

 

$86,074,580

 

 

$(97,170,514)

 

$(11,090,848)

  

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Common Stock

 

 

Paid in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, December 31, 2020

 

 

5,162,945

 

 

$5,163

 

 

$87,747,898

 

 

$(99,063,675)

 

$(11,310,614)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants for services

 

 

-

 

 

 

-

 

 

 

1,601,909

 

 

 

 

 

 

 

1,601,909

 

Issuance of common stock for cash – related party

 

 

4,464

 

 

 

5

 

 

 

49,995

 

 

 

 

 

 

 

50,000

 

Issuance of common stock for cash

 

 

139,664

 

 

 

140

 

 

 

1,514,829

 

 

 

 

 

 

 

1,514,969

 

Issuance of warrants as per the Co-Participation Agreements

 

 

-

 

 

 

-

 

 

 

55,697

 

 

 

 

 

 

 

55,697

 

Common stock issued on cashless warrant exercise

 

 

54,361

 

 

 

54

 

 

 

(54)

 

 

 

 

 

 

-

 

Public offering issuance of stock and warrants

 

 

2,910,000

 

 

 

2,910

 

 

 

14,545,590

 

 

 

 

 

 

 

14,548,500

 

Fractional Shares from Split

 

 

(99)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Underwriting and other expenses for public offering

 

 

-

 

 

 

-

 

 

 

(1,697,829)

 

 

 

 

 

 

(1,697,829)

Warrants sold as part of the public offering

 

 

-

 

 

 

-

 

 

 

4,240

 

 

 

 

 

 

 

4,240

 

Common stock issued on registered warrant exercise

 

 

198,503

 

 

 

199

 

 

 

1,091,568

 

 

 

 

 

 

 

1,091,767

 

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

 

 

942,322

 

 

 

942

 

 

 

7,537,614

 

 

 

 

 

 

 

7,538,556

 

Stock issued for services

 

 

5,000

 

 

 

5

 

 

 

22,395

 

 

 

 

 

 

 

22,400

 

Net loss for the nine months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,999,067)

 

 

(5,999,067)

Balance, September 30, 2021

 

 

9,417,160

 

 

$9,417

 

 

$112,473,855

 

 

$(105,062,742)

 

$7,420,529

 

 

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

  

 
6

Table of Contents

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

For the Nine

Months Ended

September 30,

2021

 

 

For the Nine

Months Ended

September 30,

2020

 

Cash Flows for Operating Activities:

 

 

 

 

 

 

Net Loss

 

$(5,999,067)

 

$(7,212,569)

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

 

 

 

 

 

 

 

 

Stock and warrants issued for services rendered – related party

 

 

 

 

 

 

297,248

 

Stock and warrants issued for services rendered

 

 

22,400

 

 

 

1,612,623

 

Warrants issued for Directors’ Fees

 

 

-

 

 

 

1,248,616

 

Employee Option Expense

 

 

1,601,909

 

 

 

-

 

Amortization of lease liability

 

 

16,257

 

 

 

-

 

Gain on Forgiveness of Debt

 

 

(121,700)

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) in prepaid expenses

 

 

(102,132)

 

 

(51,791)

Increase (Decrease) in accounts payable

 

 

(830,812)

 

 

528,462

 

Increase in deferred revenue – participation agreements

 

 

85,303

 

 

 

1,384,907

 

(Decrease) in lease liability

 

 

(19,886)

 

 

-

 

Increase in accrued liabilities and interest

 

 

445,919

 

 

 

505,568

 

Net Cash (Used) by Operating Activities

 

 

(4,901,809)

 

 

(1,686,936)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flow from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from Loan Payable, related party – net of repayments

 

 

-

 

 

 

129,000

 

Proceeds of Loan Payable, other

 

 

190,500

 

 

 

121,700

 

Payments of Loan Payable, other

 

 

(190,500)

 

 

-

 

Proceeds from sale of common stock warrants – participation agreements

 

 

55,696

 

 

 

540,093

 

Proceeds from exercise of common stock warrants

 

 

-

 

 

 

580,400

 

Proceeds from public sale of common stock and common stock warrants

 

 

14,552,740

 

 

 

-

 

Proceeds from exercise of public warrants

 

 

1,091,767

 

 

 

-

 

Expenses related to public offering

 

 

(1,697,830)

 

 

-

 

Proceeds from direct sales of common stock

 

 

1,514,972

 

 

 

25,000

 

Proceeds from direct sales of common stock, related party

 

 

50,000

 

 

 

-

 

Net Cash Provided by Financing Activities

 

 

15,567,346

 

 

 

1,396,193

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease) in Cash

 

 

10,665,536

 

 

 

(290,743)

Cash at Beginning of Period

 

 

137,862

 

 

 

346,111

 

Cash at End of Period

 

$10,803,398

 

 

$55,368

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$3,084

 

 

$-

 

Income Taxes

 

$-

 

 

$-

 

 

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

 

 
7

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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, 2021:

 

During the nine months ended September 30, 2021, a related party applied the proceeds of a Loan Payable in the principal amount of $9,000, against an investment in a Participation Agreement.

 

During the nine months ended September 30, 2021, warrants to purchase 139,100 shares of the Company’s common stock were exercised on a “cashless” basis resulting in the issuance of 54,361 shares of common stock.

 

On June 2, 2021, pursuant to the terms of several Debt Extension and Conversion Agreements with holders of our 11% convertible debt, a total of $7,538,556 comprised of outstanding principal of $4,940,342 and interest of $2,598,214 of our convertible notes were automatically converted into 942,322 shares of common stock at $8.00 per share. See Note 6 – Convertible Debt for additional information.

 

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 $8.00 per share into 17,028 shares of the Company’s common stock.

 

During the quarter ended March 31, 2020, a principal shareholder and related party assigned warrants to purchase 46,875 shares of the Company’s Common Stock to third party investors and such warrants were exercised in the first quarter of 2020 at $8.00 per share resulting in the issuance of 46,875 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 48,500 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 23,459 shares of common stock.

 

During the quarter ended June 30, 2020, a principal shareholder and related party assigned a warrant to purchase 6,250 shares of the Company’s Common Stock a third party investor and such warrant was exercised in the second quarter of 2020 at $8.00 per share resulting in the issuance of 6,250 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 11,500 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 4,170 shares of common stock.

 

During the quarter ended September 30, 2020, $20,000 of Loan Payable, Related Parties were converted at $8.00 per share into 2,500 shares of the Company’s common stock.

 

During the quarter ended September 30, 2020, warrants to purchase 10,000 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 921 shares of common stock.

  

 
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Table of Contents

 

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. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements have also been prepared on a basis substantially consistent with and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020, included in its Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 25, 2021, as amended.

