ZIVO BIOSCIENCE(ZIVO) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Zivo Bioscience's unaudited condensed consolidated financial statements, highlighting net losses and going concern doubts Condensed Consolidated Balance Sheet | ASSETS (September 30, 2023) | Amount ($) | | :-------------------------- | :--------- | | Cash | 1,484,644 | | Accounts receivable | 2,593 | | Prepaid expenses | 460,632 | | Total current assets | 1,947,869 | | Operating lease - right of use asset | 122,110 | | Security deposit | 32,058 | | TOTAL ASSETS | 2,102,037 | | LIABILITIES AND STOCKHOLDERS' EQUITY (September 30, 2023) | Amount ($) | | :------------------------------------------------------ | :--------- | | Accounts payable | 643,812 | | Current portion of long-term operating lease | 110,398 | | Convertible debentures payable | 240,000 | | Deferred R&D obligations - participation agreements | 57,906 | | Deferred R&D obligations - participation agreements related parties | 19,316 | | Short term loans payable, net of discount | 1,129,696 | | Accrued interest | 149,145 | | Accrued liabilities - payroll and directors fees | 823,779 | | Total Current Liabilities | 3,174,052 | | Long-term operating lease, net of current portion | 22,027 | | TOTAL LIABILITIES | 3,196,079 | | Total stockholders' equity | (1,094,042)| | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 2,102,037 | - The company's total assets decreased slightly from $2.12 million at December 31, 2022, to $2.10 million at September 30, 2023. Total liabilities increased significantly from $2.13 million to $3.20 million over the same period, primarily due to an increase in short-term loans payable and accrued liabilities[9][10][12] Condensed Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2023 ($) | Three Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :---------------------- | :---------------------------------- | :---------------------------------- | :--------------------------------- | :--------------------------------- | | Total revenues | 11,800 | - | 15,850 | - | | Total cost of goods sold| 7,670 | - | 8,371 | - | | Gross margin | 4,130 | - | 7,479 | - | | General and Administrative | 1,355,865 | 1,396,989 | 4,309,343 | 4,373,285 | | Research and Development| 220,653 | 603,105 | 1,064,563 | 1,720,925 | | LOSS FROM OPERATIONS | (1,572,388) | (2,000,094) | (5,366,427) | (6,094,210) | | Total other expense | (252,534) | (4,245) | (502,210) | (10,288) | | NET LOSS | (1,824,922) | (2,004,339) | (5,868,637) | (6,104,498) | | BASIC AND DILUTED LOSS PER SHARE | (1.05) | (1.28) | (3.64) | (3.89) | - The company reported its first commercial revenue of $11,800 for the three months ended September 30, 2023, and $15,850 for the nine months ended September 30, 2023, compared to zero revenue in the prior year periods. Net loss decreased to $1.82 million for the three months ended September 30, 2023, from $2.00 million in the prior year, and to $5.87 million for the nine months ended September 30, 2023, from $6.10 million in the prior year[15][16] Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) | Metric | Balance, June 30, 2023 ($) | Private offering issuance of stock and warrants ($) | Employee and director equity-based compensation ($) | Net loss for the three months ended September 30, 2023 ($) | Balance, September 30, 2023 ($) | | :-------------------------------------- | :------------------------- | :-------------------------------------------------- | :-------------------------------------------------- | :--------------------------------------------------------- | :------------------------------ | | Common Stock Amount (a) | 1,570 | 172 | - | - | 1,742 | | Additional Paid in Capital (a) | 116,701,842 | 3,634,791 | 240,749 | - | 120,577,382 | | Accumulated Deficit | (119,848,244) | - | - | (1,824,922) | (121,673,166) | | Total | (3,144,832) | 3,634,963 | 240,749 | (1,824,922) | (1,094,042) | - Stockholders' equity (deficit) improved from $(3.14 million) at June 30, 2023, to $(1.09 million) at September 30, 2023, primarily due to $3.63 million from a private offering issuance of stock and warrants, partially offset by a net loss of $1.82 million[18] Condensed Consolidated Statement of Cash Flows | Cash Flow Activity | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :-------------------------- | :--------------------------------- | :--------------------------------- | | Operating activities | (5,084,160) | (5,655,590) | | Investing activities | - | - | | Financing activities | 4,769,540 | 139,689 | | Net decrease in Cash | (314,620) | (5,515,901) | | Cash at Beginning of Period | 1,799,264 | 8,901,875 | | Cash at End of Period | 1,484,644 | 3,385,974 | - Net cash used in operating activities decreased by approximately $600,000, from $5.7 million in 2022 to $5.1 million in 2023. Cash flows from financing activities significantly increased to $4.77 million in 2023, up from $139,689 in 2022, driven by proceeds from a related party term loan and a registered direct offering[24][25][111] Notes to Condensed Consolidated Financial Statements NOTE 1 - BASIS OF PRESENTATION - The financial statements are prepared under US GAAP, and Zivo Bioscience has incurred net losses and negative cash flows since inception, with an accumulated deficit of $121.67 million, raising substantial doubt about its ability to continue as a going concern[27][28][30] - On October 26, 2023, the company effected a 1-for-6 reverse stock split of its common stock, retroactively adjusting all share, per share, options, and warrants information[31][72] NOTE 2 - NEW ACCOUNTING STANDARDS - The company adopted ASU 