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.
During the quarter ended March 31, 2017, the Company recorded $70,388 in discounts on 11% convertible debentures.
During the quarter ended March 31, 2017, the Company recorded a $600,000 debt discount for a restructuring fee related to the debt extinguishment.
During the quarter ended March 31, 2017, the Company reclassified $2,694,639 in Accrued Interest to 11% Convertible Debentures owed to a related party.
During the quarter ended March 31, 2017, the Company issued 250,000 shares of its common stock valued at $22,500 in payment of an accrued liability.
During the quarter ended March 31, 2016, the Company recorded $724,280 in discounts on 11% convertible debentures.
During the quarter ended June 30, 2016, the Company recorded $186,744 in discounts on 11% convertible debentures.
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 Company’s 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 Company’s December 31, 2016 consolidated audited financial statements and Notes thereto included in the Annual Report on Form 10-K filed with the SEC on March 31, 2017.
The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017, or any other period.
The Company incurred a net loss of $3,289,778 for the six months ended June 30, 2017. In addition, the Company had a working capital deficiency of $2,559,575 and a stockholders’ deficit of $16,570,638 at June 30, 2017. These factors continue to raise substantial doubt about the Company's ability to continue as a going concern. During the six months ended June 30, 2017, 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 Company’s 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 June 30, 2017, the Company did not have any cash equivalents.
Property and Equipment
Property and equipment consists of furniture and office equipment 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.
8
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
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 $56,233 and $-0- for the six months ended June 30, 2017 and 2016, respectively.
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 management’s 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 six months ended June 30, 2017 and 2016, the Company had no revenue.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred. For the six months ended June 30, 2017 and 2016, 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 $805,000 and $475,000 for the six months ended June 30, 2017 and 2016, 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 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 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 six months ended June 30, 2017 and 2016, warrants were granted to employees and consultants of the Company. As a result of these grants, the Company recorded compensation expense of $40,748 and $1,113,200 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:
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
Expected volatility
|
175.05% to 176.74%
|
|
168.01% to 170.23%
|
Expected dividends
|
0%
|
|
0%
|
Expected term
|
5 years
|
|
5 years
|
Risk free rate
|
1.78% to 1.93%
|
|
.76% to .97%
|
9
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (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 Company’s 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 management’s opinion the existing models may not necessarily provide a reliable single measure of the fair value of the warrants.
Loss Per Share
Basic loss per share is computed by dividing the Company’s 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 June 30, 2017, consisted of 157,280,170 common shares issuable upon the conversion of convertible debentures and related accrued interest and 32,950,795 common shares issuable upon the exercise of outstanding warrants. Potentially dilutive securities as of June 30, 2016, consisted of 88,195,105 common shares issuable upon the conversion of convertible debentures and related accrued interest and 30,530,818 common shares issuable upon the exercise of outstanding warrants. For the six months ended June 30, 2017 and 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 six months ended June 30, 2017 and 2016.
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 Company’s financial position or results of operations.
In August 2014, the FASB issued Accounting Standards Update 2014-15 (ASU 2014-15) “Presentation of Financial Statements – Going Concern (Subtopic 205-40).” The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update had no effect on the Company’s financial position and results of operations for the year ended December 31, 2016.
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 June 30, 2017 and December 31, 2016 consisted of the following:
|
|
June 30, 2017
|
|
December 31, 2016
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Furniture and fixtures
|
$
|
20,000
|
$
|
20,000
|
Equipment
|
|
80,000
|
|
80,000
|
|
|
100,000
|
|
100,000
|
Less accumulated depreciation and amortization
|
|
(93,750)
|
|
(81,250)
|
|
$
|
6,250
|
$
|
18,750
|
Depreciation and amortization was $12,500 and $12,500 for the six months ended June 30, 2017 and 2016 respectively.
NOTE 4 – DUE TO RELATED PARTY
As of June 30, 2017 and December 31, 2016, the Company owed HEP Investments, LLC, a related party, cumulative balances of $373,234 and $319,234, 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 six months ended June 30, 2017 and 2016, the Company incurred finance costs related to these transactions of $54,000 and $54,000, respectively.
NOTE 5 – LOAN PAYABLE, RELATED PARTIES
Christopher Maggiore
During the year ended December 31, 2016, Mr. Christopher Maggiore, a director and a significant shareholder of the Company, advanced the Company $20,000, for a total owed of $176,405. During the six months ended June 30, 2017, Mr. Maggiore advanced the Company an additional $30,000, for a total amount advanced of $206,405. The Company has agreed to pay 11% interest on this loan. As of June 30, 2017, accrued interest on this indebtedness totaled $53,113, and is included in Accrued Liabilities on the Condensed Consolidated Balance Sheet.
