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 $49,630 in discounts on 11% convertible debentures.
During the quarter ended June 30, 2016, the Company recorded $17,439 in discounts on 11% convertible debentures.
During the quarter ended September 30, 2016, the Company recorded $24,218 in discounts on 11% convertible debentures.
During the quarter ended September 30, 2016, the Company issued 900,000 common stock warrants, valued at $50,371 as Deferred Finance Costs. These warrants are exercisable at $.10 per share and expire five (5) years from the date of issuance.
During the quarter ended March 31, 2015, the Company recorded $211,501 in discounts on 11% convertible debentures.
During the quarter ended June 30, 2015, the Company recorded $705,000 in discounts on 11% convertible debentures.
During the quarter ended June 30, 2015, the holder of 11% Convertible Debentures converted $30,000 into 250,000 shares of the Company's common stock.
During the quarter ended September 30, 2015, the Company recorded $500,000 in discounts on 11% convertible debentures.
During the quarter ended September 30, 2015, the holder of 11% Convertible Debentures converted $30,000 into 250,000 shares of the Company's common stock.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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 inter-company 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 supplementary data included in the Annual Report on Form 10-K filed with the SEC on March 29, 2016.
The results of operations for the nine months ended September 30, 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 had a loss from operations of $2,847,785 and $2,392,532 for the nine months ended September 30, 2016 and 2015, respectively. In addition, the Company had a working capital deficiency of $6,086,630 and a stockholders deficit of $12,769,130 at September 30, 2016. These factors continue to raise substantial doubt about the Company's ability to continue as a going concern. During the first nine months of 2016, the Company raised $2,350,000 from the issuance of Convertible Debt and $2,315 from net loans payable to related parties. There can be no assurance that the Company will be able to raise additional capital.
The accompanying 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 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 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 September 30, 2016, the Company did not have any cash equivalents.
7
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 expended as incurred.
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, accounts payable related parties, 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, 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.
Deferred Financing Costs
The Company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Amortization of deferred financing costs amounted to $-0- and $-0- for the nine months ended September 30, 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)
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. For the nine months ended September 30, 2016 and 2015, the Company had no revenue.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred. For the nine months ended September 30, 2016 and 2015, no shipping and handling costs were incurred.
Research and Development
Research and development costs are expensed as incurred. Research Expenses and Clinical Studies Expenses consist of fees, charges, and related expenses incurred in the conduct of clinical studies conducted with Company products by independent external entities. External clinical studies expenses were approximately $601,000 and $776,000 for the nine months ended September 30, 2016 and 2015, respectively.
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 nine months ended September 30, 2016 and 2015, as a result of the vesting of warrants to directors and the issuances of warrants to certain employees, directors and consultants, the Company recorded stock based compensation expense of $1,175,632 and $460,924 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:
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
Expected volatility
|
158.53% to 172.80%
|
|
128.36% to 155.43%
|
Expected dividends
|
0%
|
|
0%
|
Expected term
|
5 years
|
|
3 - 5 years
|
Risk free rate
|
.71% to.97%
|
|
.51% to 1.75%
|
9
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock Based Compensation
(continued)
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 options.
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 September 30, 2016, consisted of 102,036,360 common shares from convertible debentures and related accrued interest and 30,167,488 common shares from outstanding warrants. Potentially dilutive securities as of September 30, 2015, consisted of 66,652,108 common shares from convertible debentures and related accrued interest and 14,456,371 common shares from outstanding warrants. For the nine months ended September 30, 2016 and 2015, diluted and basic weighted average shares were the same, as potentially dilutive shares are anti-dilutive.
Advertising Costs
Advertising costs are charged to operations when incurred. During the nine months ended September 30, 2016 and 2015, there were no advertising costs.
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 maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (FDIC) limit of $250,000 at times during the year.
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.
10
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2016 and December 31, 2015 consists of the following:
|
|
|
|
|
|
|
September 30, 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
|
|
(75,000)
|
|
(56,250)
|
|
|
|
|
|
|
$
|
25,000
|
$
|
43,750
|
Depreciation and amortization was $18,750 and $18,750 for the nine months ended September 30, 2016 and 2015 respectively.
NOTE 4 DUE TO RELATED PARTY
As of September 30, 2016 and December 31, 2015, the Company owed HEP Investments, a related party, cumulative balances of $305,734 and $211,233, respectively. The basis for the payable is a 5.4% cash finance fee for monies invested in the Company in the form of convertible debt. For the nine months ended September 30, 2016 and 2015, the Company incurred finance costs related to these transactions of $69,500 and $84,645, respectively.
