The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
During the quarter ended March 31, 2016, the Company recorded $724,280 in discounts on 11% convertible debentures.
During the quarter ended March 31, 2015, the Company recorded $211,501 in discounts on 11% convertible debentures.
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 Companys management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. These consolidated financial statements are condensed, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys December 31, 2015 consolidated audited financial statements and Notes thereto included in the Annual Report on Form 10-K filed with the SEC on March 29, 2016.
The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2016, or any other period.
The Company incurred a net loss of $1,393,208 for the three months ended March 31, 2016. In addition, the Company had a working capital deficiency of $5,266,439 and a stockholders deficit of $10,115,558 at March 31, 2016. These factors continue to raise substantial doubt about the Company's ability to continue as a going concern. During the first three months of 2016, the Company raised $1,000,000 from the issuance of convertible debt. There can be no assurance that the Company will be able to raise additional capital.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classifications of liabilities that may result should the Company be unable to 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., WellMetris, LLC, and Zivo Biologic, Inc. All significant intercompany transactions and accounts have been eliminated in consolidation.
Accounting Estimates
The Companys 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 amount 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.
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. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At March 31, 2016, the Company did not have any cash equivalents.
Property and Equipment
Property and equipment consists of furniture, office equipment, and leasehold improvements, and are carried at cost less allowances for depreciation and amortization. Depreciation and amortization is 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.
7
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value Measurements
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.
The Companys financial instruments include cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses and loans payable - related parties. All of these items were determined to be Level 1 fair value measurements.
The carrying amounts of cash and equivalents, prepaid expenses, accounts payable, accrued expenses, loans payable - related parties and the current portion of convertible debt all approximate fair value because of the short maturity of these instruments. The recorded value of long-term convertible debt approximates fair value as the terms and rates approximate market rates.
Revenue Recognition
For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on managements judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred. For the three months ended March 31, 2016 and 2015, no shipping and handling costs were incurred.
Research and Development
Research and development costs are expensed as incurred. The majority of the Company's research and development costs consist of clinical study expenses. These consist of fees, charges, and related expenses incurred in the conduct of clinical studies conducted with Company products by independent outside contractors. External clinical studies expenses were approximately $313,000 and $209,000 for the quarters ended March 31, 2016 and 2015, respectively.
8
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.
Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the awards 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 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, 2016 and 2015, warrants were granted to employees, directors and consultants of the Company. As a result of these grants, the Company recorded compensation expense of $14,359 and $4,991 for these periods, respectively.
The fair value of warrants 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,
|
|
2016
|
|
2015
|
Expected volatility
|
168.01% to 169.28%
|
|
128.36%
|
Expected dividends
|
0%
|
|
0%
|
Expected term
|
5 years
|
|
53years
|
Risk free rate
|
.78% to .97%
|
|
.68%
|
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 Companys 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 managements opinion the existing models may not necessarily provide a reliable single measure of the fair value of its employee warrants.
Loss Per Share
Basic loss per share is computed by dividing the Companys 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 warrants and conversions of debentures. Potentially dilutive securities as of March 31, 2016, consisted of 84,319,934 common shares from convertible debentures and related accrued interest and 15,780,818 common shares from outstanding warrants. Potentially dilutive securities as of March 31, 2015, consisted of 52,496,746 common shares from convertible debentures and related accrued interest and 8,512,393 common shares from outstanding warrants. For the three months ended March 31, 2016 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 three months ended March 31, 2016 and 2015.
9
ZIVO BIOSCIENCE
, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, from time to time, 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.
Future Impact of Recently Issued 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, 2016, including interim periods within that reporting period. Early adoption is not permitted. ASU 2014-09 is not expected to have a material impact on the Companys financial position or results of operations.
Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2016 and December 31, 2015 consists of the following:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
|
Furniture and fixtures
|
$
|
20,000
|
$
|
20,000
|
Equipment
|
|
80,000
|
|
80,000
|
|
|
|
|
|
|
|
100,000
|
|
100,000
|
Less accumulated depreciation and amortization
|
|
(62,500)
|
|
(56,250)
|
|
|
|
|
|
|
$
|
37,500
|
$
|
43,750
|
Depreciation and amortization was $6,250 and $6,250 for the three months ended March 31, 2016 and 2015 respectively.