 

The Company’s common stock commenced trading on The Nasdaq Capital Market on May 28, 2021 under the ticker symbol “ZIVO.” Previously, the Company’s common stock was traded on the OTC Markets quotation system on the OTCQB.

 

Going Concern Uncertainty

 

The Company incurred a net loss of $5,999,067 for the nine months ended September 30, 2021. In addition, the Company had a working capital surplus of $7,387,823 and a stockholders’ equity of $7,420,530 at September 30, 2021. Notwithstanding the presently reported surpluses, our spending patterns and lack of revenue continue to raise substantial doubts about the Company's ability to continue as a going concern. During the nine months ended September 30, 2021, and prior to the June, 2021 Offering, the Company raised $1,564,970 from the issuance of common stock and exercise of common stock warrants and $150,000 from the proceeds from the sale of Participation Agreements and related warrants. On June 2, 2021, the Company completed the June, 2021 Offering from which the Company netted proceeds of $12,181,602 after related underwriting and other costs. In the third quarter of 2021, the Company received net proceeds from the sale of an overallotment of the June 2, 2021 Offering in the amount of $673,159, and received $1,091,767 from the exercise of public warrants. The Company expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue to support its cost structure. There is no assurance that the Company will achieve profitable operations, and, if achieved, whether it will be sustained on a continued basis. These factors indicate substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are filed. The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

 

The Company intends to fund ongoing activities by utilizing its current cash on hand and by raising additional capital through equity or debt financings. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of Zivo Bioscience, Inc. (Nevada) and its wholly owned subsidiaries, Health Enhancement Corporation (Nevada), HEPI Pharmaceuticals, Inc. (Delaware), WellMetrix, LLC (Delaware), WellMetris, LLC (Delaware), Zivo Bioscience, LLC (Florida), ZIVO Zoologic, Inc. (Delaware), and Zivo Biologic, Inc. (Delaware). 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.

 

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

        

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 when purchased. At September 30, 2021, 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 are 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.

 

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, 2021, and 2020, the Company had $0 and $20,000 of revenue, respectively.

 

Shipping and Handling Costs

 

Shipping and handling costs are expensed as incurred. For the nine months ended September 30, 2021, and 2020, no shipping and handling costs were incurred.

 

Deferred Offering Expenses

 

During the three months ended March 31, 2021, the Company incurred $143,377 of costs directly related to our planned public securities offering. We have recorded those costs as Deferred Offering Expenses on our balance sheet and will reduce our proceeds from the security sale by those costs and any additional directly related future costs. On June 2, 2021, the Company successfully executed the public securities offering and applied those offering expenses against Additional Paid in Capital. As of September 30, 2021, the Company had no Deferred Offering Expenses.

 

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, and the cost of Company personnel who work on Research and Development activities. Total internal and external clinical studies study expenses were approximately $1,638,000 and $3,308,000 for the nine months ended September 30, 2021, and 2020, respectively.

 

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

During the nine months ended September 30, 2021, and 2020, stock options and warrants were granted to employees, the Board of Directors (“Board of Directors” or “Board”) and consultants of the Company. As a result of these grants, the Company recorded compensation expense of $1,624,309 and $3,158,487 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,

 

 

 

2021

 

 

2020

 

Expected volatility

 

144.80% to 153.25

%

 

144.39% to 184.19

%

Expected dividends

 

 

0%

 

 

0

%

Expected term

 

5 to 10 years

 

 

5 to10 years

 

Risk free rate

 

0.29% to 1.45

%

 

0.28% to 2.31

%

 

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, 2021, consisted of 52,957 common shares issuable upon the conversion of convertible debentures and related accrued interest and 6,164,573 common shares issuable upon the exercise of outstanding exercisable stock options and warrants. Potentially dilutive securities as of September 30, 2020, consisted of 957,234 common shares from convertible debentures and related accrued interest and 2,969,338 common shares from outstanding exercisable stock options and warrants. For the nine months ended September 30, 2021, and 2020 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, 2021, and 2020.

 

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 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.

  

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

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, 2021 and December 31, 2020 consisted of the following:

 

 

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(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, 2021, and 2020 respectively.

 

NOTE 4 – LEASES

 

On December 17, 2020, the Company entered into a 25 ½ month lease agreement for a 2,700-square-foot facility that contains office, warehouse, lab and R&D space in Fort Myers, Florida. The lease agreement commenced on December 17, 2020 and ends on January 31, 2023. The agreement provided for a total rent of $54,993 over the period. Occupancy of the property commenced on December 17, 2020, there was a 6-week rent holiday and a commencement date of February 1, 2021. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Rent is $3,291 per month from January 15, 2021, to January 31, 2022 and $1,154 from February 1, 2022 to January 31, 2023.

 

The balances for our operating lease where we are the lessee are presented as follows within our condensed consolidated balance sheet:

  

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 - LEASES (continued)

 

Operating leases:

 

Assets:

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

Operating lease right-of-use asset

 

$33,107

 

 

$49,364

 

Liabilities:

 

 

 

 

 

 

 

 

Current Portion of Long-Term Operating Lease

 

$21,064

 

 

$29,172

 

Long-Term Operating Lease, Net of Current Portion

 

 

3,400

 

 

 

15,178

 

 

 

$24,464

 

 

$44,350

 

 

The components of lease expense are as follows within our condensed consolidated statement of operations:

 

 

 

For the

 

 

For the

 

 

 

Nine months

 

 

Nine months

 

 

 

September 30,

2021

 

 

June 30,

2020

 

Operating lease expense

 

$19,409

 

 

$-

 

 

Other information related to leases where we are the lessee is as follows:

 

 

 

For the

 

 

For the

 

 

 

Nine months

 

 

Year ended

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Weighted-average remaining lease term:

 

 

 

 

 

Operating leases

 

1.33 Years

 

 

2.08 Years

 

 

 

 

 

 

 

 

Discount rate:

 

 

 

 

 

 

Operating leases

 

 

11.00%

 

 

11.00%

 

Supplemental cash flow information related to leases where we are the lessee is as follows:

 

 

 

For the

 

 

 

Nine months

 

 

 

September 30,

2021

 

Cash paid for amounts included in the measurement of lease liabilities:

 

$29,619

 

 

As of September 30, 2021, the maturities of our operating lease liability are as follows:

 

Year Ended:

 

Operating Lease

 

December 31, 2021

 

$9,874

 

December 31, 2022

 

 

15,989

 

Total minimum lease payments

 

 

25,863

 

Less: Interest

 

 

1,399

 

Present value of lease obligations

 

 

24,464

 

Less: Current portion

 

 

21,064

 

Long-term portion of lease obligations

 

$3,400

 

 

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – LOAN PAYABLE, RELATED PARTIES

 

HEP Investments, LLC

 

During the nine months ended September 30, 2021, the Company and HEP Investments, LLC (“HEP”, or “HEP Investments”) agreed to exchange the $9,000 in related party debt into an equal investment of $9,000 in the Participation Agreements (see Note 8 – Deferred Revenue and Participation Agreements). This agreement eliminated any remaining third-party debt with HEP Investments. As of September 30, 2021, there were no Loans Payable to related parties.