NOTE 5 LOAN PAYABLE, RELATED PARTIES
As of December 31, 2015, Mr. Christopher Maggiore, a director and a significant shareholder of the Company, advanced the Company a total of $156,405. During the nine months ended September 30, 2016, Mr. Maggiore advanced the Company an additional $20,000, for a total amount advanced of $176,405 as of September 30, 2016. The Company has agreed to pay 11% interest on this loan. As of September 30, 2016, and December 31, 2015 accrued interest on this indebtedness totaled $32,738 and $22,681, 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 6 - Convertible Debt). Pursuant to the terms of the 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 as of December 31, 2015. During the nine months ended September 30, 2016, HEP Investments loaned the Company $1,734,316 (see Note 6 - Convertible Debt). Pursuant to the terms of the agreement with HEP Investments, $1,750,000 of these loans were converted to 11% Convertible Secured Promissory Notes, leaving a remaining balance of $163,018 as of September 30, 2016.
11
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 CONVERTIBLE DEBT
HEP Investments, LLC Related Party
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 September 30, 2016: (i) a Loan Agreement under which the Lender has agreed to advance up to $17,500,000 to the Company, subject to certain conditions, (ii) a Convertible Secured Promissory Note in the principal amount of $17,500,000 (Note) (of which $9,177,200 has been advanced as of September 30, 2016) and (iii) a Security Agreement, under which the Company granted the Lender a security interest in all of its assets, (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 each case order to secure their respective obligations to the Lender under the Note and related documents and (v) enter into a Registration Rights Agreement with respect to all the shares of common stock issuable to the Lender in connection with the Loan transaction. 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.
During the nine months ended September 30, 2016, the Company recorded a debt discount, related to the $1,750,000 of Notes issued in the amount of $91,287, to reflect the relative fair value of the warrants as a 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 debt discounts were $1,119,875 and $1,414,975 for the nine months ended September 30, 2016 and 2015, respectively.
12
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 CONVERTIBLE DEBT (continued)
As of September 30, 2016, amounts advanced under the Note are convertible into the Companys restricted common stock according to the following schedule: (A) $3,902,200 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 and (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 14, 2017. The Eighth Amended and Restated Senior Secured Convertible Promissory Note (effective December 31, 2016) resets the Due Dates of Tranches 14 through 16 (totaling $1,369,700) to January 31, 2017. The remaining Tranches 17 to 30, totaling $4,067,500, are due on varying anniversary dates ranging from February 28, 2017 through August 25, 2018. Accrued interest must be paid on the first and second anniversary of the Note. As of September 30, 2016 and December 31, 2015, unpaid interest due was $2,259,630 and $1,572,065, respectively and is included in accrued liabilities. 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.
Paulson Investment Company, LLC - Related Debt
On August 24, 2016, the Company entered into a Placement Agent Agreement with Paulson Investment Company, LLC (Paulson). This agreement provides that Paulson can provide up to $2 million in financings through accredited investors (as defined by Regulation D of the Securities Act of 1933, as amended). As of September 30, 2016, the Company received funding of $600,000 through four (4) individual loans (the New Lenders). Each loan includes a (i) a Loan Agreement of the individual loan, (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 Lender a security interest in all of its assets and (iv) an Intercreditor Agreement with HEP Investments, LLC (HEP) whereby HEP and the New Lenders agree to participate in all collateral a
pari passu
basis. Paulson receives a 10% cash finance fee for monies invested in the Company in the form of convertible debt, along warrants equal to 15% of the number of common shares for which the debt is convertible into at $.10 per share.
On September 30, 2016, the New Lenders advanced $600,000 under the New Lenders Notes. The New Lenders Notes are convertible into the Companys restricted common stock at $.10 per share and bear interest at the rate of 11% per annum. The New Lenders Notes 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.
Other Debt
In September 2014, the Lender of the 1% Convertible notes payable 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.