10
ZIVO BIOSCIENCE
, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 LOAN PAYABLE, RELATED PARTIES
During 2015, Mr. Christopher Maggiore, a director and a significant shareholder of the Company, advanced the Company $21,735, for a total advanced as of December 31, 2015 of $156,405, which amount remained unpaid as of March 31, 2016. The Company has agreed to pay 11% interest on this loan. As of March 31, 2016 and December 31, 2015 accrued interest on this indebtedness totaled $24,136 and $19,835, respectively, and is included in Accrued Liabilities on the Condensed Consolidated Balance Sheet.
As of December 31, 2015, there were outstanding advances of $2,000 from the Company's Officers. These funds were repaid during the first quarter of 2016.
During the year ended December 31, 2015, HEP Investments, LLC loaned the Company $2,246,202 (see Note 5 - Convertible Debt). Pursuant to the terms of our agreement with HEP Investments, $2,067,500 of these loans were converted to 11% Convertible Secured Promissory Notes, leaving a remaining balance of $178,702 in Loan Payable, Related Party as of December 31, 2015. During the quarter ended March 31, 2016, HEP Investments, LLC loaned the Company $1,002,815 (see Note 5 - Convertible Debt). Pursuant to the terms of our agreement with HEP Investments, $1,000,000 of these loans were converted to 11% Convertible Secured Promissory Notes, leaving a remaining balance of $181,517 in Loan Payable Related Party as of March 31, 2016.
NOTE 5 CONVERTIBLE DEBT
HEP Investments, LLC
On December 2, 2011, the Company and HEP Investments, LLC, a Michigan limited liability company (Lender), entered into the following documents, effective as of December 1, 2011, as amended through December 31, 2015: (i) a Loan Agreement under which the Lender has agreed to advance up to $12,500,000 to the Company, subject to certain conditions, and (ii) a Convertible Secured Promissory Note in the principal amount of $12,500,000 (Note) (of which $8,427,200 has been advanced as of March 31, 2016) and (iii) a Security Agreement, under which the Company granted the Lender a security interest in all of its assets and (iv) an Intellectual Property security agreement under which the Company and its subsidiaries granted the Lender a security interest in all their respective intellectual properties, including patents, in order to secure their respective obligations to the Lender under the Note and related documents. In addition, the Companys subsidiaries have guaranteed the Companys obligations under the Note. The Company has also made certain agreements with the Lender which shall remain in effect as long as any amount is outstanding under the Loan. These agreements include an agreement not to make any change in the Companys senior management, without the prior written consent of the Lender. Two representatives of the Lender will have the right to attend Board of Director meetings as non-voting observers.
During the year ended December 31, 2015, the Company recorded a debt discount, related to the $2,067,500 of Notes described previously, in the amount of $1,916,501, to reflect the beneficial conversion feature of the convertible debt and fair value of the warrants pursuant to Emerging Issues Task Force (EITF) 00-27: Application of EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features on Contingently Adjustable Conversion Rates, to certain convertible instruments. In accordance with EITF 00-27, the Company valued the beneficial conversion feature and recorded the amount of $1,773,078 as a reduction to the carrying amount of the convertible debt and as an addition to paid-in capital. Additionally, the relative fair value of the warrants was calculated and recorded at $143,423 as a further reduction to the carrying amount of the convertible debt and an addition to additional paid-in capital. The Company is amortizing the debt discount over the term of the debt. Amortization of discounts was $1,866,842 for the year ended December 31, 2015.
11
ZIVO BIOSCIENCE
, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 CONVERTIBLE DEBT (continued)
HEP Investments, LLC - (continued)
Amounts as of March 31, 2016 advanced under the Note (i) are convertible into the Companys restricted common stock according to the following schedule: (A) $3,152,200 at $.10 per share, (B) $2,600,000 at $.12 per share, (C) $1,285,000 at $.15 per share, (D) $640,000 at $.22 per share, and (E) $750,000 at $.30 per share, (ii) bear interest at the rate of 11% per annum. The Seventh Amended and Restated Senior Secured Convertible Promissory Note (effective December 31, 2015) resets the Due Dates of Tranches 1 through 13 (totaling $3,740,000) to October 17, 2017, the remaining Tranches must 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 Note. The Company determined that the modification of these Notes was not a substantial modification in accordance with ASC 470-50, Modifications and Extinguishments. The Lender has converted $60,000 of the debt (convertible at $.12 per share) through the date of this report. Any Note that has not yet matured may be prepaid upon sixty days written notice, provided that the Company shall be required to pay a prepayment premium equal to 5% of the amount repaid.