HEP Investments, LLC
In addition to amounts owed to HEP Investments pursuant for Convertible Debt (see Note 6), as of January 1, 2016, the Company owed HEP Investments $178,702. During the year ended December 31, 2016, HEP Investments loaned the Company an additional $1,890,872. Pursuant to the terms of the agreement with HEP Investments, $2,000,000 of these loans were recorded as 11% Convertible Secured Promissory Notes, leaving a remaining balance of $69,574 as of December 31, 2016.
During the six months ended June 30, 2017, HEP Investments loaned the Company $1,140,000 (see Note 6 - 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 $209,574 as of June 30, 2017.
11
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – 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 March 1, 2017: (i) a Loan Agreement under which the Lender has agreed to advance up to $17,500,000 to the Company, subject to certain conditions, and (ii) a Convertible Secured Promissory Note in the principal amount of $17,500,000 (“Note”) (of which $13,441,839 has been advanced as of June 30, 2017) 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 Company’s subsidiaries have guaranteed the Company’s 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 Company’s 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 six months ended June 30, 2016, the Company recorded debt discounts, related to $1,250,000 of Notes in the amount of $911,024, to reflect the relative fair value of the related warrants pursuant to "FASB ASC 470-20-30 – Debt with Conversion and Other Options: Beneficial Conversion Features" as a reduction to the carrying amount of the convertible debt and an addition to additional paid-in capital. The $1,250,000 of Notes are convertible at $.10 per share. The Company is amortizing the debt discount over the term of the debt. Amortization of the debt discounts was $949,118 for the six months ended June 30, 2016.
In the March 1, 2017 agreements, the Company and the Lender, also entered into the following documents: (i) Eighth Amendment to Loan Agreement under which the Lender has agreed to advance up to a total of $17,500,000 to the Company, subject to certain conditions, and (ii) a Ninth Amended and Restated Senior Secured Convertible Promissory Note. The Eighth Amendment to Loan Agreement amends and restates the Seventh Amendment to Loan Agreement, which was entered into with the Lender on December 31, 2015 and disclosed in the Company’s Form 8-K Current Report filed on January 7, 2016. The Ninth Amended and Restated Senior Secured Convertible Promissory Note resets the total outstanding debt as of March 1, 2017 and provides for a maturity date of September 30, 2018. The total outstanding debt as of March 1, 2017 was $12,721,839. The amount includes unpaid principal of $9,427,200, interest outstanding as of February 28, 2017 of $2,694,639 and restructuring and legal fees of $600,000. The Company recorded a debt discount of $600,000 related to the restructuring of the $12,721,839, 11% convertible note on March 1, 2017. The stated rate of the new debt was unchanged from the previous debt agreement and the estimated fair value of the new debt approximates its carrying amount (principal plus accrued interest at the date of the modification). In accordance with FASB ASC 470-60 “Debt-Troubled Debt Restructurings by Debtors,” the Company recorded a “Loss on Extinguishment of Debt” on March 1, 2017 of $406,482 which represented the remaining unamortized discount as of March 1, 2017.
The Company, as consideration for the extension of the maturity date to September 30, 2018, agreed to change the conversion price of the $12,721,839 Convertible Promissory Note from conversion prices ranging from $.10 to $.30 per share to $.10 per share.
The related indebtedness represented by this convertible note shall be paid to the Lender in monthly installments of interest only beginning on July 1, 2017 and continuing on the first day of each month thereafter.
On March 3, 2017, as a result of the settlement of litigation with a shareholder, HEP Investments agreed to reduce the principal due to the Lender by $280,000 (see Note 10).
During the six months ended June 30, 2017, the Company recorded debt discounts, related to $1,000,000 of Notes in the amount of $70,388, to reflect the relative fair value of the related warrants pursuant to "FASB ASC 470-20-30 – Debt with Conversion and Other Options: Beneficial Conversion Features" as a reduction to the carrying amount of the convertible debt and an addition to additional paid-in capital. The $1,000,000 of Notes are convertible at $.10 per share. The Company is amortizing the debt discount over the term of the debt. Amortization of the debt discounts was $306,008 for the six months ended June 30, 2017.
If the Lender converted the total principal of $13,441,839 convertible debt as of June 30, 2017, the total shares of common stock to be issued would be 134,418,390 shares, not including the related accrued and any future interest charges which may be converted into common stock.