 

NOTE 6 – CONVERTIBLE DEBT

 

HEP Investments, LLC – Related Party

 

On December 2, 2011, the Company and HEP Investments entered into the following documents, effective as of December 1, 2011, as amended through May 16, 2018: (i) a Loan Agreement under which HEP Investments 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, the total amount of which, along with accrued interest was subsequently converted into 2,577,810 shares of common stock, leaving a balance advanced of $ -0- as of September 30, 2021), (iii) a Security Agreement, under which the Company granted HEP Investments a security interest in all of its assets, (iv) issue HEP Investments warrants to purchase 20,834 shares of common stock at an exercise price of $9.60 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 HEP Investments 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 HEP Investments a security interest in all their respective intellectual properties, including patents, in order to secure their respective obligations to HEP Investments under the Note and related documents. HEP Investments’ Notes were convertible into the Company’s restricted common stock at $8.00 per share and bear interest at the rate of 11% per annum. In addition, certain of the Company’s subsidiaries guaranteed the Company’s obligations under the Note. The Company also made certain agreements with HEP Investments which were to remain in effect if 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 HEP Investments. Two representatives of HEP Investments have the right to attend Board of Director meetings as non-voting observers.

 

In January 2019, and in connection with the Convertible Note, HEP Investments entered into a life insurance policy for Andrew Dahl, our Chief Executive Officer. On February 23, 2021, the Company and Lender entered into a Letter Agreement in which the Company agreed to pay certain premiums of $2,565 per month under the life insurance policy while payments under the Convertible Note remain outstanding. As of June 2, 2021, the Company ceased paying premiums on the life insurance policy for Andrew Dahl.

 

On March 29, 2019, the Company and HEP Investments entered a “Debt Extension Agreement” whereby HEP Investments extended the maturity date of the Note to June 30, 2019. HEP Investments 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.”

 

On March 31, 2021, HEP Investments entered into a “Debt Extension and Conversion Agreement” with the Company. This agreement provides that the notes, including principal and accrued interest, automatically convert into shares of common stock per the original note provisions upon consummation of an underwritten public offering of the Company’s common stock.

 

On June 2, 2021, in accordance with the Debt Extension and Conversion Agreement between the HEP Investments and the Company, all of the outstanding debt and accrued interest for the Notes was automatically converted into common stock of the Company. The principal amount of 4,090,342 and the accrued interest to June 2, 2021, of $2,161,845 totaled $6,252,187; this total amount was converted into 781,524 shares of common stock at $8.00 per share. As of September 30, 2021, the Company has no further remaining financial obligations to the HEP Investments under the terms of the convertible notes. As of the conversion of the total outstanding principal and accrued interest balance, HEP Investments no longer retains a security interest in the Company’s intellectual property or other assets.

 

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE DEBT (continued)

 

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 the Company with 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 HEP Investments 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, $8.00 warrants equal to 15% of the number of common shares for which the debt is convertible into at $8.00 per share. The New Lenders Notes are convertible into the Company’s restricted common stock at $8.00 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 45,535 shares of the Company’s common stock (at $8.00 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 17,028 shares of the Company’s common stock (at $8.00 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 New Lender Note.

 

In May 2021, each of the remaining three New Lenders entered into a Debt Extension and Conversion Agreement with the Company. These agreements provide that the notes, including principal and accrued interest, automatically convert into shares of common stock per the original note provisions upon consummation of an underwritten public offering of the Company’s common stock.

 

On June 2, 2021, in accordance with the “Debt Extension and Conversion Agreement” between the remaining New Lenders and the Company, all of the remaining outstanding debt and accrued interest for the New Lenders Notes were automatically converted to common stock. The principal amount of $850,000 and the accrued interest to June 2, 2021, of $436,369 totaled $1,286,369; this total amount was converted into 160,798 shares of common stock at $8.00 per share. As of September 30, 2021, the Company has no further remaining financial obligations to the New Lenders under the terms of the New Lenders Notes. All security interests of the New Lenders in the Company’s assets have been terminated.

 

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, 2021, 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.”

  

 
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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE DEBT (continued)

 

Convertible debt consists of the following:

 

 

 

 

 

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

1% Convertible notes payable, due October 31, 2021 (at September 30, 2021)

 

$240,000

 

 

$240,000

 

 

 

 

 

 

 

 

 

 

11% Convertible note payable – HEP Investments, a related party. As of June 2, 2021 no notice of default has been received, and on that date all principal and associated accrued interest were converted into the Company’s common stock at $8.00 per share in accordance with the Debt Extension and Conversion Agreements

 

 

-

 

 

 

4,090,342

 

 

 

 

 

 

 

 

 

 

11% Convertible note payable – New Lenders; placed by Paulson. As of June 2, 2021 no notice of default has been received, and on that date all principal and associated accrued interest were converted into the Company’s common stock at $8.00 per share in accordance with the Debt Extension and Conversion Agreements

 

 

-

 

 

 

850,000

 

 

 

 

240,000

 

 

 

5,180,342

 

Less: Current portion

 

 

240,000

 

 

 

5,180,342

 

Long term portion

 

$-

 

 

$-

 

 

NOTE 7 – NOTES PAYABLE – SBA PAYCHECK PROTECTION PROGRAM

 

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 60% 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.

 

Upon the occurrence of an event of default, the Bank 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.

 

In August 2021, the Company applied to the SBA for forgiveness of the outstanding loan principal and accrued interest under the CARES Act. On September 9, 2021, the Company received a Notification of Paycheck Protection Program Forgiveness Payment letter from the SBA confirming that the full amount of the principal, $121,700, and accrued interest, $1,653, were forgiven by the SBA. The Company recognized the forgiveness of debt as an Other Income.

  

 
16

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 - DEFERRED REVENUE - PARTICIPATION AGREEMENTS

 

From April 13, 2020, through September 30, 2021, the Company entered into twenty-one (21) License Co-Development Participation Agreements (the “Participation Agreements”) with certain accredited investors (“Participants”) for an aggregate of $2,985,000. The Participation Agreements provide for the issuance of warrants to such Participants and allows the Participants to participate in the fees (the “Fees”) from licensing or selling bioactive ingredients or molecules derived from ZIVO’s algae cultures. Specifically, ZIVO has agreed to provide to the Participants a 44.78% “Revenue Share” of all license fees generated by ZIVO from any licensee (See the Table below).

 

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 $2,985,000 as follows: 1) the 106,315 warrants sold were attributed a value of $953,897 based on the Black Scholes pricing model using the following assumptions: volatilities ranging from 139.55% to 154.26%; annual rate of dividends 0%; discount rates ranging from 0.26% to 0.45%, and recorded as Additional Paid In Capital; 2) the remaining $2,031,103 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.