During the three months ended March 31, 2016, the Company recorded a debt discount, related to the $1,000,000 of Notes issued in the current quarter, in the amount of $724,280, to reflect the beneficial conversion feature of the convertible debt and fair value of the warrants pursuant to Emerging Issues Task Force (EITF) 00-27: Application of EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features on Contingently Adjustable Conversion Rates, to certain convertible instruments. In accordance with EITF 00-27, the Company valued the beneficial conversion feature and recorded the amount of $686,813 as a reduction to the carrying amount of the convertible debt and as an addition to paid-in capital. Additionally, the relative fair value of the warrants was calculated and recorded at $37,468 as a further reduction to the carrying amount of the convertible debt and an addition to additional paid-in capital. The Company is amortizing the debt discount over the term of the debt.
Other Debt
In September 2014, the Lender agreed to rolling 30 day extensions until notice is given to the Company to the contrary. The Company determined that the modification of these Notes was not a substantial modification in accordance with ASC 470-50, Modifications and Extinguishments.
|
|
|
|
|
Convertible debt consists of the following:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
|
1% Convertible notes payable, due April 2016
|
$
|
240,000
|
$
|
240,000
|
|
|
|
|
|
11% Convertible note payable - HEP Investments, LLC, a related party, net of unamortized discount of $2,126,280 and $1,843,931, respectively, due at various dates ranging from April 2016 to March 2018
|
|
6,300,920
|
|
5,583,269
|
|
|
6,540,920
|
|
5,823,269
|
Less: Current portion
|
|
1,654,301
|
|
1,224,510
|
|
|
|
|
|
Long term portion
|
$
|
4,886,619
|
$
|
4,598,759
|
Amortization of the debt discount on the remaining notes was $441,931 and $
518,900
for the three months ended March 31, 2016 and 2015, respectively.
12
ZIVO BIOSCIENCE
, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS DEFICIT
Board of Directors fees
As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Philip M. Rice (CFO and a Director) in January, 2015, at an exercise price of $.09 per share. The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter). The warrants were valued at $3,664 using the Black Scholes pricing model relying on the following assumptions: volatility 128.38%; annual rate of dividends 0%; discount rate 0.68%. In addition, Mr. Rice will receive $10,000 for each annual term served, paid quarterly.
The Company recorded directors fees of $4,991 during the three months ended March 31, 2015, representing the fees expensed and the value of the vested warrants.
As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 125,000 shares of common stock to Robert O. Rondeau, a new Director, in March 2016, at an exercise price of $.09 per share. The warrants have a term of five years and vest immediately. The warrants were valued at $10,588 using the Black Scholes pricing model relying on the following assumptions: volatility 168.01%; annual rate of dividends 0%; discount rate 0.97%. In addition, Mr. Rondeau will receive $10,000 for each annual term served, paid quarterly.
Stock Issuances
During the three months ended March 31, 2015, the Company received proceeds of $48,500 from the issuance of 970,000 shares of common stock.
During the three months ended March 31, 2015, in connection with the issuance of $362,500 in principal of 11% Convertible Debenture the Company also issued 151,329 shares of common stock valued at $13,050 and a warrant to purchase 362,500 shares of common stock at an exercise price of $.10 per share.
During the three months ended March 31, 2016, in connection with the issuance of $1,000,000 in principal of 11% Convertible Debenture the Company issued 517,500 shares of common stock valued at $36,000 and a warrant to purchase 1,000,000 shares of common stock at an exercise price of $.10 per share.
13
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS DEFICIT (Continued)
A summary of the status of the Companys warrants is presented below.
