10-Q: Zivo Bioscience Reports Increased Revenue but Continues to Face Losses in Q3 2024

Zivo Bioscience saw a revenue increase in Q3 2024 compared to the same period last year, but the company continues to operate at a loss.

Summary

• Zivo Bioscience reported a net loss of $2.27 million for the three months ended September 30, 2024, compared to a net loss of $1.82 million for the same period in 2023.
• The company's revenue increased to $31,500 in Q3 2024 from $11,800 in Q3 2023, primarily due to increased sales of its algal biomass product.
• Cost of goods sold also increased to $22,050 in Q3 2024 from $7,670 in Q3 2023, due to higher production volumes.
• General and administrative expenses rose to $1.94 million in Q3 2024 from $1.36 million in Q3 2023, driven by increased labor and professional service costs, including non-cash equity compensation.
• Research and development expenses increased to $326,361 in Q3 2024 from $220,653 in Q3 2023, with a shift from third-party research to internal R&D activities.
• For the nine months ended September 30, 2024, the net loss was $11.78 million, compared to $5.87 million for the same period in 2023.
• The company's revenue for the nine months ended September 30, 2024 was $67,220, up from $15,850 in the same period of 2023.
• Zivo has an accumulated deficit of $135.37 million and is facing substantial doubt about its ability to continue as a going concern.
• The company is relying on raising additional capital through equity and debt financings to fund its operations.

Sentiment

Score: 3

Explanation: The document highlights some positive revenue growth, but the significant net losses, going concern warning, and internal control weaknesses create a negative outlook. The company's reliance on further capital raises also adds to the uncertainty.

Positives

• The company experienced a significant increase in revenue, driven by higher sales volumes of its algal biomass product.
• Zivo successfully restructured its convertible debt, which may improve its financial stability.
• The company has secured additional funding through private placements of common stock and warrants.
• Zivo is actively developing its algal biomass for various applications in human and animal health.

Negatives

• The company continues to incur significant net losses, with a loss of $2.27 million in Q3 2024 and $11.78 million for the nine months ended September 30, 2024.
• Operating expenses, particularly general and administrative costs, have increased substantially.
• The company has identified material weaknesses in its internal control over financial reporting.
• Zivo has an accumulated deficit of $135.37 million, raising concerns about its long-term financial viability.
• The company's auditors have expressed substantial doubt about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is dependent on securing additional funding.
• There is a risk that Zivo may not be able to raise sufficient capital on acceptable terms.
• The company's internal control weaknesses could lead to material misstatements in its financial statements.
• The company's product development is subject to numerous uncertainties and may not achieve commercial success.
• Zivo faces competition in the biotech and agtech sectors.

Future Outlook

The company expects to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless it generates an adequate level of revenue from potential commercial sales to cover expenses. The company intends to fund ongoing activities by utilizing its current cash on hand and by raising additional capital through equity and/or debt financings.

Management Comments

• Management has noted the existence of substantial doubt about our ability to continue as a going concern.
• Management is responsible for establishing and maintaining adequate internal control over financial reporting.
• Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated.

Industry Context

Zivo operates in the competitive biotech and agtech sectors, focusing on developing bioactive compounds from algae for human and animal health. The company's focus on coccidiosis treatment in poultry aligns with a significant global market need, but it faces competition from established animal health companies. The company's agtech efforts are focused on producing algal biomass for use as a functional food ingredient and nutritional enhancement.

Comparison to Industry Standards

• Zivo's revenue growth, while positive, is still relatively small compared to established companies in the biotech and agtech sectors.
• The company's significant net losses and negative cash flow are not uncommon for early-stage biotech companies, but the magnitude of the losses and the going concern warning are concerning.
• The company's reliance on equity and debt financing is typical for companies in this stage, but the ability to secure funding on favorable terms is a key challenge.
• The material weaknesses in internal control over financial reporting are a significant concern and need to be addressed to meet industry standards for financial reporting.

Corporate Governance

Legal Proceedings

• The company may become a party to litigation in the normal course of business.
• To the knowledge of management, there are no pending legal matters involving the Company that would have a material adverse effect upon the Company's financial condition, results of operation or cash flows.

Related Party Transactions

• The company sold 45,406 shares of common stock to related parties for total proceeds of $378,101 in Q3 2024.
• The company issued warrants for 4,540 shares to related parties in Q3 2024.
• The company sold 185,959 shares of common stock to related parties for total proceeds of $1,168,882 during the nine months ended September 30, 2024.
• The company issued warrants for 5,238 shares to related parties during the nine months ended September 30, 2024.
• The company exchanged $172,670 in accounts payable to related parties for 261,619 shares of common stock.
• Two of the equity sales since October 1, 2024, were with related parties resulting in the issuance of 9,476 shares and warrants for an additional 947 shares of common stock for proceeds of $150,000.

Stakeholder Impact

• Shareholders face the risk of further dilution if the company raises additional capital through equity financings.
• Employees may be impacted by potential cost-cutting measures if the company is unable to secure sufficient funding.
• Customers may be affected by potential disruptions in product supply if the company faces financial difficulties.
• Suppliers and creditors face the risk of non-payment if the company's financial situation deteriorates.
• The company's ability to continue as a going concern is uncertain, which could impact all stakeholders.

Next Steps

• The company plans to continue developing its product candidates and intellectual property.
• Zivo intends to secure additional funding through public or private equity or debt financings.
• The company plans to relocate its headquarters to a new facility in Troy, Michigan, in January 2025.
• Management will continue to implement measures to remediate the identified material weaknesses in internal control over financial reporting.

Key Dates

Keywords

Zivo Bioscience, algal biomass, biotech, agtech, financial results, revenue, net loss, equity financing, debt restructuring, internal control, going concern