  

The Participation Agreements 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 less than 18 months following execution, and for either forty (40%) or fifty percent (50%) if the option is exercised more than 18 months following execution. Pursuant to the terms fifteen of the Participation Agreements, the Company may not exercise its option until it has paid the Participants a revenue share equal to a minimum of thirty percent (30%) of the amount such Participant’s total payment amount. Pursuant to the terms of the one of the Participation Agreements, the Company may not exercise its option until it has paid the Participant a revenue share equal to a minimum of one hundred forty percent (140%) of the amount such Participant’s total payment amount. Four of the Participation Agreements have no minimum threshold payment. Once this minimum threshold is met, the Company may exercise its option by delivering written notice to a 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 prorated 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. See below a summary of the Participation Agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buy-back

 

 

Buy-back

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium

Premium

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum

 

 

%

%

 

Agreement

 

 

Date of

 

Amount

 

 

 

 

 

Exercise

 

 

Revenue

 

 

Payment

 

 

pre-18

post 18

 

#

 

 

Funding

 

Funded

 

 

Warrants

 

 

Term

 

Price

 

 

Share

 

 

Threshold

 

 

mos.

mos.

 

 

1

 

 

Apr 13, 2020

 

$100,000

 

 

 

3,750

 

 

5 Years

 

$9.60

 

 

 

1.50%

 

$-

 

 

 

40%

 

 

40%

 

2

 

 

Apr 13, 2020

 

 

150,000

 

 

 

5,625

 

 

5 Years

 

 

9.60

 

 

 

2.25%

 

 

-

 

 

 

40%

 

 

40%

 

3

 

 

Apr 13, 2020

 

 

150,000

 

 

 

5,625

 

 

5 Years

 

 

9.60

 

 

 

2.25%

 

 

-

 

 

 

40%

 

 

40%

 

4

 

 

May 7, 2020

 

 

250,000

 

 

 

9,375

 

 

5 Years

 

 

9.60

 

 

 

3.75%

 

 

-

 

 

 

40%

 

 

40%

 

5

 

 

Jun 1, 2020

 

 

275,000

 

 

 

10,313

 

 

5 Years

 

 

8.80

 

 

 

4.13%

 

 

82,500

 

 

 

40%

 

 

50%

 

6

 

 

Jun 3, 2020

 

 

225,000

 

 

 

8,438

 

 

5 Years

 

 

8.80

 

 

 

3.38%

 

 

67,500

 

 

 

40%

 

 

50%

 

7

 

 

Jul 8, 2020

 

 

100,000

 

 

 

3,750

 

 

5 Years

 

 

9.60

 

 

 

1.50%

 

 

30,000

 

 

 

40%

 

 

50%

 

8

 

 

Aug. 24, 2020

 

 

125,000

 

 

 

4,688

 

 

5 Years

 

 

9.60

 

 

 

1.88%

 

 

37,500

 

 

 

40%

 

 

50%

 

9

 

 

Sept. 14, 2020

 

 

150,000

 

 

 

5,625

 

 

5 Years

 

 

9.60

 

 

 

2.25%

 

 

45,000

 

 

 

40%

 

 

50%

 

10

 

 

Sept.15, 2020

 

 

50,000

 

 

 

1,875

 

 

5 Years

 

 

9.60

 

 

 

0.75%

 

 

15,000

 

 

 

40%

 

 

50%

 

11

 

 

Sept.15, 2020

 

 

50,000

 

 

 

1,875

 

 

5 Years

 

 

9.60

 

 

 

0.75%

 

 

15,000

 

 

 

40%

 

 

50%

 

12

 

 

Sept.25, 2020

 

 

300,000

 

 

 

5,625

 

 

5 Years

 

 

9.60

 

 

 

4.50%

 

 

420,000

 

 

 

40%

 

 

50%

 

13

 

 

Oct. 8, 2020

 

 

500,000

 

 

 

18,750

 

 

5 Years

 

 

9.60

 

 

 

7.50%

 

 

150,000

 

 

 

40%

 

 

40%

 

14

 

 

Oct. 4, 2020

 

 

100,000

 

 

 

3,750

 

 

5 Years

 

 

9.60

 

 

 

1.50%

 

 

30,000

 

 

 

40%

 

 

40%

 

15

 

 

Oct. 8, 2020

 

 

250,000

 

 

 

9,375

 

 

5 Years

 

 

9.60

 

 

 

3.75%

 

 

75,000

 

 

 

40%

 

 

40%

 

16

 

 

Oct. 9, 2020

 

 

50,000

 

 

 

1,875

 

 

5 Years

 

 

9.60

 

 

 

0.75%

 

 

15,000

 

 

 

40%

 

 

40%

 

17

 

 

Dec. 16, 2020

 

 

10,000

 

 

 

375

 

 

5 Years

 

 

9.60

 

 

 

0.15%

 

 

3,000

 

 

 

40%

 

 

50%

 

18

 

 

Jan. 22, 2021

 

 

40,000

 

 

 

1,500

 

 

5 Years

 

 

11.20

 

 

 

0.60%

 

 

12,000

 

 

 

40%

 

 

50%

 

19

 

 

Jan. 25, 2021

 

 

40,000

 

 

 

1,500

 

 

5 Years

 

 

11.20

 

 

 

0.06%

 

 

12,000

 

 

 

40%

 

 

50%

 

20

 

 

Jan. 27, 2021

 

 

25,000

 

 

 

938

 

 

5 Years

 

 

11.20

 

 

 

0.38%

 

 

7,500

 

 

 

40%

 

 

50%

 

21

 

 

May 14, 2021

 

 

45,000

 

 

 

1,688

 

 

5 Years

 

 

10.40

 

 

 

0.68%

 

 

13,500

 

 

 

40%

 

 

50%

 

 

 

 

 

 

$2,985,000

 

 

 

106,315

 

 

 

 

 

 

 

 

 

44.78%

 

$1,030,500

 

 

 

 

 

 

 

 

 

    

Certain of the Participation Agreements are owned by related parties. Participation Agreements numbers 8, 14, and 19 totaling $265,000 are owned by HEP Investments, Participation Agreement 21 in the amount of $45,000 is owned by MKY MTS LLC an entity controlled by the owners of HEP Investments, and Participation Agreement 13 in the amount of $500,000 is owned by Strome

  

 
17

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)

 

Board of Directors fees

 

On September 30, 2020, the board of directors granted to three of its directors warrants to purchase 6,250 shares of common stock and the Chairman of the Board warrants to purchase 125,000 shares of common stock at an exercise price of $8.00 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 $38,897 and $1,272,866 during the nine months ended September 30, 2021, and 2020, respectively, representing common stock warrants and cash fees paid or accrued.