2020-06 effective January 1, 2023, which had no impact on recorded amounts or diluted earnings per share in the condensed consolidated financial statements[33] NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Stock-based compensation is estimated using the Black-Scholes model; expense for the three months ended September 30, 2023, was $240,750, down from $518,161 in the prior year, and for the nine months, it was $710,661, down from $1.59 million[34][35] - Warrants are classified as equity or liability based on ASC 480/815-40 guidance, with fair value estimated using Black-Scholes; all company warrants are equity-classified and not remeasured[38] - Fair value measurements are categorized into Level 1, 2, or 3 inputs, with short-term financial instruments approximating their fair values due to their nature[39][40][42] NOTE 4 - LEASES - The company holds two operating lease agreements, with operating lease right-of-use assets decreasing from $189,282 at December 31, 2022, to $122,110 at September 30, 2023[43][44][45] | Lease Metric | Nine Months Ended Sep 30, 2023 ($) | Year Ended Dec 31, 2022 ($) | | :------------------------------------------ | :--------------------------------- | :-------------------------- | | Operating lease right-of-use asset | 122,110 | 189,282 | | Current portion of long-term operating lease| 110,398 | 99,259 | | Long-term operating lease, net of current portion | 22,027 | 105,918 | | Total lease liabilities | 132,425 | 205,177 | | Lease Expense (Operating) | Three Months Ended Sep 30, 2023 ($) | Three Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :--------------------------------- | :--------------------------------- | | Operating lease expense | 27,236 | 27,479 | 81,707 | 74,770 | NOTE 5 - DEBT - The company secured a $605,600 short-term unsecured loan on February 14, 2023, at an 8.4% APR, with a principal balance of $134,578 as of September 30, 2023[48] - On April 3, 2023, a $1 million, 10% promissory note and warrant were issued to the CEO; the warrant was valued at $433,594, and the note, fully satisfied on October 2, 2023, had an effective interest rate of 54.0%[49][51][53] NOTE 6 - STOCKHOLDERS' EQUITY (DEFICIT) - On July 5, 2023, a registered direct offering and private placement generated approximately $4 million in gross proceeds ($3.6 million net) from common stock and warrant sales[55][56][57] - As of September 30, 2023, 292,516 stock options were outstanding (weighted average exercise price of $35.56), with 230,001 exercisable; additionally, 804,020 private warrants (weighted average exercise price of $21.29) and 495,917 public warrants (exercise price of $33.00) were outstanding[59][62][63][65] NOTE 7 - COMMITMENTS AND CONTINGENCIES - The company has compensation agreements with its President/CEO and CFO, and management believes no material legal matters will adversely affect financial condition or operations[67][68] NOTE 8 - INCOME TAX - Subject to US federal and state income taxes, the company expects to report $0 income tax expense for 2023 due to a full valuation allowance against its net deferred tax asset[69][70] NOTE 9 - SUBSEQUENT EVENTS - On October 26, 2023, the company completed a 1-for-6 reverse stock split, decreasing authorized shares from 150 million to 25 million, with all related financial figures retroactively adjusted[71][72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Zivo's financial condition and results for Q3 and YTD 2023, detailing its biotech and agtech R&D focus and capital resources - ZIVO is a research and development company in biotech and agtech, utilizing proprietary algal and bacterial strains for human and animal health applications[75] - The company develops algal-derived bioactive compounds for diseases such as poultry coccidiosis, bovine mastitis, human cholesterol, and canine osteoarthritis, seeking strategic development partners[76][77] - ZIVO's Peruvian algal biomass is marketed as a functional food ingredient and nutritional enhancement for human and animal use, and for skin care products, with initial North American sales[79][80][81] Special Note Regarding Forward-Looking Statements - The report contains forward-looking statements involving known and unknown risks and uncertainties, cautioning readers that actual results may differ materially[73][74] Overview - ZIVO is a biotech and agtech R&D company with an intellectual property portfolio of proprietary algal and bacterial strains, bioactive molecules, and production techniques for human and animal health[75] - In biotech, ZIVO develops algal-derived bioactive compounds for diseases like poultry coccidiosis, bovine mastitis, human cholesterol, and canine osteoarthritis, seeking strategic partnerships for commercialization[76][77] - In agtech, ZIVO's Peruvian algal biomass (Zivolife™) is marketed as a functional food ingredient and nutritional enhancement for human and animal use and skin care, with commercial production scaling efforts underway[79][80][81] Results of Operations for the three months ended September 30, 2023 and 2022 | Metric | Quarter ended Sep 30, 2023 ($) | Quarter ended Sep 30, 2022 ($) | Change ($) | Change (%) | | :---------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total revenue | 11,800 | - | 11,800 | N/A | | Total cost of goods sold| 7,670 | - | 7,670 | N/A | | Gross margin | 4,130 | - | 4,130 | N/A | | Research and development| 220,653 | 603,105 | (382,452) | -63.4% | | General and administrative | 1,355,865 | 1,396,989 | (41,124) | -2.9% | | Loss for operations | (1,572,388) | (2,000,094) | 427,706 | -21.4% | | Net loss | (1,824,922) | (2,004,339) | 