12
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – CONVERTIBLE DEBT – (continued)
The Company has agreed to pay a closing fee of $365,235 in connection with the Loan transaction (when the remaining $4,058,161 in funding is achieved), consisting of $219,141 in cash and $146,094 paid in shares of common stock valued at various amounts based on the timing of the funding and the related stock price.
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 December 31, 2016, the Company received funding of $1,250,000 through seven (7) individual loans (the “New Lenders”). Each loan includes a (i) a Loan Agreement relating to 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. The loans have a two-year term and mature in 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, $.10 warrants equal to 15% of the number of common shares for which the debt is convertible into at $.10 per share.
The New Lenders Notes are convertible into the Company’s 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 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:
|
|
|
|
|
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
(Unaudited)
|
|
|
1% Convertible notes payable, due April 2017
|
$
|
240,000
|
$
|
240,000
|
|
|
|
|
|
11% Convertible note payable – HEP Investments, a related party, net of unamortized discount of $532,341 and $574,443 at June 30, 2017 and December 31, 2016, respectively, due September 2018 (at June 30, 2017).
|
|
12,909,498
|
|
8,572,757
|
11% Convertible note payable – New Lenders; placed by Paulson, due at various dates ranging from September 2018 to October 2018
|
|
1,250,000
|
|
1,250,000
|
|
|
14,399,498
|
|
10,062,757
|
Less: Current portion
|
|
240,000
|
|
6,886,710
|
|
|
|
|
|
Long term portion
|
$
|
14,159,498
|
$
|
3,176,047
|
Amortization of debt discounts was $306,008 and $949,118 for the six months ended June 30, 2017 and 2016, respectively.
13
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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 vested 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.
The Company recorded directors’ fees of $20,000 and $30,588 during the six months ended June 30, 2017 and 2016, representing the cash fees and the value of the vested warrants described above.
Stock Based Compensation
During the six months ended June 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%.
On April 18, 2017, the Company entered into a Limited License Agreement (“License Agreement”) with NutriQuest, LLC ("NutriQuest"), as disclosed in a Form 8-K filed on April 26, 2017. Pursuant to the agreement, the Company issued NutriQuest warrants to purchase 687,227 shares of common stock valued at $39,189 using the Black Scholes pricing model relying on the following assumptions: volatility 175.75%; annual rate of dividends 0%; discount rate 1.78%. The warrants are exercisable at $.08 per share and expire five (5) years from the date of issuance. The License Agreement provides that the Company is obligated to pay a termination fee to NutriQuest if the parties are unable to agree upon quality and volume delivered standards.
During the six months ended June 30, 2017, the Company issued warrants to purchase 500,000 shares of common stock at an exercise price of $.10 with a term of 5 years pursuant to an agreement with a financial consultant at an exercise price of $.10 with a term of 5 years. The warrants were valued at $33,148 using the Black Scholes pricing model relying on the following assumptions: volatility 175.05%; annual rate of dividends 0%; discount rate 1.87%.
Stock Issuances
During the six months ended June 30, 2016, in connection with the issuance of $1,250,000 in principal of 11% Convertible Debenture the Company issued to HEP Investments 630,000 shares of common stock valued at $45,000 and a five-year warrant to purchase 1,250,000 shares of common stock at an exercise price of $.10 per share.
During the six months ended June 30, 2017, in connection with the issuance of $1,000,000 in principal of 11% Convertible Debenture the Company issued to HEP Investments 450,000 shares of common stock valued at $36,000 and a five-year warrant to purchase 1,000,000 shares of common stock at an exercise price of $.10 per share. The Company also issued 250,000 shares of common stock valued at $22,500 as discussed in Note 10 - Settlement of Litigation – Related Party.
Executive Compensation
As compensation for serving as Chief Financial Officer, the Company, quarterly, issues warrants to purchase 50,000 shares of common stock to Philip M. Rice at the prevailing market price with a term of 5 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 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%.
14
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS’ DEFICIT (Continued)
On March 31, 2017, the Company issued warrants to purchase 50,000 shares of common stock at $.08. The warrants were valued at $3,317 using the Black Scholes pricing model relying on the following assumptions: volatility 175.53%; annual rate of dividends 0%; discount rate 1.93%. On May 12, 2017, the Company issued warrants to purchase 50,000 shares of common stock at $.09. The warrants were valued at $4,283 using the Black Scholes pricing model relying on the following assumptions: volatility 176.74%; annual rate of dividends 0%; discount rate 1.93%.