 

Recapitalization - Reverse Stock Split

 

On November 11, 2020, ZIVO’s stockholders approved a reverse stock split of its common stock within the range of 1-for-25 to 1-for-120 of our authorized, issued, and outstanding shares of common stock. The Board was given discretion to determine the final ratio, effective date, and date of filing of the certificate of amendment to our articles of incorporation, as amended, in connection with the reverse stock split.

 

On May 27, 2021, the Company filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State of Nevada (the “Certificate of Amendment”) to (i) effectuate a reverse stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock and treasury shares on a 1-for-80 basis and (ii) decrease the number of total authorized shares of Common Stock of the Company from 1,200,000,000 to 150,000,000 shares. The Certificate of Amendment became effective at 12:01 a.m. (Eastern Time) on May 28, 2021 (the “Effective Time”). 

As of the Effective Time, every 80 shares of issued and outstanding Common Stock were converted into one share of Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, a holder of record of old Common Stock as of immediately prior to the Effective Time who would otherwise have been entitled to a fraction of a share was entitled to receive cash in lieu thereof.

 

The Company’s transfer agent, Issuer Direct Corporation acted as the exchange agent for the Reverse Stock Split. The Reverse Stock Split did not alter the par value of the Company’s common stock or modify any voting rights or other terms of the Common Stock. In addition, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable under all of the Company’s outstanding stock options and warrants to purchase shares of Common Stock, and the number of shares authorized and reserved for issuance pursuant to the Company’s equity incentive plan will be reduced proportionately.

 

All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock. A proportionate adjustment was also made to the number of shares reserved for issuance pursuant to the Company’s equity incentive compensation plans to reflect the Reverse Stock Split.

 

Stock Issuances

 

During the nine months ended September 30, 2021, the Company issued 139,664 shares for proceeds of $1,514,970, to private investors. In addition, during this same period, a related party purchased 4,464 shares of the Company’s common stock at $11.20 per share for proceeds of $50,000. The Company, on June 15, 2021, issued 5,000 shares of restricted common stock to CorProminence, LLC (d/b/a COREir) for services in accordance with the consulting agreement between COREir and the Company (See Note 10 – Commitment and Contingencies). The shares were value at the market price on June 15, 2021, $4.48 per share for a total expense of $22,400

 

On June 2, 2021, the Company completed its planned public offering of common stock shares and common stock warrants. The Company issued 2,760,000 units (each unit consisting of one share of the Company’s common stock and one 5 year warrant (“registered warrant”) to purchase one share of common stock for $5.50 per share) for gross proceeds of $13,800,000, and net proceeds of $12,177,362 after related underwriting and other costs of $1,622,638.

 

On July 1, 2021, the underwriters of the June 2, 2021, Offering exercised their overallotment option and purchased an additional 150,000 shares of the Company’s stock at $4.99 per share for gross proceeds of $748,500, and net proceeds of $673,309 after related underwriting and other costs of $75,191. 

 

 
18

Table of Contents

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

 

During the nine months ended September 30, 2020, the Company issued 1,953 shares at $12.80 per share for proceeds of $25,000, to private investors.

 

Stock Warrants Exercised

 

During the nine months ended September 30, 2021, warrants to purchase 139,100 shares of the Company’s common stock were exercised on a “cashless” basis resulting in the issuance of 54,361 shares of common stock.

 

In September 2021, two groups of the Company’s public traded warrants were exercised resulting the Company issuing 198,503 shares of common stock. The exercise price of the warrants was $5.50 per share, resulting in gross cash proceeds to the Company of $1,091,767.

 

During the nine months ended September 30, 2020, HEP Investments, a principal shareholder and related party, assigned warrants to purchase 53,125 shares of the Company’s Common Stock to third party investors. These warrants were exercised at $8.00 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 70,000 shares of the Company’s Common Stock were exercised on a “cashless” basis resulting in the issuance of 28,550 shares of common stock.

 

In addition, the Company issued 79,813 shares of the Company’s Common Stock for proceeds of $600,400 from the exercise of warrants.

 

Sale of Common Stock Warrants

 

During the nine months ending September 30, 2021, and in connection with the License Co-Development Participation Agreements (“Participation Agreements”) (see Note 8), the Company sold warrants to purchase 5,624 shares of common stock for $55,697. The warrants were valued based on the Black Scholes pricing model relying on the following assumptions: volatility 129.13% to 140.20%; annual rate of dividends 0%; discount rate 0.41% to 0.87%.

 

On June 2, 2021, the Company completed its planned public offering of common stock shares and common stock warrants. As part of the transaction, the Company sold 414,000 warrants (“registered warrants”) to purchase up to an aggregate 414,000 shares of common stock at $5.50 per share with a life of 5 years from the date of purchase, from the overallotment option that was exercised by the underwriter for $4,140. Additionally, the underwriters exercised their options to purchase 8% of the number of common shares in the offering or warrants for 220,800 common shares, for an aggregate price to the Company of $100 (“Representative Warrants”).

 

During the nine months ending September 30, 2020, in connection with the License Co-Development Participation Agreements (“Participation Agreements”) (see Note 8), the Company sold warrants to purchase 66,563 shares of common stock for $540,092. 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

 

Prior to the adoption of the 2021 Equity Incentive Plan, the Company maintained a 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. Following the approval by the shareholders of the 2021 Equity Incentive Plan (see Note 12 – SUBSEQUENT EVENTS: 2021 Equity Incentive Plan), no additional awards have been or will be made under the 2019 Incentive Plan. The 2019 Incentive Plan is administered by the compensation committee of the Board who will, amongst other duties, has full power and authority to take all actions and to make all determinations required or provided for under the 2019 Incentive Plan. As of September 30, 2021, 781,250 Options had been issued under the 2019 Incentive Plan with terms between 5 years and 10 years.

