10-K: Zivo Bioscience Reports Full Year 2023 Results, Focuses on Algal Product Development

Zivo Bioscience, a biotech and agtech company, reported its full year 2023 results, highlighting progress in its algal-based product development for both human and animal health.

Summary

• Zivo Bioscience is a research and development company operating in the biotech and agtech sectors, focusing on proprietary algal and bacterial strains.
• The company's strategy is centered around identifying bioactive extracts from its algal culture for disease treatment and utilizing the whole algal culture as a nutritional food product.
• In 2023, Zivo commenced commercial shipments of its dried green algae powder for human consumption, marketed under the brand name ZivolifeTM.
• The company is developing a product candidate for treating coccidiosis in broiler chickens, aiming for a non-antibiotic solution.
• Zivo is also exploring other potential applications, including treatments for bovine mastitis, canine joint health, and human immune modulation.
• The company reported a net loss of approximately $7.8 million for the year ended December 31, 2023, with an accumulated deficit of approximately $123.6 million.
• Revenue for 2023 was $27,650 from sales of dried algal biomass, compared to no revenue in 2022.
• The company's operating expenses totaled approximately $7.3 million for 2023, a decrease from $8.7 million in 2022.
• Research and development expenses were $1.4 million for 2023, compared to $2.2 million in 2022.
• Zivo has a supply agreement with Alimenta Algae in Peru, which is expected to reach full production capacity of 100,000 kg per year by late 2025.
• The company has a distribution agreement with ZWorldwide, Inc., which has committed to purchasing at least 24,000 kg of product per year for a minimum of five years.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there is progress in product development and commercialization, the company's financial situation is concerning, with significant losses and a need for additional funding. The material weaknesses in internal controls also raise concerns.

Positives

• Zivo has successfully commenced commercial sales of its ZivolifeTM dried green algae powder.
• The company's coccidiosis product candidate has shown promising results in clinical trials, demonstrating a reduction in intestinal damage and improved feed conversion ratios.
• Zivo has secured a contract manufacturing agreement with Alimenta Algae, ensuring a consistent supply of its algal product.
• The company has a distribution agreement with ZWorldwide, Inc., guaranteeing a minimum purchase of 24,000 kg of product per year for five years.
• Zivo has received confirmation from the USDA's CVB that the agency has jurisdiction for reviewing its coccidiosis treatment, potentially streamlining the regulatory approval process.

Negatives

• Zivo has a history of operating losses and a significant accumulated deficit.
• The company's existing cash is not sufficient to fund its operating expenses for the next twelve months.
• Zivo is dependent on additional funding from equity or debt financings, which may require burdensome covenants or relinquishing commercial rights.
• The company relies on a single grower and distributor, which poses a risk to its supply chain and revenue generation.
• Zivo's internal controls over financial reporting were deemed ineffective due to material weaknesses.

Risks

• The company's ability to continue as a going concern is uncertain due to recurring losses and negative cash flows.
• Zivo is dependent on securing additional financing to fund its operations and product development.
• The company's reliance on a single grower and distributor creates a significant risk to its supply chain and revenue.
• The company's production of algae is subject to agricultural risks such as weather, disease, and contamination.
• Zivo faces competition from established pharmaceutical and nutraceutical companies.
• The company's internal controls over financial reporting are ineffective due to material weaknesses.
• The market price of the company's stock may be volatile and affected by economic conditions beyond its control.
• The company's common stock has been delisted from Nasdaq, which may affect liquidity.

Future Outlook

The company expects to continue to incur significant expenses and operating losses for the foreseeable future as it continues to develop and commercialize its product candidates. Zivo anticipates that its expenses will increase substantially as it continues to develop and seek to commercialize its product candidates and continue to pursue pre-clinical and clinical trials, seek regulatory approvals, manufacture product candidates, hire additional staff, add operational, financial and management systems and continue to operate as a public company.

Management Comments

• Management has noted the existence of substantial doubt about our ability to continue as a going concern.
• Management believes that reliance upon experienced third-party providers is the most prudent and cost-effective course for cybersecurity.
• Management believes that our existing facilities are adequate for our current needs.

Industry Context

The company operates in the competitive biotech and agtech sectors, facing competition from large pharmaceutical and nutraceutical companies, as well as other companies developing natural remedies. The company's focus on non-antibiotic solutions for animal health aligns with growing consumer and regulatory pressures to reduce antibiotic use in food production. The market for healthy foods, vegan and vegetarian food products continues to gain traction in the US and worldwide, especially as consumers look for healthful and nutritional ingredients to improve overall health and immune response.

Comparison to Industry Standards

• Zivo's approach to coccidiosis treatment, focusing on immune modulation rather than direct parasite targeting, is a departure from traditional methods used by companies like HuvePharma, Elanco, Zoetis, and Phibro.
• In the bovine mastitis market, Zivo's potential treatment would compete with antibiotic solutions like ToDay and Masti-Clear, as well as homeopathic and topical solutions.
• For canine joint health, Zivo's product would compete with a range of pain management drugs, including NSAIDs and DMOADs, offered by companies like Boehringer Ingelheim, Zoetis, and Merck Animal Health.
• In the human immune modulation market, Zivo's TLR4 inhibitor would compete with candidates from companies like Eisai and Takeda.
• In the human food and ingredient market, Zivo's algae powder would compete with established microalgae and green powder businesses like Earthrise, Cyanotech, and AG1.

Legal Proceedings

• On April 20, 2023, the Company and AEGLE settled the pending arbitration matter for $13,000.

Related Party Transactions

• The company had loans payable to related parties, including a $1 million note with its CEO and a $150,000 note with HEP Investments, LLC.
• The company issued shares of common stock to related parties for proceeds of $485,000.
• Certain of the Participation Agreements are owned by related parties.

Stakeholder Impact

• Shareholders face the risk of further dilution and potential loss of investment due to the company's need for additional funding.
• Employees may be affected by potential cost-cutting measures if the company is unable to secure additional financing.
• Customers of ZivolifeTM may experience supply constraints as the company scales up production.
• Suppliers and creditors may face increased risk due to the company's financial instability.

Next Steps

• The company intends to continue to develop its product candidates, including the coccidiosis treatment for broiler chickens.
• Zivo plans to continue to pursue other potential applications, including treatments for bovine mastitis, canine joint health, and human immune modulation.
• The company will continue to work with Alimenta Algae to scale up production of its algal product.
• Zivo will continue to market and sell its ZivolifeTM product through its distribution agreement with ZWorldwide, Inc.
• The company will seek additional funding through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources.

Key Dates

Keywords

algae, coccidiosis, biotech, agtech, nutrition, animal health, human health, Zivolife, contract manufacturing, distribution, financial results, research and development, intellectual property, regulatory approval