Common Stock Warrants
A summary of the status of the Company’s warrants is presented below.
|
June 30, 2017
|
|
December 31, 2016
|
|
Number of
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Number of
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
32,071,901
|
$
|
0.13
|
|
14,705,818
|
$
|
0.16
|
Issued
|
2,287,227
|
|
0.09
|
|
20,350,000
|
|
0.09
|
Exercised
|
-
|
|
-
|
|
-
|
|
-
|
Cancelled
|
-
|
|
-
|
|
-
|
|
-
|
Expired
|
(1,408,333)
|
|
0.17
|
|
(2,983,917)
|
|
0.13
|
Outstanding, end of period
|
32,950,795
|
$
|
0.10
|
|
32,071,901
|
$
|
0.13
|
Warrants outstanding and exercisable by price range as of June 30, 2017 were as follows:
|
Outstanding Warrants
|
|
|
Exercisable Warrants
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
Exercise
Price
|
|
Number
|
|
Contractual
Life in Years
|
|
|
Exercise
Price
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
1,250,000
|
|
4.20
|
|
$
|
0.05
|
|
1,250,000
|
$
|
0.05
|
|
0.08
|
|
17,925,000
|
|
3.71
|
|
|
0.08
|
|
17,925,000
|
|
0.08
|
|
0.09
|
|
709,110
|
|
3.72
|
|
|
0.09
|
|
709,110
|
|
0.09
|
|
0.10
|
|
9,914,427
|
|
3.84
|
|
|
0.10
|
|
9,914,427
|
|
0.10
|
|
0.12
|
|
99,041
|
|
1.68
|
|
|
0.12
|
|
99,041
|
|
0.12
|
|
0.14
|
|
50,000
|
|
2.12
|
|
|
0.14
|
|
50,000
|
|
0.14
|
|
0.15
|
|
1,426,941
|
|
2.11
|
|
|
0.15
|
|
1,426,941
|
|
0.15
|
|
0.17
|
|
50,000
|
|
1.75
|
|
|
0.17
|
|
50,000
|
|
0.17
|
|
0.19
|
|
50,000
|
|
1.92
|
|
|
0.19
|
|
50,000
|
|
0.19
|
|
0.22
|
|
269,276
|
|
1.25
|
|
|
0.22
|
|
269,276
|
|
0.22
|
|
0.25
|
|
707,000
|
|
0.89
|
|
|
0.25
|
|
707,000
|
|
0.25
|
|
0.30
|
|
250,000
|
|
1.43
|
|
|
0.30
|
|
250,000
|
|
0.30
|
|
0.33
|
|
250,000
|
|
1.00
|
|
|
0.33
|
|
250,000
|
|
0.33
|
|
|
|
32,950,795
|
|
3.57
|
|
|
|
|
32,950,795
|
$
|
0.10
|
15
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8- COMMITMENTS AND CONTINGENCIES
Employment Agreement
The Company’s 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 Company’s 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 Company’s 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 Company’s 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 June 30, 2017, none of the milestones referred to had been achieved and there has been no notice of contract termination.
I
nvestment Banking, M&A and Corporate Advisory Agreement
On January 17, 2017 the Company entered into a one year agreement with an Investment Banking, Merger and Acquisition (M&A) and Corporate Advisory firm ("Firm"). Pursuant to the terms of the agreement, if the Company did not terminate the engagement prior to April 18, 2017, it was required to issue 1,875,000 shares of its common stock. As of April 18, 2017, the Company had not terminated the agreement and therefore became obligated to issue the aforementioned shares. The Company recorded the expense in Professional Fees and Consulting Expenses in the amount of $131,250 on its Condensed Consolidated Statement of Operations for the six months ended June 30, 2017. In addition to the contract fee, the Company could potentially be required to be obligated to pay an 8% M&A transaction fee (as defined in the Agreement) payable in shares of the Company’s common stock (reduced by the value of the previously issued shares).
Change of Control Provisions
Effective as of April 21, 2017, the Board of Directors extended to December 31, 2017 the Change in Control Agreements (the “Agreements”) with both of its executive officers. The Agreements with each of the executive officers provide that if a Change of Control (as defined in the Agreements) occurs and the participant is not offered substantially equivalent employment with the successor corporation or the participant’s employment is terminated without Cause (as defined in the Agreements) during the three month period prior to the Change of Control or the 24 month period following the Change of Control, then 100% of such participant’s unvested options will be fully vested and the restrictions on his restricted shares will lapse. The Agreements also provide for severance payments of 500% of base salary and target bonus in such event. The Agreements terminate on December 31, 2017, with the provision that if a Change of Control occurs prior to the termination date, the obligations of the Agreements will remain in effect until they are satisfied or have expired.