 

  

 
19

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

 

Common Stock Options

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price

 

Outstanding, beginning of year

 

 

606,250

 

 

$9.67

 

 

 

362,500

 

 

$8.11

 

Issued

 

 

175,000

 

 

 

11.22

 

 

 

243,750

 

 

 

11.98

 

Outstanding, end of period

 

 

781,250

 

 

$10.02

 

 

 

606,250

 

 

$9.67

 

 

Options outstanding and exercisable by price range as of September 30, 2021, were as follows:

 

Outstanding Options

 

 

Exercisable Options

 

Range of

Exercise

Price

 

Number

 

 

Average

Weighted

Remaining

Contractual

Life in Years

 

 

Range of

Exercise

Price

 

Number

 

 

Weighted

Average

Exercise Price

 

$

8.00-8.99

 

 

375,000

 

 

 

7.85

 

 $

 8.00-8.99

 

 

370,313

 

 

$8.04

 

 

9.00-9.99

 

 

25,000

 

 

 

3.88

 

 

9.00-9.99

 

 

25,000

 

 

 

9.60

 

 

11.00-11.99

 

 

187,500

 

 

 

9.19

 

 

11.00-11.99

 

 

78,125

 

 

 

11.25

 

 

12.00-12.99

 

 

193,750

 

 

 

4.04

 

 

12.00-12.99

 

 

150,000

 

 

 

12.67

 

 

 

 

 

781,250

 

 

 

7.10

 

 

 

 

 

623,438

 

 

$9.35

 

 

Common Stock Warrants - Unregistered

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Number of

Warrants

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Warrants

 

 

Weighted

Average

Exercise

Price

 

Outstanding, beginning of year

 

 

2,502,291

 

 

$7.67

 

 

 

2,427,634

 

 

$7.43

 

Issued

 

 

226,426

 

 

 

5.64

 

 

 

287,564

 

 

 

9.34

 

Exercised

 

 

(139,099)

 

 

6.41

 

 

 

(179,564)

 

 

7.26

 

Cancelled

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

(23,980)

 

 

5.82

 

 

 

(33,343)

 

 

7.08

 

Outstanding, end of period

 

 

2,565,638

 

 

$7.57

 

 

 

2,502,291

 

 

$7.67

 

 

 
20

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

 

Unregistered warrants outstanding and exercisable by price range as of September 30, 2021, were as follows:

 

Outstanding Warrants

 

 

Exercisable Warrants

 

 

Exercise

Price

 

Number

 

 

Average

Weighted

Remaining

Contractual Life

in Years

 

 

Exercise

Price

 

Number

 

 

Weighted

Average

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 $

4.00-4.99

 

 

200,625

 

 

 

0.84

 

 $

4.00-4.99

 

 

200,625

 

 

$4.80

 

 

5.00-5.99

 

 

252,050

 

 

 

4.21

 

 

5.00-5.99

 

 

252,050

 

 

 

5.51

 

 

6.00-6.99

 

 

241,716

 

 

 

2.80

 

 

6.00-6.99

 

 

241,716

 

 

 

6.40

 

 

7.00-7.99

 

 

1,250

 

 

 

0.83

 

 

7.00-7.99

 

 

1,250

 

 

 

7.20

 

 

8.00-8.99

 

 

1,595,558

 

 

 

1.66

 

 

8.00-8.99

 

 

1,595,558

 

 

 

8.02

 

 

9.00-9.99

 

 

231,938

 

 

 

3.94

 

 

9.00-9.99

 

 

231,938

 

 

 

9.60

 

 

10.00-10.99

 

 

1,688

 

 

 

4.62

 

 

10.00-10.99

 

 

1,688

 

 

 

10.40

 

 

11.00-11.99

 

 

35,813

 

 

 

2.25

 

 

11.00-11.99

 

 

35,813

 

 

 

11.20

 

 

14.00-14.99

 

 

5,000

 

 

 

3.24

 

 

14.00-14.99

 

 

5,000

 

 

 

14.40

 

 

 

 

 

2,565,638

 

 

 

2.17

 

 

 

 

 

2,565,638

 

 

$7.57

 

 

Common Stock Warrants - Registered

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Number of

Registered Warrants

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Registered Warrants

 

 

Weighted

Average

Exercise

Price

 

Outstanding, beginning of year

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

Issued

 

 

3,174,000

 

 

 

5.50

 

 

 

-

 

 

 

-

 

Exercised

 

 

(198,503)

 

 

5.50

 

 

 

-

 

 

 

-

 

Cancelled

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding, end of period

 

 

2,975,497

 

 

$5.50

 

 

 

-

 

 

$-

 

 

Registered warrants outstanding and exercisable by price range as of September 30, 2021, were as follows:

 

Outstanding Registered Warrants

 

 

Exercisable Registered Warrants

 

Exercise

Price

 

 

Number

 

 

Average

Weighted

Remaining

Contractual Life

in Years

 

 

Exercise

Price

 

 

Number

 

 

Weighted

Average

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5.50

 

 

 

2,975,497

 

 

 

4.64

 

 

$5.50

 

 

 

2,975,497

 

 

 

5.50

 

 

 

 

 

 

2,975,497

 

 

 

4.64

 

 

 

 

 

 

 

2,975,497

 

 

$5.50

 

  

 
21

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES

 

COVID-19

 

In March 2020, the World Health Organization declared the outbreak of a disease caused by a novel strain of the coronavirus (COVID-19) to be a pandemic. 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 movement with the production of our algal biomass, validation, and purification. However, these were temporarily suspended and/or delayed, and many continue in diminished capacity.

 

Employment Agreements

 

We currently have compensation agreements with our President / Chief Executive Officer, one with our present Chief Financial Officer, and a separation agreement with our former Chief Financial Officer.

 

Mr. Dahl’s Employment Agreement:

 

The Company’s Chief Executive Officer, Andrew Dahl, is serving as Chief Executive Officer under the terms of an amended and restated employment agreement dated November 15, 2019 (“Dahl Agreement”) that superseded all prior employment agreements and understandings. Under the terms of the Dahl 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 (“Dahl Base Salary”), of which $7,500 per month has been 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 including funding at closing on such terms of at least $10 million; or (ii) within 12 months after the effective date that the Company receives revenue of at least $10 million. The Dahl 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 Dahl Base Salary.

 

Mr. Dahl is entitled to a Revenue Bonus (as defined in the Dahl Agreement) equal to 2% of the Company’s revenue contribution in accordance with a formula as detailed in the Dahl Agreement.

 

Mr. Dahl was awarded a non-qualified option to purchase 350,000 shares of the Company’s common stock at a price of $8.00 per share upon signing the Dahl Agreement. Mr. Dahl will be entitled to non-qualified performance-based options having an exercise price equal to the greater of $8.00 per share and the Fair Market Value (as defined in the 2019 Incentive Plan), upon the attainment of specified milestones as follows: (i) non-qualified option to purchase 12,500 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 18,750 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 18,750 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 $2,000,000 in cash or in-kind outlays); (iv) non-qualified option to purchase 18,750 common shares upon the Company entering into a co-development agreement for nutraceutical or dietary supplement applications (where the partner provides at least $2,000,000 in cash or in-kind outlays); and (v) non-qualified option to purchase 18,750 common shares upon the Company entering into a pharmaceutical development agreement. Note that item (i) was achieved in 2019 and the Company awarded a non-qualified option to purchase 12,500 common shares of the Company’s common stock at a price of $11.20 per share.

