zivo_10q.htm

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

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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 March 31, 2022

☐ 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: 001-40449

_______________

Zivo Bioscience, Inc.

(Exact name of registrant as specified in its charter)

_______________

Nevada		87-0699977
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

21 East Long Lake Road, Ste. 100, Bloomfield Hills MI		48304
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 248-452-9866

_______________

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ZIVO	The Nasdaq Stock Market LLC
Warrants to purchase shares of Common Stock, par value $0.001 per share	ZIVOW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark 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	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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 12b-2 of the Exchange Act). Yes ☐ No ☒

At May 9, 2022, there were 9,419,660 issued and outstanding shares of Common Stock of the registrant.

FORM 10-Q

ZIVO BIOSCIENCE, INC.

INDEX

		Page

PART I - FINANCIAL INFORMATION.		1

Item 1.	Financial Statements (Unaudited).	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	27

Item 4.	Controls and Procedures.	27

PART II - OTHER INFORMATION.		29

Item 1.	Legal Proceedings.	29

Item 1A	Risk Factors.	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	29

Item 3.	Defaults upon Senior Securities.	29

Item 4.	Mine Safety Disclosures.	29

Item 5.	Other Information.	29

Item 6.	Exhibits.	30

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

	March 31, 2022			December 31, 2021

ASSETS
CURRENT ASSETS:
Cash	$	6,598,982		$	8,901,875
Prepaid expenses		855,257			58,078
Total current assets		7,454,239			8,959,953

PROPERTY AND EQUIPMENT, NET		-			-

OTHER ASSETS
Operating lease – right of use asset		201,832			27,225
Security deposit		32,058			3,000
Total other assets		233,890			30,225

TOTAL ASSETS	$	7,688,129		$	8,990,178

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	520,367		$	654,333
Current portion of long-term operating lease		67,029			15,178
Convertible debentures payable		240,000			240,000
Deferred R&D obligations - participation agreements		1,003,702			1,106,320
Deferred R&D obligations - participation agreements related parties		334,807			369,037
Accrued interest		96,478			95,886
Accrued liabilities – payroll and directors fees		138,334			467,215
Note payable		558,756			-
Total Current Liabilities		2,959,473			2,947,969

LONG-TERM LIABILITIES:
Long-term operating lease, net of current position		144,138			-
Total long-term liabilities		144,138			-

TOTAL LIABILITIES		3,103,611			2,947,969
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 150,000,000 shares authorized; 9,419,660 and 9,419,660 issued and outstanding at March 31, 2022 and December 31, 2021		9,420			9,420
Additional paid-in capital		114,830,459			114,259,830
Accumulated deficit		(110,255,361	)		(108,227,041	)
Total stockholders' equity		4,584,518			6,042,209
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	7,688,129		$	8,990,178

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

Table of Contents

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months ended March 31, 2022			Three Months ended March 31, 2021
REVENUES:
Service revenue	$	-		$	-
Total revenues		-			-

COSTS AND EXPENSES:
General and administrative		1,346,742			1,436,822
Research and development		679,773			646,752

Total costs and expenses		2,026,515			2,083,574

LOSS FROM OPERATIONS		(2,026,515	)		(2,083,574	)

OTHER EXPENSE:
Interest expense		1,805			24,461
Interest expense - related parties		-			110,943
Total other expense		1,805			135,404

NET LOSS	$	(2,028,320	)	$	(2,218,978	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.22	)	$	(0.43	)
WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING		9,419,660			5,200,493

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

Table of Contents

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021

(UNAUDITED)

	Common Stock				Additional 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						975,024					975,024
Issuance of common stock for cash -related party		4,464		4		49,996		-			50,000
Issuance of common stock for cash		96,578		97		1,039,903		-			1,040,000
Issuance of warrants pursuant to the participation agreements		-		-		40,799		-			40,799
Net loss for the three months ended March 31, 2021		-		-		-		(2,218,978	)		(2,218,978	)
Balance, March 31, 2021		5,263,987	$	5,264	$	89,853,620	$	(101,282,653	)	$	(11,423,769	)

					Additional Paid in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance, December 31, 2021		9,419,660	$	9,420	$	114,259,830	$	(108,227,041	)	$	6,042,209
Employee and director equity based compensation		-		-		570,629		-			570,629
Net loss for the three months ended March 31, 2022		-		-		-		(2,028,320	)		(2,028,320	)
Balance, March 31, 2022		9,419,660	$	9,420	$	114,830,459	$	(110,255,361	)	$	4,584,518