16
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS
Due to Related Party
See Note 4 Due to Related Party for disclosure of payable to related Party.
Loan Payable – Related Party
See Note 5 Loan Payable – Related Parties for disclosure of loans payable to related Parties
Executive Compensation
See Note 7 – Stockholder’ Deficiency for disclosure of compensation to the Chief Financial Officer.
Employment Agreement
See Note 8 – Commitments and Contingencies for disclosure of the Employment Agreement with the Chief Executive Officer.
NOTE 10 – SETTLEMENT OF LITIGATION - RELATED PARTY
On July 15, 2015, a shareholder of the Company (“Shareholder”) brought action against HEP Investment alleging certain technical violations of Section 16(b) of the Securities Act of 1934, as amended. On March 3, 2017, without admitting any liability whatsoever, HEP Investment settled with the Shareholder by agreeing to reduce the Company’s debt owed to HEP Investment by $280,000. Related to this debt reduction, the Company paid to the Shareholder’s legal counsel $60,000 and 250,000 shares of the Company’s common stock valued at $22,500. The Company considered the settlement to be a Type 1 subsequent event and recorded legal fees of $82,500 on the Statement of Operations for the year ended December 31, 2016 and recorded the settlement amount of $280,000 as a reduction of convertible debt owed to HEP Investments and an increase to Additional Paid-In Capital on its Balance Sheet as of December 31, 2016.
NOTE 11 - SUBSEQUENT EVENTS
11% Convertible Debt - HEP Investments, LLC
On July 14, 2017 HEP Investments, LLC (“Lender”) funded an additional $158,040. Due to this additional funding and the reaching of a $250,000 tranche (see Note 5 – Loans Payable, Related Party), the Company issued to the Lender a $250,000, 11% convertible note (at a conversion price of $.10) and warrants to purchase 250,000 shares of common stock, at a conversion `price of $.10 for a term of five years. The terms of the debt are in described in Note 6 - Convertible Debt.
On July 19, 2017, the Board of Directors approved the issuance to Lender of a warrant to purchase 50 million shares of common stock at a exercise price of $.10 for a term of two years on the basis of $2.5 million funding through the 11% convertible note (at a conversion price of $.10). This warrant is in addition to 10% warrant coverage (five-year term) provided to Lender in connection with investments in convertible debt pursuant to existing agreements (see Note 6 - Convertible Debt). The warrant will not be issued until the related funding is complete.
17
ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SUBSEQUENT EVENTS - (continued)
In an agreement dated July 21, 2017 (“Agreement”) between Lender and Strome Mezzanine Fund LP (“Participant”), the Participant agreed to fund a total of $1.5 million through the Lender’s 11% convertible note (at a conversion price of $.10). The Company also agreed to a “Right of First Refusal” (ROFR) with the Participant. The Company would give the Participant the ROFR to invest funds into the Company on the same terms and conditions (“Right of Participation”) as negotiated by the Company with a third party, provided that the Right of Participation must be exercised within 10 days. Certain exclusions apply relating to the committed funding of $1.5 million from parties unrelated to the Participant. This ROFR terminates on the third (3) anniversary of the Agreement or if the participant fails to fund the full $1.5 million by November 20, 2017. The Participant has an agreement with the Lender that upon the funding of the Participant’s $1.5 million by November 20, 2017, the Lender would allocate a portion (50%) of the warrant to purchase 50 million shares of common stock at a conversion price of $.10 issued to the Lender on the $2.5 million funding through the 11% convertible note as discussed above. On July 24, 2017 the Lender funded $1,000,000 of the $2.5 million (of which $500,000 is from the Lender and $500,000 is from the Participant). Due to this additional funding, the Company issued to the Lender a $1,000,000, 11% convertible note (at a conversion price of $.10) and warrants to purchase 1,000,000 shares of common stock, at a conversion `price of $.10 for a term of five years. The terms of the debt are in described in Note 6 - Convertible Debt.
On August 1, 2017, the Lender funded an additional $50,000. This amount was recorded as Loan Payable, Related Party (see note 5 - Loan Payable, Related Party).
In July 2017, the Lender converted $30,000 of the debt (at $.10 per share).
Stock Based Compensation
On August 3, 2017, the Company issued warrants to purchase 16,000,000 shares of common stock at an exercise price of $.06 with a term of 5 years pursuant to an agreement with a financial consulting firm. The warrants were valued at approximately $917,000 using the Black Scholes pricing model relying on the following assumptions: volatility 177.58%; annual rate of dividends 0%; discount rate 1.79%.
18