Annual report pursuant to Section 13 and 15(d)

STOCKHOLDERS EQUITY (DEFICIENCY)

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STOCKHOLDERS EQUITY (DEFICIENCY)
12 Months Ended
Dec. 31, 2021
STOCKHOLDERS EQUITY (DEFICIENCY)  
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIENCY)

NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIENCY)

 

Recapitalization - Reverse Stock Split

 

On November 11, 2020, ZIVO’s stockholders approved a reverse stock split of the Company’s 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.

 

Board of Directors Fees

 

On September 30, 2020, our 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.

 

On October 12, 2021, our Board of Directors approved the Non-Employee Director Compensation Policy. Pursuant to that policy, the Board granted to each of the four non-employee directors $50,000 in value of common stock options. The Company used the Black Scholes option pricing model to determine the number of shares that would derive a value of $50,000 for each non-employee director. The Black Scholes pricing model use the following assumptions: term of 10 years; volatility 142.54%; annual rate of dividends 0%; discount rate 1.59%. The model yielded an award grant of 45,664 total options, 11,416 for each of the four non-employee directors. In addition, the Board granted Ms. Cornell a pro rata number of options for her tenure from February 2, 2021 through October 11, 2021; a grant of 7,660 shares valued at $33,549 using the same Black Scholes assumptions.

 

The Company recorded directors’ fees of $710,481 and $1,280,366 for the years ended December 31, 2021 and 2020, respectively, representing the cash fees paid or accrued and the expense associated with the vested warrants and the common stock options described above.

 

Stock Based Compensation

 

On November 24, 2020, the Company and a Consultant entered into a Second Amendment to the Supply Chain Consulting Agreement (See “Note 12 – Commitments and Contingencies: Supply Chain Consulting Agreement”) whereby the issuance to a consultant of a cashless warrant with a five-year term to purchase 237,500 shares of the Company’s common stock was reduced to 162,500 shares of the Company’s common stock, and a cashless warrant with a five-year term to purchase 37,500 shares of the Company’s common stock was issued to a member of the Consultant. The warrants, all immediately vested, 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%.

 

On January 1, 2021, in connection with his appointment as the Company’s Chief Financial Officer, Mr. Marchiando received a stock option award issued pursuant to the 2019 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.

 

The Company, on June 15, 2021, issued 5,000 shares of unregistered common stock to CorProminence, LLC (d/b/a COREir) for services in accordance with the consulting agreement between COREir and the Company (See “Note 11 – 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 October 15, 2021, the Company, per its consulting agreement with CorProminence, LLC (dba COREir), issued an additional 2,500 shares of common stock to CorProminence, LLC. The shares were valued on October 15, 2021, at $4.15 per share for a total expense in the aggregate of $10,375.

 

On October 21, 2021, the Board of directors granted options under its 2021 equity incentive plan (the “2021 Plan”) to purchase 924,000 shares of common stock to several directors and officers of the Company. The options have a term of ten years and 260,000 shares granted to board members vest over one year, and the 664,000 shares granted to the officers vest over three years. The options were valued at $3,476,392 using the Black Scholes pricing model relying on the following assumptions: volatility 141.38%; annual rate of dividends 0%; discount rate 1.68%.

 

Stock Issuances

 

During the year ended December 31, 2021, the Company issued 139,664 shares for proceeds of $1,514,970 to investors in private placements. 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.

 

On June 2, 2021, the Company completed its public offering of common stock and common stock warrants. The Company issued 2,760,000 units at $5.00 (each unit consisting of one share of the Company’s common stock and one warrant (“registered warrant”) with an exercise price $5.50 per share) for gross proceeds of $13,804,240, and net proceeds of $12,181,602 after related underwriting and other costs of $1,622,638.

 

On July 2, 2021, the underwriter of the June 2021 Offering exercised its overallotment option and purchased an additional 150,000 shares of the Company’s common stock at $4.99 per share for gross proceeds of $748,500, and net proceeds of $673,159 after related underwriting and other costs of $75,191. 