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

Table of Contents

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended March 31, 2022			For the Three Months Ended March 31, 2021
Cash Flows for Operating Activities:
Net loss	$	(2,028,320	)	$	(2,218,979	)
Adjustments to reconcile net loss to net cash used by operating activities:
Non cash lease expense		21,197			5,239
Employee and director equity based compensation		570,629			975,024
Amortization of deferred R&D obligations participation agreements		(136,848	)		-
Changes in assets and liabilities:
Security deposits		(29,058	)		-
Prepaid expenses		(797,179	)		(196,493	)
Accounts payable		133,966			175,533
Lease liabilities		185			(2,060	)
Advanced payments for R&D obligations – participation agreements		-			55,201
Accrued liabilities		(328,289	)		154,537
Net cash (used in) operating activities		(2,861,649	)		(1,051,998	)

Cash Flows from Investing Activities:
Net cash from by investing activities		-			-

Cash Flow from Financing Activities:
Proceeds of loans payable, other		628,600			190,500
Payments of loans payable, other		(69,844	)		(31,850	)
Deferred offering expenses		-			(143,377	)
Proceeds from sale of common stock warrants - participation agreements		-			40,799
Proceeds from sale of common stock - related party		-			50,000
Proceeds from sales of common stock		-			1,040,000
Net cash provided by financing activities		558,756			1,146,072

Increase (decrease) in cash		(2,302,893	)		94,074
Cash at beginning of period		8,901,875			137,862
Cash at end of period	$	6,598,982		$	231,935

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,213		$	514
Income Taxes	$	-		$	-

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

Table of Contents

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Three Months Ended March 31, 2022:

During the quarter ended March 31, 2022, the Company had no non-cash investing or financing transactions.

Three Months Ended March 31, 2021:

During the quarter ended March 31, 2021, a related party applied the proceeds of a Loan Payable in the amount of $9,000, against the cost of a Participation Agreement.

Table of Contents

ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 (“US 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, 2021 and the notes thereto, included in its Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on April 22, 2022.

Going Concern

The Company has incurred net losses since inception, experienced negative cash flows from operations for the quarter ended March 31, 2022, and has an accumulated deficit of $110,255,361. The Company has historically financed its operations primarily through the issuance of common stock, warrants, and debt.

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. 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.

These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. 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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Accounting Estimates

The Company’s condensed consolidated financial statements have been prepared in conformity with US GAAP, 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.

Table of Contents

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Cash

Cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents balances at financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, balances in certain bank accounts may exceed the FDIC insured limits. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At March 31, 2022, 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.

Leases

ASC 842, Leases, requires the recognition of a right-of-use (“ROU”) and a corresponding lease liability on the balance sheet. ROU assets represent the right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments resulting from the lease agreement. ROU assets and lease liabilities are recognized on commencement of the lease agreement.

ROU assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are recorded as current portion of long-term operating lease, and within long-term liabilities as long-term operating lease, net of current portion on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2022.

Lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because the Company’s lease does not provide an implicit rate of return, the Company used its incremental borrowing rate in determining the present value of lease payments.

Research and Development

Research and development (“R&D”) costs are expensed as incurred. The Company’s R&D 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 business with Company development by independent outside contractors. External clinical studies expenses were $301,142 and $280,400 for the three months ended March 31, 2022 and March 31, 2021, respectively. Internal expenses, composed of staff salaries compose $515,478 and $366,352 for the three months ended March 31, 2022 and 2021, respectively. These costs were offset by the amortization of the R&D obligation of $136,848 and $0 for the three months ended March 31, 2022 and March 31, 2021, respectively (see “Note 6 – Deferred R&D Obligations – Participation Agreements”).

Income Taxes

Deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities at March 31, 2022 and 2021 were primarily attributable to net operating loss carry forwards. Since the Company has a history of losses, and it is more likely than not that some portion or all of the deferred tax assets will not be realized, a full valuation allowance has been established. In addition, utilization of net operating loss carry-forwards is subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss carry-forwards before utilization.

Stock Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718. Under the provisions of 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 three months ended March 31, 2022 and 2021, stock options were granted to employees of the Company. As a result of these and previous grants, the Company recorded compensation expense of $570,629 and $975,024 for these periods, respectively.

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

	Three Months Ended March 31,
	2022			2021
Expected volatility		135.32	%		144.80% to 153.25	%
Expected dividends		0	%		0	%
Expected term		10 years			5 to 10 years
Risk free rate		1.94	%		0.29% to 1.45	%

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.