|
|
|
|
|
|
March 31, 2016
|
December 31, 2015
|
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
Outstanding, beginning of year
|
14,705,818
|
$ 0.13
|
9,053,005
|
$ 0.16
|
Issued
|
1,175,000
|
0.10
|
7,192,500
|
0.09
|
Exercised
|
-
|
-
|
-
|
-
|
Cancelled
|
-
|
-
|
(96,575)
|
0.14
|
Expired
|
(100,000)
|
0.12
|
(1,443,112)
|
0.13
|
Outstanding, end of period
|
15,780,818
|
$ 0.13
|
14,705,818
|
$ 0.13
|
Warrants outstanding and exercisable by price range as of March 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Warrants
|
|
Exercisable Warrants
|
|
Range of
|
|
Number
|
|
Average
Weighted
Remaining
Contractual
Life in
Years
|
|
Exercise
Price
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.08
|
|
3,225,000
|
|
4.41
|
$
|
0.08
|
|
3,225,000
|
$
|
0.08
|
|
0.085
|
|
50,000
|
|
4.02
|
|
0.085
|
|
50,000
|
|
0.085
|
|
0.088
|
|
50,000
|
|
4.12
|
|
0.088
|
|
50,000
|
|
0.088
|
|
0.09
|
|
209,110
|
|
3.44
|
|
0.09
|
|
209,110
|
|
0.09
|
|
0.10
|
|
4,802,200
|
|
4.87
|
|
0.10
|
|
4,802,200
|
|
0.10
|
|
0.12
|
|
2,635,368
|
|
1.28
|
|
0.12
|
|
2,635,368
|
|
0.12
|
|
0.14
|
|
50,000
|
|
3.37
|
|
0.14
|
|
50,000
|
|
0.14
|
|
0.15
|
|
2,485,274
|
|
2.05
|
|
0.15
|
|
2,485,274
|
|
0.15
|
|
0.17
|
|
50,000
|
|
3.00
|
|
0.17
|
|
50,000
|
|
0.17
|
|
0.19
|
|
100,000
|
|
1.87
|
|
0.19
|
|
100,000
|
|
0.19
|
|
0.20
|
|
250,000
|
|
1.08
|
|
0.20
|
|
250,000
|
|
0.20
|
|
0.22
|
|
477,004
|
|
0.59
|
|
0.22
|
|
477,004
|
|
0.22
|
|
0.25
|
|
707,000
|
|
2.27
|
|
0.25
|
|
707,000
|
|
0.25
|
|
0.30
|
|
250,000
|
|
2.66
|
|
0.30
|
|
250,000
|
|
0.30
|
|
0.33
|
|
250,000
|
|
2.25
|
|
0.33
|
|
250,000
|
|
0.33
|
|
0.36
|
|
39,863
|
|
0.59
|
|
0.36
|
|
39,863
|
|
0.36
|
|
0.38
|
|
100,000
|
|
0.53
|
|
0.38
|
|
100,000
|
|
0.38
|
|
0.40
|
|
50,000
|
|
0.69
|
|
0.40
|
|
50,000
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,780,818
|
|
1.78
|
|
|
|
15,780,818
|
$
|
0.13
|
14
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7- COMMITMENTS AND CONTINGENCIES
Employment Agreement
The Companys Chief Executive Officer, Andrew Dahl, is serving under the terms of an employment agreement dated December 16, 2011. Under the agreement Mr. Dahl serves as CEO for one year terms, subject to automatic renewal, unless either party terminates the Agreement on sixty days notice prior to the expiration of the term of the agreement. Mr. Dahl is compensated as follows: he receives an annual base salary of $240,000. In addition, Mr. Dahl is entitled to monthly bonus compensation equal to 2% of the Companys revenue, but only to the extent that such bonus amount exceeds his base salary for the month in question. In addition, Mr. Dahl will be entitled to warrants having an exercise price of $.25 per share, upon the attainment of specified milestones as follows: 1) Warrants for 500,000 shares upon identification of bio-active agents in the Companys product and filing of a patent with respect thereto, 2) Warrants for 500,000 shares upon entering into a business contract under which the Company receives at least $500,000 in cash payments, 3) Warrants for 1,000,000 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 million in cash or in-kind outlays), 4) Warrants for 1,000,000 shares upon the Company entering into a co-development agreement for nutraceutical or dietary supplement applications (where the partner provides at least $2 million in cash or in-kind outlays), 5) Warrants for 1,000,000 shares upon the Company entering into a pharmaceutical development agreement. As of March 31, 2016, none of the milestones referred to had been achieved and there has been no notice of contract termination.
NOTE 8 - SUBSEQUENT EVENTS
11% Convertible Debt - HEP Investments, LLC / Loans Payable - Related Party
During the period April 1, 2016 through May 13, 2016, HEP Investments, LLC, a related party, advanced the Company an aggregate of $65,000, bringing the Companys total indebtedness to HEP Investments to $8,673,717. $8,427,200 of this amount has been classified as 11% Convertible Debt - HEP Investments, LLC. The remaining portion of $246,517 of the advances from HEP Investments, LLC referenced above will remain classified as a Loan Payable Related Party until such time as the next tranche is completed by HEP.
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