   

As it relates to Wellmetris, if and when at least $2 million in equity capital is raised from a third party and invested in Wellmetris in an arms-length transaction, Mr. Dahl shall be granted a warrant to purchase an equity interest in Wellmetris that is equal to the equity interest in Wellmetris owned by the Company at the time of the first tranche of any such capital raise (the “Wellmetris Warrant”). The Wellmetris Warrant shall be fully vested as of the date it is granted and shall expire on the 10th anniversary of the grant date. Once granted, the Wellmetris 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 Wellmetris Warrant shall be equal to the fair market value of the interest in Wellmetris implied by the pricing of the first tranche of any such capital raise.

 

 
22

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES (continued)

 

Mr. Dahl’s Employment Agreement: (continued)

 

The Dahl Agreement provides that if a Change of Control (as defined in the Dahl Agreement) occurs and Mr. Dahl’s employment is terminated without Cause (as defined in the Dahl 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 vested. The Dahl Agreement also provides for severance payments of, amongst other things, 300% of the Dahl Base Salary and 2x the amount of the Revenue Bonus in such event.

 

Mr. Marchiando’s Employment Agreement:

 

On January 1, 2021, the Company entered into an employment letter with Mr. Marchiando (“Marchiando Agreement”). Under the terms of the Marchiando Agreement, Mr. Marchiando 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 Marchiando Agreement on at least sixty days’ notice prior to the expiration of the then current term of the Marchiando Agreement. Mr. Marchiando will receive an annual base salary, commencing on January 1, 2021, of $280,000 (“Marchiando Base Salary”). The Marchiando Base Salary shall increase to $300,000 if within one (1) year after the effective date, the Company enters into a term sheet and receives the related financing to receive at least $10,000,000 in equity or other form of investment or debt (“Third Party Financing”) on terms satisfactory to the board of directors of the Company. On January 1, 2021, Mr. Marchiando received a stock option award issued pursuant to the Company’s 2019 Omnibus Long-Term Incentive Plan to purchase 162,500 shares of the Company’s common stock, with an exercise price of $11.20 per share. Vesting of these options shall be as follows: 37,500 shares vested immediately upon grant of the option award, and 15,625 shares will vest on each 6-month anniversary of January 1, 2021. Mr. Marchiando shall also receive $25,000 upon the closing, prior to December 31, 2021, of a Third Party Financing that raises at least $10,000,000. If, upon the closing prior to December 31, 2021 of a Third Party Financing that raises over $13,000,000 for the Company, Mr. Marchiando shall receive a maximum bonus of $50,000, as long as Mr. Marchiando is employed at the time of closing. On June 15, 2021, the Company paid Mr. Marchiando $50,000 in accordance with the Marchiando Agreement and the closing of the June 2021 Offering that raised gross funds to the Company of roughly $13,800,000.

 

If Mr. Marchiando’s employment is terminated by the Company due to death or Disability, or without Cause, or if Mr. Marchiando resigns for Good Reason (each as defined in the Marchiando Agreement) or if either party does not renew the employment term, Mr. Marchiando will be entitled to receive the following severance benefits: a continuation of the Marchiando Base Salary for one year, payment of an amount equal to Mr. Marchiando’s target bonus in the year of termination and a fully-vested, nonqualified stock option to purchase 12,500 shares of common stock. Additionally, all outstanding and contingent nonqualified options owned directly or beneficially by Mr. Marchiando shall be converted immediately into vested options, with terms as specified in the applicable award agreement.

 

The Marchiando Agreement provides that if a Change of Control (as defined in the Marchiando Agreement) occurs and Mr. Marchiando resigns for Good Reason (as defined in the Marchiando Agreement) or Mr. Marchiando’s employment is terminated without Cause (as defined in the Marchiando 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. Marchiando’s unvested options will be fully vested and the restrictions on his restricted shares will lapse. The Marchiando Agreement also provides for severance payments of, amongst other things, a lump sum payment of 200% of the Marchiando Base Salary, 200% of Mr. Marchiando’s Performance Bonus (as defined in the Marchiando Agreement) earned in the last 12 months preceding the Change of Control and payment of 24 months of the Marchiando Base Salary in such event.

  

 
23

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES (continued)

 

Mr. Rice’s Employment Arrangement:

 

On March 4, 2020, the Company entered into an employment letter with Philip Rice, former Chief Financial Officer of the Company (“Rice Agreement”) that superseded all prior employment understandings and agreements. Under the terms of the Rice 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 Rice Agreement on at least sixty days’ notice prior to the expiration of the then current term of the Rice Agreement. Mr. Rice will receive an annual base salary, commencing on January 1, 2020, of $280,000 (“Rice Base Salary”). The Rice 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. On the date the Rice Agreement was executed, Mr. Rice received a $25,000 retention bonus, and a fully-vested nonqualified stock option to purchase 25,000 shares of the Company’s common stock at a price of $12.00 per share (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%).

 

On January 7, 2021, the Company and Rice entered into a written agreement concerning Rice’s departure from the Company (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Rice resigned from his position as Chief Financial Officer of the Company effective on January 1, 2021, and following a transition period, agreed to resign from all positions as an officer or employee of the Company effective as of January 31, 2021 (the “Separation Date”). The Separation Agreement provides that Mr. Rice will receive certain benefits that he is entitled to receive under his employment agreement dated March 4, 2020. Accordingly, under the Separation Agreement, subject to non-revocation of a general release and waiver of claims in favor of the Company, the Company has agreed to pay Mr. Rice his base salary of $280,000 for one year and three weeks, beginning on the Separation Date, and grant him an option to purchase 12,500 shares of common stock. Pursuant to the Rice Agreement and the Separation Agreement, the Company paid to Mr. Rice on June 15, 2021, a $50,000 bonus that was tied to the successful June 2021 Offering.

 

Corporate Advisory Agreement

 

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 financing transaction, a fee of 1% of the aggregate value of the transaction and a warrant to purchase up to 75,000 shares of common stock at an exercise price of $8.00 for a term of five years. As of September 30, 2021, in connection with this agreement, no successful financing 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 (“FCCA Agreement”). The FCCA 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 FCCA Agreement was cancelled in July 2020.

 

Financial Consulting Agreement – July 2020

 

On July 16, 2020, the Company entered into an Advisory Agreement (“FC Agreement”). The FC Agreement calls for monthly fees of $10,000 per month. The FC 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 1,875 shares of common stock at an exercise price of $9.60 for a term of five years. The Company issued warrants to purchase 5,625 shares of common stock at an exercise price of $9.60 for a term of five years valued at $51,278 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% to 0.32% The Company terminated the FC Agreement in October 2020.