Income (Loss) Per Share

Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of shares of common stock 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 and warrants and conversions of debentures. Potentially dilutive securities as of March 31, 2022, consisted of 53,192 shares of common stock from convertible debentures and related accrued interest and 7,403,331 shares of common stock underlying outstanding options and warrants. Potentially dilutive securities as of March 31, 2021 consisted of 991,315 shares of common stock underlying convertible debentures and related accrued interest and 3,086,775 shares of common stock from outstanding options and warrants. For the three months ended March 31, 2022 and 2021, diluted and basic weighted average shares were the same, as potentially dilutive shares are anti-dilutive.

Segment Reporting

The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker (CODM), reviews financial information presented on a consolidated basis, accompanied by information about operating segments for purposes of making operating decisions and assessing financial performance. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the CODM in deciding how to allocate resources and in assessing performance.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Recently Enacted Accounting Standards

No new Accounting Standards were adopted during the quarter ended March 31, 2022.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2022 and December 31, 2021 consisted of the following:

	March 31, 2022			December 31, 2021

Furniture and fixtures	$	20,000		$	20,000
Equipment		80,000			80,000
Total		100,000			100,000
Less accumulated depreciation		(100,000	)		(100,000	)
Property and equipment, net	$	-		$	-

There was no depreciation expense for the three months ended March 31, 2022 and 2021 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 Ft. 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.

On January 14, 2022, the Company entered into a 34-month sublease agreement for a 4,843 square-foot office in Bloomfield Hills, Michigan. The Company moved its headquarters to this location. The agreement commenced on January 29, 2022 and ends on November 30, 2024. The agreement provided for a total rent of $232,464. Occupancy of the property commenced on January 29, 2022, there was a three-month rent holiday with a rent commencement date of April 29, 2022. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Rent is $7,265 per month from commencement to November 29, 2022, $7,466 from November 29, 2022 to November 29, 2023, and $7,668 from November 2023 to the lease end date.

The balances for the Company’s operating leases are presented as follows within the condensed consolidated balance sheet:

Operating leases:

Assets:	March 31, 2022		December 31, 2021
Operating lease right-of-use asset	$	201,832	$	27,225

Liabilities:
Current portion of long-term operating lease	$	67,029	$	15,178
Long-term operating lease, net of current portion		144,138		-
	$	211,167	$	15,178

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

	For the		For the
	Quarter ended		Quarter ended
	March 31, 2022		March 31, 2021
Operating lease expense	$	26,112	$	6,470

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

	As of			As of
	March 31, 2022			December 31, 2021
Weighted-average remaining lease term:
Operating leases		2.58 Years			1.08 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		For the
	Quarter ended		Quarter ended
	March 31, 2022		March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:	$	5,600	$	3,291
Non-cash investment in ROU asset	$	195,804	$	-

As of March 31, 2022, the maturities of our operating lease liability are as follows:

Year Ended:	Operating Lease
December 31, 2022	$	76,173
December 31, 2023		89,999
December 31, 2024		76,681
Total minimum lease payments		242,853
Less: Interest		31,686
Present value of lease obligations		211,167
Less: Current portion		67,029
Long-term portion of lease obligations	$	144,138

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NOTE 5 - CONVERTIBLE DEBT

11% Convertible Notes

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 the HEP Investments 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 (“Convertible Note”) (of which a total of $18,470,640 was funded, with a total of $14,380,298 converted into 1,796,287 shares of common stock, leaving a balance advanced of $4,090,342 as of December 31, 2020), (iii) a Security Agreement, under which the Company granted HEP Investments a security interest in all of its assets, (iv) warrants issued to HEP Investments to purchase 20,833 shares of common stock at an exercise price of $9.60 per share (including a cashless exercise provision) which expired September 30, 2016, (v) a Registration Rights Agreement with respect to all the shares of common stock issuable to HEP Investments in connection with the Loan Agreement, 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 Convertible Note and related documents. The Convertible Note was originally convertible into the Company’s common stock at $8.00 per share. In addition, the Company’s subsidiaries guaranteed the Company’s obligations under the Convertible Note. On March 31, 2021, HEP Investments entered into a “Debt Extension and Conversion Agreement” with the Company providing that the Convertible Notes, including principal and accrued interest, would automatically convert into shares of common stock 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, all of the outstanding debt and accrued interest for the Convertible 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 (calculated at $8.00 per share). As of March 31, 2022, the Company has no further remaining financial obligations to the HEP Investments under the terms of the Loan Agreement, the Convertible Note or the Registration Rights Agreement. Additionally, 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.