 

During the year ended December 31, 2020, the Company issued 46,807 shares of its common stock at an average price of $8.56 per share for proceeds of $400,866. Of this amount, 46,650 shares ($399,612 of proceeds) were issued to private investors and 156 shares ($1,254 of proceeds) were issued to Mr. Maggiore, a related party.

 

Stock Warrants Exercised

 

During the twelve months ended December 31, 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 registered warrants were exercised resulting in the Company issuing 198,503 shares of common stock. The exercise price of the registered warrants was $5.50 per share, resulting in gross cash proceeds to the Company of $1,091,767.

 

During the year ended December 31, 2020, HEP, 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 principal 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 year ended December 31, 2020, warrants to purchase 70,625 shares of the Company’s common stock were exercised on a “cashless” basis resulting in the issuance of 28,841 shares of common stock.

 

In addition, the Company issued 108,562 shares of the Company’s common stock at an average price of $7.65 per share for proceeds of $830,400 from the exercise of warrants. Mr. Maggiore, a related party, exercised 2,500 of those warrants at an exercise price of $8.00 per share, representing $20,000 of the proceeds (from the conversion of a Loan Payable, See “Note 6 - Loan Payable, Related Parties”).

 

Sale of Common Stock Warrants

 

During the twelve months ending December 31, 2021, and in connection with the Participation Agreements (see “Note 9 – Deferred R&D Obligation – Participation Agreements”), the Company sold warrants to purchase 5,626 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 public offering of common stock and warrants. As part of the transaction, the Company sold 414,000 warrants (“registered warrants”) with an exercise price of $5.50 per share, from the overallotment option that was exercised by the underwriter for $4,140. Additionally, the Company issued the underwriter 8% of the number of shares of common stock in the offering in 220,800 unregistered warrants for shares of common stock, for an aggregate price to the Company of $100. These warrants are exercisable 180 days after the offering date and expire five years after the first day they are exercisable. The warrants were valued at $946,675 based on the Black Scholes pricing model relying on the following assumptions: volatility 132.46%; annual rate of dividends 0%;  discount rate 0.80%. This was recognized by the company as an underwriting cost and was accounted for as an offset to funds raised. 

 

During the twelve months ending December 31, 2020, in connection with the Participation Agreements, the Company sold warrants to purchase 100,689 shares of common stock for $897,805. The warrants were valued based on the Black Scholes pricing model relying on the following assumptions: volatility 129.13% to 154.26%; annual rate of dividends 0%; discount rate 0.26% to 0.87%.

 

2021 Equity Incentive Plan

 

On October 12, 2021, after approval from the stockholders at the Company’s 2021 annual meeting of stockholders, the Company adopted the 2021 Plan for the purpose of enhancing the Company’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 Plan is 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 Plan. Pursuant to the 2021 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, unrestricted shares and dividend equivalent rights. The 2021 Plan has a duration of 10 years.

 

Subject to adjustment as described in the 2021 Plan, the aggregate number of shares of common stock available for issuance under the 2021 Plan is initially set at 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. As of December 31, 2021, 969,644 options have been issued under the 2021 Plan, and 30,356 shares remained available for issuance.

 

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 Plan”). Following the approval by the shareholders of the 2021 Equity Incentive Plan, no additional awards have been or will be made under the 2019 Plan. As of December 31, 2021, 781,250 stock options had been issued under the 2019 Plan with terms between 5 years and 10 years, of which 743,750 remained outstanding.