13
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 CONVERTIBLE DEBT (continued)
|
|
|
|
|
Convertible debt consists of the following:
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
(Unaudited)
|
|
|
1% Convertible notes payable, due October 2016
|
$
|
240,000
|
$
|
240,000
|
|
|
|
|
|
11% Convertible note payable - HEP Investments, LLC, a related party, net of unamortized discount of $815,342 and $1,843,931, respectively, due at various dates ranging from January 2017 to August 2018
|
|
8,361,858
|
|
5,583,269
|
11% Convertible note payable New Lenders; placed by Paulson, due September 30, 2018
|
|
600,000
|
|
-
|
|
|
9,201,858
|
|
5,823,269
|
Less: Current portion
|
|
2,383,987
|
|
1,224,510
|
|
|
|
|
|
Long term portion
|
$
|
6,817,871
|
$
|
4,598,759
|
Amortization of the debt discount on the remaining notes was $1,119,875 and $1,414,975 for the nine months ended September 30, 2016 and 2015, respectively.
NOTE 7 - 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.
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 Thomas K. Cox in June, 2015, at an exercise price of $.15 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 $6,185 using the Black Scholes pricing model relying on the following assumptions: volatility 155.43%; annual rate of dividends 0%; discount rate 1.09%. In addition, Mr. Cox is entitled to receive $10,000 for each annual term served.
14
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS DEFICIT (continued)
Board of Directors fees - (continued)
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 John B. Payne in July, 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 $4,876 using the Black Scholes pricing model relying on the following assumptions: volatility 155.43%; annual rate of dividends 0%; discount rate 0. 109%. In addition, Mr. Payne is entitled to receive $10,000 for each annual term served.
On September 10, 2015, the board of directors amended its policy for the compensation of its directors. The Board granted to each of its Directors warrants to purchase 250,000 shares of common stock at an exercise price of $.10 per share. The warrants have a term of five years and vest immediately. The unvested portion of the previously granted warrants were cancelled due to the Companys change to a program where all director warrant grants are made once per year at the same time. In addition, each director is entitled to receive $10,000 for each annual term served. As such, Mr. Coxs unvested warrant of 36,986 shares, Ms. Mastersons warrant of 959 shares, Mr. Paynes warrant of 42,740 shares and Mr. Rices unvested warrant of 15,890 shares, were cancelled.
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.
On September 10, 2016, the board of directors granted to each of its Directors warrants to purchase 250,000 shares of common stock at an exercise price of $.05 per share. The warrants have a term of five years and vest immediately. The warrants were valued at $59,125 using the Black Scholes pricing model relying on the following assumptions: volatility 171.58%; annual rate of dividends 0%; discount rate 0.79%. In addition, each director is entitled to receive $10,000 for each annual term served.
The Company recorded directors fees of $99,713 and $156,679 for the nine months ended September 30, 2016 and 2015, respectively, representing the cash fees and the value of the vested warrants described above.
Stock Based Compensation
During the nine months ended September 30, 2015, the Company issued 961,538 shares of common stock valued at $76,154, to investor relations consulting firms. The Company also issued warrants to purchase 3,125,000 shares of common stock at an exercise price of $.08 with a term of five years pursuant to an agreement with a financial consultant. The warrants were valued at $285,305 using the Black Scholes pricing model relying on the following assumptions: volatility 143.36% to 150.93%; annual rate of dividends 0%; discount rate 0.15% to 1.75%.
The Company also issued warrants to purchase 400,000 shares of common stock at an exercise price of $.10 with a term of five years to four of its consultants (100,000 warrants per consultant) working in research and development. The warrants have a term of five years and are fully vested. The warrants were valued at $36,540 using the Black Scholes pricing model relying on the following assumptions: volatility 152.53%; annual rate of dividends 0%; discount rate 0. 075%.
During the nine months ended September 30, 2016, the Company issued warrants to purchase 14,500,000 shares of common stock at an exercise price of $.08 with a term of 5 years pursuant to agreements with financial consultants. The warrants were valued at $1,095,063 using the Black Scholes pricing model relying on the following assumptions: volatility 170.07%; annual rate of dividends 0%; discount rate 0.89%.
The Company also issued 3,500,000 shares of common stock, valued at $175,000, to an investor relations consulting firm.
15
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS DEFICIT (continued)
Stock Issuances
During the nine months ended September 30, 2015, the Company received proceeds of $48,500 from the issuance of 970,000 shares of common stock. The Company also issued 564,300 shares of common stock valued at $56,430 and warrants to purchase 1,567,500 shares of common stock at an exercise price of $.10 per share as financing cost related to the issuance of the 11% convertible debt. The warrants were valued at $127,043 using the Black Scholes pricing model relying on the following assumptions: volatility 138.6% to 152.3%; annual rate of dividends 0%; discount rate 0.62% to 1.75%.