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 Placement Agent Agreement provided that Paulson could provide up to $2 million in financings to “accredited investors”. Between August 24, 2016 and December 31, 2016, the Company received gross proceeds of $1,250,000 in connection with loans received from seven accredited investors (the “New Lenders”). Each loan included (i) a Loan Agreement, (ii) a Convertible Secured Promissory Note (“New Lenders Notes”) in the principal amount of the loan, (iii) a Security Agreement under which the Company granted the New Lenders a security interest in all of its assets and (iv) an Intercreditor Agreement with HEP Investments whereby HEP Investments and the New Lenders agree to participate in all collateral on a pari passu basis. The New Lender Notes had a two-year term and matured 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 warrants, exercisable at $8.00 per share, all the warrants have expired as of December 31, 2021. The New Lenders Notes were convertible into the Company’s common stock at $8.00 per share.

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 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).

In May 2021, each of the remaining New Lenders entered into a Debt Extension and Conversion Agreement with the Company. These agreements provided that the New Lender Notes, including principal and accrued interest, would automatically convert into shares of common stock 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 March 31, 2022, 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.

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Other Debt

The Company’s 1% convertible debentures allow for rolling 30-day extensions until notice is given by the lender to the Company to the contrary. As of March 31, 2022, that agreement is still in place.

Convertible debt consists of the following:

	March 31, 2022		December 31, 2021
1% Convertible notes payable	$	240,000	$	240,000
Accrued interest		96,478		95,486
Less: Current portion		336,478		335,486
Long term portion	$	-	$	-

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 was two years, though it could have been payable sooner in connection with an event of default under the Note.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company was eligible to apply for forgiveness for all or a part of the PPP Loan. The amount of loan proceeds eligible for forgiveness, as amended, was 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.

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 principal of $121,700 and the 2020 accrued interest of $820 as an Other Income of $122,520, the remaining interest due for the PPP Loan in 2021 through the forgiveness date of $833 was booked to offset the 2021 interest expense. The Company’s PPP loan and application for forgiveness of loan amounts remain subject to review and audit by SBA for compliance with program requirements.

Short Term Loan

On February 21, 2022, the Company entered into a short-term, unsecured loan agreement to finance a portion of the Company’s directors’ and officers’ insurance premiums. The note in the amount of $628,600 carries a 4.15% annual percentage rate and will be paid down in nine equal payments of $71,058 beginning in March 2022. The principal balance of March 31, 2022 was $558,756.

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NOTE 6 - DEFERRED R&D OBLIGATIONS - PARTICIPATION AGREEMENTS

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 during the period April 2020 through May 2021. 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 Participation Agreements, and pursuant to ASC 730-20-25 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 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 is an obligation to perform pursuant to ASC 730-20-25, the Deferred R&D Obligation will be amortized ratably based on expenses incurred as the Company develops the technology for bioactive ingredients or molecules (including its TLR4 Inhibitor molecule) derived from the Company’s algae cultures. In the three months ended March 31, 2022 and 2021, the Company recognized $136,848 and $0 as a contra R&D expense related to personnel and third-party expenses to develop the subject technology, respectively. For the three months ended March 31, 2022, $34,230 of this total contra R&D expense was attributed to deferred R&D obligations funded by a related party.