179,417 | -8.9% | - The company generated its first commercial revenue of $11,800 in Q3 2023; research and development expenses decreased by 63.4% to $220,653, primarily due to lower amortization and reduced third-party research[87][90] - General and administrative expenses decreased slightly by $40,000 (2.9%) to $1.36 million, driven by reductions in labor and professional fees, partially offset by increased accounting, legal, and listing fees[89] Results of Operations for the nine months ended September 30, 2023 and 2022 | Metric | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | Change ($) | Change (%) | | :---------------------- | :--------------------------------- | :--------------------------------- | :--------- | :--------- | | Total revenue | 15,850 | - | 15,850 | N/A | | Total costs of goods sold| 8,371 | - | 8,371 | N/A | | Gross margin | 7,479 | - | 7,479 | N/A | | Research and development| 1,064,563 | 1,720,925 | (656,362) | -38.1% | | General and administrative | 4,309,343 | 4,373,285 | (63,942) | -1.5% | | Operating loss | (5,366,427) | (6,094,210) | 727,783 | -11.9% | | Net loss | (5,868,637) | (6,104,498) | 235,861 | -3.9% | - For the nine months, total revenue was $15,850, marking the company's first commercial sales; research and development expenses decreased by 38.1% to $1.1 million, primarily due to a $500,000 reduction in third-party research and lower non-cash compensation[94][98][99] - General and administrative expenses decreased by $60,000 (1.5%) to $4.31 million, driven by a $200,000 reduction in professional fees, partially offset by increases in labor-related costs and other overhead[96] Capital Resources - As of September 30, 2023, ZIVO's cash balance was $1.48 million; the company anticipates significant expenses and operating losses, necessitating additional funding through equity, debt, or collaborations[102][106] - In June 2023, a registered direct offering and private placement generated approximately $4 million in gross proceeds ($3.6 million net) from common stock and warrant sales[103] - The company has Participation Agreements with investors, providing a 44.775% 'Revenue Share' of license fees from bioactive ingredients, with company buy-back options under specific terms[104][105] - Cash used in operating activities for the nine months ended September 30, 2023, was approximately $5.1 million, while financing activities generated $4.7 million, including $1.0 million from a related party term loan and $3.6 million from the June 2023 offering[109][111] Critical Accounting Policies and Significant Judgments and Estimates - The company's financial statements rely on estimates and judgments, especially for fair value measurements of assets and liabilities, categorized into a three-level hierarchy based on input observability[113][115][116] - Warrants are classified as equity or liability per ASC 480 and ASC 815-40, with fair value estimated using Black-Scholes modeling; all current warrants are equity-classified and not remeasured[118] - Share-based compensation is recognized at grant-date fair value per ASC 718, with forfeitures recorded upon occurrence[119] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Zivo Bioscience is exempt from market risk disclosures - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[121] Item 4. Controls and Procedures Management found disclosure controls ineffective due to material weaknesses in internal control over financial reporting, with remediation underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting[122] - Material weaknesses include deficiencies in entity-level controls, IT general controls (user access, vendor management, segregation of duties), and a lack of formal accounting policies and controls over financial reporting and specific GAAP applications[123][127] - Despite material weaknesses, management concluded that consolidated financial statements fairly present the company's financial position, results of operations, and cash flows in accordance with U.S. GAAP after additional analyses[128] - Remediation efforts include developing training, implementing risk assessment, enhancing internal controls documentation, improving management review, engaging outside accounting resources, and segregating key functions[129][133] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material legal proceedings or aware of significant pending litigation - The company is not currently involved in any material legal proceedings or aware of pending litigation that would significantly impact its financial condition or operations[131] Item 1A. Risk Factors No material changes to risk factors have occurred since the prior Annual Report on Form 10-K - No material changes have occurred in the risk factors since the Annual Report on Form 10-K for the year ended December 31, 2022[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - There were no unregistered sales of equity securities or use of proceeds to report[134] Item 3. Defaults upon Senior Securities This item is not applicable for the current reporting period - This section is not applicable[135] Item 4. Mine Safety Disclosures This item is not applicable for the current reporting period - This section is not applicable[136] Item 5. Other Information No other information is reported under this item - No other information is reported under this item[137] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and certifications - Exhibits include corporate documents, Note and Warrant agreements, Securities Purchase Agreements, and certifications from Principal Executive and Financial Officers[138][139]