During the nine months ended September 30, 2016, the Company issued 960,000 shares of common stock valued at $63,000 and warrants to purchase 2,712,500 shares of common stock at an exercise price of $.10 per share as financing costs related to the issuance of the 11% convertible debt. The warrants were valued at $113,231 using the Black Scholes pricing model relying on the following assumptions: volatility 158.5% to 172.8%; annual rate of dividends 0%; discount rate 0.75% to 0.85%.
Executive Compensation
As compensation for serving as Chief Financial Officer, the Company, quarterly, will issue warrants to Philip M. Rice to purchase 50,000 shares of common stock at the prevailing market price on the date of the SEC Filing, a term of five years, provided that the preceding quarterly and annual filings were submitted in a timely and compliant manner, at which time such warrants would vest.
On April 6, 2015 the Company issued warrants to purchase 50,000 shares of common stock at $.085. The warrants were valued at $3,800 using the Black Scholes pricing model relying on the following assumptions: volatility 143.17%; annual rate of dividends 0%; discount rate 1.31%.
On May 13, 2015, the Company issued warrants to purchase 50,000 shares of common stock at $.08. The warrants were valued at $3,582 using the Black Scholes pricing model relying on the following assumptions: volatility 143.464%; annual rate of dividends 0%; discount rate 1.57%. On August 13, 2015, the Company issued warrants to purchase 50,000 shares of common stock at $.11. The warrants were valued at $5,019 using the Black Scholes pricing model relying on the following assumptions: volatility 152.05%; annual rate of dividends 0%; discount rate 0.72%.
On March 29, 2016, the Company issued warrants to purchase 50,000 shares of common stock at $.08. The warrants were valued at $3,771 using the Black Scholes pricing model relying on the following assumptions: volatility 169.28%; annual rate of dividends 0%; discount rate 0.78%.
On May 13, 2016, the Company issued warrants to purchase 50,000 shares of common stock at $.08. The warrants were valued at $3,777 using the Black Scholes pricing model relying on the following assumptions: volatility 170.23%; annual rate of dividends 0%; discount rate 0.76%. On August 12, 2016, the Company issued warrants to purchase 50,000 shares of common stock at $.07. The warrants were valued at $3,307 using the Black Scholes pricing model relying on the following assumptions: volatility 170.83%; annual rate of dividends 0%; discount rate 0.71%.
16
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS DEFICIT (continued)
A summary of the status of the Companys warrants is presented below.
|
|
|
|
|
|
September 30, 2016
|
December 31, 2015
|
|
Number of
|
Weighted Average
|
Number of
|
Weighted Average
|
|
Warrants
|
Exercise Price
|
Warrants
|
Exercise Price
|
|
|
|
|
|
Outstanding, beginning of year
|
14,705,818
|
$ 0.13
|
9,053,005
|
$ 0.16
|
Issued
|
18,675,000
|
0.08
|
7,192,500
|
0.09
|
Exercised
|
-
|
-
|
-
|
-
|
Cancelled
|
-
|
-
|
(96,575)
|
0.14
|
Expired
|
(3,213,330)
|
0.14
|
(1,443,112)
|
0.13
|
Outstanding, end of period
|
30,167,488
|
$ 0.10
|
14,705,818
|
$ 0.13
|
Warrants outstanding and exercisable by price range as of September 30, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Warrants
|
|
Exercisable Warrants
|
|
Range of
Exercise
Price
|
|
Number
|
|
Average
Weighted
Remaining
Contractual
Life in
Years
|
|
Exercise
Price
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
1,250,000
|
|
4.95
|
$
|
0.05
|
|
1,250,000
|
$
|
0.05
|
|
0.08
|
|
18,575,000
|
|
4.43
|
|
0.08
|
|
18,575,000
|
$
|
0.08
|
|
0.09
|
|
309,110
|
|
3.36
|
|
0.09
|
|
309,110
|
|
0.09
|
|
0.10
|
|
5,702,200
|
|
4.04
|
|
0.10
|
|
5,402,200
|
|
0.10
|
|
0.12
|
|
99,041
|
|
0.77
|
|
0.12
|
|
99,041
|
|
0.12
|
|
0.14
|
|
50,000
|
|
2.87
|
|
0.14
|
|
50,000
|
|
0.14
|
|
0.15
|
|
2,485,274
|
|
1.55
|
|
0.15
|
|
2,485,274
|
|
0.15
|
|
0.17
|
|
50,000
|
|
2.50
|
|
0.17
|
|
50,000
|
|
0.17
|
|
0.19
|
|
100,000
|
|
1.71
|
|
0.19
|
|
100,000
|
|
0.19
|
|
0.20
|
|
250,000
|
|
0.58
|
|
0.20
|
|
250,000
|
|
0.20
|
|
0.25
|
|
707,000
|
|
1.77
|
|
0.25
|
|
707,000
|
|
0.25
|
|
0.30
|
|
250,000
|
|
2.16
|
|
0.30
|
|
250,000
|
|
0.30
|
|
0.33
|
|
250,000
|
|
1.75
|
|