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 of twelve 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 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 such Participant’s total payment amount. Five 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
												Minimum		Premium %			Premium %
Agreement	Date of	Amount					Exercise		Revenue			Payment		pre-18			post 18
#	Funding	Funded		Warrants		Term	Price		Share			Threshold		mos.			mos.
1	April 13, 2020	$	100,000		3,750	5 Years	$	9.60		1.500	%	$	-”		40	%		40	%
2	April 13, 2020		150,000		5,625	5 Years		9.60		2.250	%		-		40	%		40	%
3	April 13, 2020		150,000		5,625	5 Years		9.60		2.250	%		-		40	%		40	%
4	May 7, 2020		250,000		9,375	5 Years		9.60		3.750	%		-		40	%		40	%
5	June 1, 2020		275,000		10,313	5 Years		8.80		4.125	%		82,500		40	%		50	%
6	June 3, 2020		225,000		8,438	5 Years		8.80		3.375	%		67,500		40	%		50	%
7	July 8, 2020		100,000		3,750	5 Years		9.60		1.500	%		30,000		40	%		50	%
8	Aug. 24, 2020		125,000		4,688	5 Years		9.60		1.875	%		37,500		40	%		50	%
9	Sept. 14, 2020		150,000		5,625	5 Years		9.60		2.250	%		45,000		40	%		50	%
10	Sept.15, 2020		50,000		1,875	5 Years		9.60		0.750	%		15,000		40	%		50	%
11	Sept.15, 2020		50,000		1,875	5 Years		9.60		0.750	%		15,000		40	%		50	%
12	Sept.25, 2020		300,000		5,625	5 Years		9.60		4.500	%		420,000		40	%		50	%
13	Oct. 8, 2020		500,000		18,750	5 Years		9.60		7.500	%		150,000		40	%		40	%
14	Oct. 4, 2020		100,000		3,750	5 Years		9.60		1.500	%		40,000		40	%		50	%
15	Oct. 4, 2020		250,000		9,375	5 Years		9.60		3.750	%		-		40	%		40	%
16	Oct. 9, 2020		50,000		1,875	5 Years		9.60		0.750	%		15,000		40	%		40	%
17	Dec. 16, 2020		10,000		375	5 Years		9.60		0.150	%		17,000		40	%		50	%
18	Jan. 22, 2021		40,000		1,500	5 Years		11.20		0.600	%		12,000		40	%		50	%
19	Jan. 25, 2021		40,000		1,500	5 Years		11.20		0.600	%		12,000		40	%		50	%
20	Jan. 27, 2021		25,000		938	5 Years		11.20		0.375	%		12,000		40	%		50	%
21	May 14,2021		45,000		1,688	5 Years		10.40		0.675	%		13,500		40	%		50	%
		$	2,985,000		106,315					44.775	%	$	984,000

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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 an investment company owned by a significant shareholder Mark Strome (“Strome”).

NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)

Recapitalization - 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.

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Stock Issuances

During the three months ended March 31, 2021, the Company issued 96,578 shares at an average price of $10.80 for proceeds of $1,040,000, 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.

Stock Warrants Exercised

During the three months ended March 31, 2021, warrants to purchase 625 shares of the Company’s common stock were exercised on a “cashless” basis resulting in the issuance of 287 shares of common stock.

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, resulting in an increase in available shares under the 2021 Plan at January 1, 2022 of 470,983. As of March 31, 2022, 867,824 options have been issued under the 2021 Plan, and 603,159 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 Plan, no additional awards have been or will be made under the 2019 Plan. As of March 31, 2022, 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 March 31, 2022 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:

	March 31, 2022					March 31, 2021
	Number of Options			Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Outstanding, beginning of year		1,721,074		$	7.38		606,250	$	9.67
Forfeited		(282,000	)		5.50		-		-
Issued		172,500			5.50		175,500		11.20
Outstanding, end of period		1,611,574		$	7.51		781,250	$	10.01

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Options outstanding and exercisable by price range as of March 31, 2022 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	$	9.54	$	4.00-4.99		13,331	$	4.48
	5.00-5.99		814,500		9.63		5.00-5.99		339,125		5.50
	8.00-8.99		375,000		7.35		8.00-8.99		371,876		8.05
	9.00-9.99		25,000		3.38		9.00-9.99		25,000		9.60
	11.00-11.99		175,000		8.68		11.00-11.99		81,250		11.20
	12.00-12.99		168,750		2.89		12.00-12.99		146,875		12.80
			1,611,574	$	8.19				977,457	$	8.13

Common Stock Warrants - Unregistered

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

	March 31, 2022					March 31, 2021
	Number of Warrants			Weighted Average Exercise Price		Number of Warrants			Weighted Average Exercise Price
Outstanding, beginning of period		2,553,635		$	7.57		2,502,212		$	7.20
Issued		-			-		3,973			11.20
Exercised		-			-		(625	)		6.40
Cancelled		-			-		-			-
Expired		(19,375	)		7.95		(1,562	)		7.20
Outstanding, end of period		2,534,260		$	7.57		2,503,962		$	7.20

Unregistered warrants outstanding and exercisable by price range as of March 31, 2022 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		0.34	$	4.00-4.99		200,625	$	4.80
	5.00-5.99		252,050		3.71		5.00-5.99		252,050		5.51
	6.00-6.99

SEC Form 10-Q filed by Zivo Bioscience Inc.