 

Common Stock Options

 

A summary of the status of the Company’s options issued under the Company’s equity incentive plans is presented below. As of December 31, 2021 there is no intrinsic value in any of the Company's outstanding options as the market price of the Company's common stock is in all cases lower than the exercise price of options.:

 

 

 

December 31, 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

 

Forfeited

 

 

(37,500 )

 

 

11.84

 

 

 

 

 

 

 

 

 

Issued

 

 

1,152,324

 

 

 

6.32

 

 

 

243,750

 

 

 

11.98

 

Outstanding, end of period

 

 

1,721,074

 

 

$ 7.38

 

 

 

606,250

 

 

$ 9.67

 

 

Options outstanding and exercisable by price range as of December 31, 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

 

$

4.00-4.99

 

 

 

53,324

 

 

 

9.78

 

 

$

4.00-4.99

 

 

 

-

 

 

$ -

 

5.00-5.99

 

 

 

924,000

 

 

 

9.81

 

 

5.00-5.99

 

 

 

231,000

 

 

 

5.50

 

8.00-8.99

 

 

 

375,000

 

 

 

7.60

 

 

8.00-8.99

 

 

 

371,876

 

 

 

8.05

 

9.00-9.99

 

 

 

25,000

 

 

 

3.63

 

 

9.00-9.99

 

 

 

25,000

 

 

 

9.60

 

11.00-11.99

 

 

 

175,000

 

 

 

8.93

 

 

11.00-11.99

 

 

 

65,625

 

 

 

11.20

 

12.00-12.99

 

 

 

168,750

 

 

 

3.14

 

 

12.00-12.99

 

 

 

146,875

 

 

 

12.80

 

 

 

 

 

1,721,074

 

 

 

8.49

 

 

 

 

 

 

840,376

 

 

$ 8.47

 

Common Stock Warrants - Unregistered

 

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

 

 

 

December 31, 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

 

 

35,983

 

 

 

6.52

 

 

 

(33,343 )

 

 

7.08

 

Outstanding, end of period

 

 

2,553,635

 

 

$ 7.57

 

 

 

2,502,291

 

 

$ 7.67

 

 

Unregistered warrants outstanding and exercisable by price range as of December 31, 2021 were as follows:

 

Outstanding Warrants

 

 

Exercisable Warrants

 

 

Range of

 

Number

 

 

Average Weighted

Remaining Contractual Life  in Years

 

 

Exercise

Price

 

Number

 

 

Weighted

Average

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4.00-4.99

 

 

200,625

 

 

 

0.59

 

 $

 4.00-4.99

 

 

200,625

 

 

$ 4.80

 

 

5.00-5.99

 

 

252,050

 

 

 

3.96

 

 

5.00-5.99

 

 

252,050

 

 

 

5.51

 

 

6.00-6.99

 

 

241,091

 

 

 

2.56

 

 

6.00-6.99

 

 

241,091

 

 

 

6.40

 

 

7.00-7.99

 

 

1,250

 

 

 

0.58

 

 

7.00-7.99

 

 

1,250

 

 

 

7.20

 

 

8.00-8.99

 

 

1,584,180

 

 

 

1.42

 

 

8.00-8.99

 

 

1,584,180

 

 

 

8.02

 

 

9.00-9.99

 

 

231,938

 

 

 

3.69

 

 

9.00-9.99

 

 

231,938

 

 

 

9.60

 

 

10.00-10.99

 

 

1,688

 

 

 

4.37

 

 

10.00-10.99

 

 

1,688

 

 

 

10.40

 

 

11.00-11.99

 

 

35,813

 

 

 

2.00

 

 

11.00-11.99

 

 

35,813

 

 

 

11.20

 

 

14.00-14.99

 

 

5,000

 

 

 

2.99

 

 

14.00-14.99

 

 

5,000

 

 

 

14.40

 

 

 

 

 

2,553,635

 

 

 

1.93

 

 

 

 

 

2,553,635

 

 

$ 7.57

 

Common Stock Warrants - Registered

 

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

 

 

 

December 31, 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 December 31, 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

 

 

 

4.39

 

 

$ 5.50

 

 

 

2,975,497

 

 

 

5.50

 

 

 

 

 

 

2,975,497

 

 

 

4.39

 

 

 

 

 

 

 

2,975,497

 

 

$ 5.50