0.33
|
|
250,000
|
|
0.33
|
|
0.36
|
|
39,863
|
|
0.09
|
|
0.36
|
|
39,863
|
|
0.36
|
|
0.38
|
|
50,000
|
|
0.06
|
|
0.38
|
|
50,000
|
|
0.38
|
|
|
|
30,167,488
|
|
3.13
|
|
|
|
30,167,488
|
$
|
0.10
|
17
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - 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 as amended August 11, 2016. 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. Further, as it relates to Companys wholly-owned subsidiary, WellMetris, LLC (WellMetris), in the event the Company ceases to own a controlling interest in WellMetris for any reason whatsoever, the Company shall cause WellMetris to grant Mr. Dahl warrants to purchase a seven percent (7%) equity interest in WellMetris at the time outside funding is closed and/or at the time an event occurs whereby the Company relinquishes majority control of WellMetris. Such Warrant shall be priced at the per-unit or per-share price at the time of the applicable closing or change of control with respect to WellMetris. As of September 30, 2016, none of the milestones referred to had been achieved and there has been no notice of contract termination.
NOTE 9 - OTHER INCOME (EXPENSE)
On July 15, 2014, the Company settled a dispute with one of its vendors. The settlement agreement calls for the Company to make 10 payments of $6,250. If the payments were not made timely, a total liability of $97,463 out of the gross amount recorded on the Companys books of $191,146 would have been due. As a result of this settlement, $93,683 was recognized as Other Income on its Statement of Operations for the nine months ending September 30, 2014.
During the nine months ended September 30, 2015, the Company met its obligation for timely payments and recognized an additional $34,963 (the difference between the $97,463 remaining liability and the agreed upon payments of $62,500) as "Other Income" on its Statement of Operations for the nine months ending September 30, 2015.
18
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS
11% Convertible Debt - HEP Investments, LLC
During the period from October 1, 2016 to November 14, 2016, HEP Investments LLC (Lender) funded an additional loan of $150,000. Due to this additional funding, the Company issued to Lender for aggregate consideration of $250,000, an 11% convertible note, and warrants to purchase 250,000 shares of common stock, at an exercise price of $.10 for a term of five years. The Company also issued 128,571 shares of common stock as financing cost related to the issuance of the 11% convertible debt. The Convertible Notes accrue interest at the rate of 11% per annum, are non-amortizing, have a term of two years, subject to Lenders right to extend the term as noted in Note 6 Convertible Debt, and are convertible, at any time prior to the maturity date into shares of common stock, at a rate equal to $.10 per share. The Company recorded a deferred debt discount, related to the $250,000 Note, in the amount of $15,407, to reflect the relative fair value of the warrants as a 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.
11% Convertible Debt - Paulson Investment Company, LLC Related Debt
During the period from October 1, 2016 to November 14, 2016, Paulson placed investments with three investors (the New Lenders) who provided funding of $650,000 through three individual loans. Due to this additional funding, the Company issued to the New Lenders for aggregate consideration of $650,000, an 11% convertible note, convertible into the Companys restricted common stock at $.10 per share. The Convertible Notes accrue interest at the rate of 11% per annum, are non-amortizing, have a term of two years, subject to the New Lenders right to extend the term as noted in Note 6 Convertible Debt, and are convertible, at any time prior to the maturity date into shares of common stock, at a rate equal to $.10 per share.
Increase in Authorized Shares
On November 9, 2016, the shareholders of the Company voted for Approval and adoption of an amendment to the Articles of Incorporation, as amended, to increase the number of authorized shares of common stock from 300,000,000 shares to 450,000,000 shares. The Certificate of Amendment to the Articles of Incorporation is in the process of being filed with the Secretary of State of Nevada.
19
Item 2.