NOTE 4 - DEFERRED R&D OBLIGATIONS - PARTICIPATION AGREEMENTS

During 2020 and 2021 the Company entered into twenty-one (21) License Co-Development Participation Agreements (the “Participation Agreements”) with certain investors (“Participants”) for aggregate proceeds 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 an aggregate 44.78% “Revenue Share” of all license fees generated by ZIVO from any licensee.

According to the terms of the Agreements, and pursuant to ASC 730-20-25 the Company had bifurcated the proceeds of $2,985,000 as follows: 1) the 17,712 warrants sold were attributed a value of $953,897 based on the Black Scholes pricing model using the following assumptions: volatilities ranging from 129.13% to 154.26%; annual rate of dividends 0%; discount rates ranging from 0.26% to 0.87%, and recorded as Additional Paid In Capital; 2) the remaining $2,031,103 was recorded as Deferred R&D Obligation - Participation Agreements. Since the Company believes there was an obligation to perform pursuant to ASC 730-20-25, the Deferred R&D Obligation was amortized ratably based on expenses incurred as the Company developed the technology for bioactive ingredients or molecules (including its TLR4 Inhibitor molecule) derived from the Company’s algae cultures. As of December 31, 2023, the R&D obligation had been fully amortized, and no balance remains.   

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 Buy-back premium and a minimum payment threshold, as applicable. 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.

Exchange Agreements

From January 9, 2025, through March 19, 2025, the Company has entered into a series of fifteen Exchange Agreements (“Exchange Agreements”) with Participants to the Participation Agreements. Under the Participation Agreements, the Company had a buy-out option pursuant to which it could purchase the Investors’ right, title and interest in the revenue share for an aggregate minimum purchase price of $5,306,500. The Company’s board of directors approved Exchange Agreements that would provide for the cancellation of the Purchase Agreements and accompanying forfeiture of each Investor’s right to earn certain cash from the revenue share and buy-out option in exchange for the Company’s common stock. The Investors would retain the warrants that were originally issued with the Participation Agreements.  Through March 31, 2025, the Company has completed exchanges with Participants for fifteen Exchange Agreements for a total issuance of 131,380 new shares of Common Stock of the Company in exchange for the future rights to $3,284,500 of the aggregate minimum purchase price as calculated from the original Participation Agreements.  Four of the Exchange Agreements were consummated with Related Parties resulting in the issuance of 47,320 new shares of Common Stock.

The Company valued the rights acquired under the Exchange Agreements on the date of the transaction as the number of shares times the closing stock price on the transaction day.  The total value recognized by the Company for the 15 Exchange Agreements in the three months ending March 31, 2025, was $2,508,261.  The four Exchange Agreements signed with Related Parties were recognized by the Company for a value of $862,473. The Company expensed the value of the stock exchanged immediately as the exchange agreements were executed. The expense was recorded within Research and development in the condensed consolidated statements of operations.

See below a summary of the remaining Participation Agreements as of March 31, 2025:

None of the remaining Participation Agreements are held by related parties.