  

 
24

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES (continued)

 

Supply Chain Consulting Agreement

 

On February 27, 2019, the Company entered into a Supply Chain Consulting Agreement with a consultant (“Consultant”) (see Note 11 – Stockholders’ Deficiency). In May 2019, the Company issued a warrant to purchase 62,500 shares of common stock at an exercise price of $8.00 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, 25,000 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 two hundred thirty-seven thousand and five hundred (237,500) shares of the Company’s common stock at an exercise price of $8.00 per share. On November 24, 2020, the parties entered into a Second Amendment to the Supply Chain Consulting Agreement whereby the issuance to Consultant a cashless warrant with a five-year term to purchase two hundred thirty-seven thousand five hundred (237,500) shares of the Company’s common stock was reduced to one hundred sixty-two thousand five hundred (162,500) shares of the Company’s common stock, and a cashless warrant with a five-year term to purchase thirty-seven thousand five hundred (37,500) shares of the Company’s common stock was issued to a member of the Consultant. The warrants were valued at $386,348 using the Black Scholes pricing model relying on the following assumptions: volatility 148.83%; annual rate of dividends 0%; discount rate 0.39%. As of September 30, 2021, 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 12,500 shares of the Company’s common stock at an exercise price of $8.00 per share at its discretion. As of September 30, 2021, such warrant has not been issued.

 

On March 1, 2021, the Company and the aforementioned “member of the Consultant” signed an amendment to the original consulting agreement. The member of the Consultant agreed to take on additional responsibilities related to the non-North America expansion of the Company biomass production network. Upon the successful formation, licensing and start of operations, the member of the Consultant will be granted warrants to purchase 40,625 shares of the Company’s common stock at the prevailing market price at that time. In addition, a monthly cash payment of $12,500 is included in the consulting agreement. (see Note 12 – SUBSEQUENT EVENTS: Supply Chain Consulting Agreement)

 

Marketing / Public Relations

 

On December 27, 2019, the Company entered into a Marketing / Public Relations Agreement (“MPR Agreement”) with a consultant (“MPR Consultant”). The MPR Agreement provides that the MPR 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 MPR Agreement calls for the issuance of warrants to purchase up to 62,500 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 MPR Consultant a warrant to purchase common stock in the amount of 6,250 shares. For each successive Qualifying Transaction of at least $1,000,000, the MPR Consultant shall be issued 3,750 shares up to a maximum cumulative award of 62,500 shares in warrant form in total.

 

 
25

Table of Contents

  

 

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10- COMMITMENTS AND CONTINGENCIES (continued)

 

Marketing / Public Relations (continued)

 

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 the MPR Consultant, and on the revenue received from licensing the Company’s intellectual property to such entities identified and cultivated by the MPR 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, 2021, a commercial transaction has not closed, and the warrants have not yet been issued and no commissions have been paid.

 

On June 11, 2021 the MPR Consultant and the Company signed a termination letter for the MPR Agreement. The Company agreed to pay the MPR Consultant $83,000 and business expenses of roughly $10,000 to terminate the MPR Agreement in full satisfaction of services performed through the termination date.

 

Investor / Public Relations

 

On February 15, 2021, the Company signed a consulting agreement with CorProminence, LLC (dba COREir) to provide us with investor relations and public relations services. The COREir agreement includes a provision to issue to COREir on the four (4) month anniversary of the Effective Date, or as soon thereafter as is practically possible, 10,000 authorized restricted shares of common stock (the “Shares”) of the Company, of which 5,000 shares shall vest immediately upon receipt, 2,500 shall vest on the eight (8) month anniversary of the contract Effective Date and 2,500 shares shall vest on the twelve (12) month anniversary of the effective date of the COREir agreement. In addition, the agreement requires the Company to pay COREir $15,000 per month, plus out of pocket expenses, for their consulting services. (see Note 12 – SUBSEQUENT EVENTS: Investor / Public Relations)

 

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.

 

NOTE 11 - RELATED PARTY TRANSACTIONS

 

Loan Payable – Related Party

 

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

 

Employment Agreement

 

See Note 10 – Commitments and Contingencies for disclosure of the employment agreements with the Chief Executive Officer and Chief Financial Officer.

 

Building Lease

 

The Company rents its office space in Keego Harbor, Michigan from M&M Keego Center LLC. This entity is controlled by an immediate family member of a principal shareholder. The Company rents an appropriate amount of space on a month-to-month basis and is paying what management believes to be a market competitive rate for the property.

 

Stock Issuances

 

On June 2, 2021, the Company completed its planned public offering of common stock shares and common stock warrants. Two of the Company’s board of directors participated in the offering; Chris Maggiore purchased 100,000 units, and Alison Cornell purchased 15,000 units. No other related parties participated in the offering.

 

 
26

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 – SUBSEQUENT EVENTS

 

2021 Equity Incentive Plan

 

On October 12, 2021, after approval from the Stockholders at the Company’s Annual Stockholders Meeting, the Company entered into and adopted the 2021 Equity Incentive Plan (the “2021 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 2021 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 2021 Incentive Plan. Pursuant to the 2021 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.

 

Subject to adjustment as described in the 2021 Incentive Plan, the aggregate number of common shares (“Shares”) available for issuance under the 2021 Incentive Plan is initially set at One Million (1,000,000) Shares; this number is automatically increased each January 1st by an amount equal to 5% of the number of common stock shares outstanding at that date. The exercise price of each Share subject to an Option (as defined in the 2021 Incentive Plan) shall be at least the Fair Market Value (as defined in the 2021 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 November 15, 2021, 969,644 Options have been issued (see Note 12 – SUBSEQUENT EVENTS: Common Stock Option Grants).

 

Certain existing grant commitments to several Company employees provide for the contingent issuance of an additional 150,000 options of the Company’s common stock at an exercise price of at least the Fair Market Value (as defined in the 2021 Incentive Plan) on the date of the grant of a Share and with a term of no more than ten years.

 

Non-Employee Director Compensation Policy

 

On October 12, 2021, the Company’s Board of Directors approved a new Non-Employee Director Compensation Policy. The policy calls for the non-employee board members to be compensated as follows.

 

Annual Cash Compensation

 

The annual cash compensation amount set forth below is payable to each member of the board of directors of the Company who is not also serving as an employee of or consultant to the Company or any of its subsidiaries (“Eligible Directors”) in equal quarterly installments, payable in arrears on the last day of each fiscal quarter in which the service occurred. If an Eligible Director joins or resigns from the Board or a committee of the Board at a time other than effective as of the first day of a fiscal quarter, each annual retainer set forth below will be pro-rated based on days served in the applicable fiscal year, with the pro-rated amount paid for the first fiscal quarter in which the Eligible Director provides the service, and for new Board members, regular full quarterly payments thereafter. Eligible Directors may elect to receive vested shares of the Company’s common stock in lieu of the following retainers on the date on which such retainers would otherwise have been paid in cash in accordance with the terms and conditions of the 2021 Incentive Plan.

 

 

o

Annual Board Service Retainer:

 

 

 

 

All Eligible Directors: $40,000

 

 

 

Non-Executive Chair (in addition to above retainer): $5,000

 

 

 

 

 

 

 

o

 

Annual Committee Member Service Retainer: