10-Q: Zivo Bioscience Reports Q2 2024 Results, Cites Increased R&D and G&A Expenses

Sentiment:

Quarterly Report 14 August 2024 4:10 PM

Zivo Bioscience's Q2 2024 results reveal no revenue, increased operating expenses, and a net loss, alongside ongoing efforts to secure additional funding.

Capital raiseThe company is seeking additional funding through public or private equity or debt financings.The company raised approximately $1.8 million from direct sales of common stock in private transactions during the six months ended June 30, 2024.The Board of Directors approved a direct private offering to raise capital to fund the Company's operations, the 2023 Private Offering.On June 10, 2024, the Board of Directors appointed a pricing committee of the board to establish an enhanced private direct offering which resulted in the 2024 Private Offering.

Worse than expectedThe company's revenue decreased, expenses increased, and net loss widened compared to the same period last year.Management has expressed substantial doubt about the company's ability to continue as a going concern.The company identified material weaknesses in its internal control over financial reporting.

Summary

Zivo Bioscience, Inc. reported its financial results for the quarter ended June 30, 2024.
The company recorded no product revenue for the quarter, a decrease from $4,050 in the same period last year.
Cost of goods sold was $0, compared to $701 in the prior year period.
General and administrative expenses increased significantly to $5.97 million from $1.38 million year-over-year, primarily due to higher labor-related expenses and professional service fees.
Research and development expenses also rose to $2.25 million from $442,113 in the prior year, driven by increased labor and internal research costs.
The company reported a net loss of $8.24 million, compared to a net loss of $2.07 million in the same quarter of the previous year.
For the six months ended June 30, 2024, Zivo recorded revenue of $35,720, an increase from $4,050 in the same period last year.
The net loss for the six-month period was $9.51 million, compared to $4.04 million in the prior year.
The company's management has expressed substantial doubt about its ability to continue as a going concern.
Zivo is seeking additional funding through equity or debt financings to sustain operations.
The company sold common stock in private unregistered transactions, raising $1.76 million during the six months ended June 30, 2024.
Zivo is developing bioactive compounds from its proprietary algal culture for human and animal health applications.
The company is also producing algal biomass in Peru for use as a functional food ingredient and nutritional enhancement.
Zivo is working towards building commercial-scale algae ponds using a proprietary design.
The company identified material weaknesses in its internal control over financial reporting.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the company's increasing losses, rising expenses, and concerns about its ability to continue as a going concern. While there are some positive aspects, such as increased revenue for the six-month period and ongoing product development, the overall financial situation is concerning.

Positives

Revenue for the six months ended June 30, 2024, increased to $35,720 from $4,050 in the same period last year.
The company raised approximately $1.8 million from direct sales of common stock in private transactions during the six months ended June 30, 2024.
Zivo is actively developing bioactive compounds from its proprietary algal culture for various human and animal health applications.
The company is progressing with plans to build commercial-scale algae ponds using a proprietary design in Peru.

Negatives

The company recorded no product revenue for the three months ended June 30, 2024.
General and administrative expenses significantly increased to $5.97 million for the quarter ended June 30, 2024.
Research and development expenses also increased substantially to $2.25 million for the quarter ended June 30, 2024.
The company's net loss widened to $8.24 million for the quarter ended June 30, 2024.
Management has expressed substantial doubt about the company's ability to continue as a going concern.
The company identified material weaknesses in its internal control over financial reporting.

Risks

The company's ability to continue as a going concern is uncertain, dependent on securing additional funding.
The company faces risks associated with raising additional capital on acceptable terms or at all.
Failure to raise capital could compromise the company's ability to execute its business plan.
The development of product candidates is subject to numerous uncertainties and costly processes.
The company's ability to transition to profitability depends on achieving further regulatory approvals and adequate product sales.
Material weaknesses in internal control over financial reporting could lead to material misstatements in financial statements.

Future Outlook

The company expects to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until it generates an adequate level of revenue from potential commercial sales to cover expenses and will need to secure additional funding through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources.

Management Comments

Management has noted the existence of substantial doubt about our ability to continue as a going concern.

Industry Context

Zivo Bioscience operates in the biotech and agtech sectors, focusing on developing bioactive compounds and algal biomass for human and animal health. The company's strategy involves seeking strategic partners for late-stage development and commercialization. The company is targeting the coccidiosis market in the poultry industry, which is dominated by antibioticor ionophore-based products.

Comparison to Industry Standards

The company's approach to treating coccidiosis with algal-derived compounds contrasts with the traditional antibiotic and ionophore-based treatments used by major animal health companies.
Zivo's focus on algal biomass as a functional food ingredient aligns with the growing trend of using natural and sustainable ingredients in the food and skincare industries.
The company's reliance on private placements for funding is common among small biotech companies, but it also highlights the challenges in securing larger institutional investments.
The identified material weaknesses in internal control over financial reporting are a concern, as they can impact the reliability of financial information and investor confidence; this is a common issue among smaller reporting companies.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Equity Incentive Plan	On May 31, 2024, the Board of Directors adopted the 2024 Equity Incentive Plan for Non-Employee Directors (the Director Equity Plan).	2024-05-31	The Director Equity Plan allows for the award of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards to non-employee directors.
Equity Incentive Plan Amendment	On May 31, 2024, the Companys Board of Directors amended the 2021 Plan such that the total number of shares of common stock available for issuance under the 2021 Plan would be 1,000,000 as of that date, an additional increase of 789,324 shares.	2024-05-31	The amendment increased the number of shares available for issuance under the 2021 Equity Incentive Plan.
Termination of Incentive Plan	On May 31, 2024 the Companys Board of Directors formally terminated the 2019 Plan.	2024-05-31	No additional awards have been or will be made under the 2019 Plan.

Legal Proceedings

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

Related Party Transactions

During the three months ended June 30, 2024, the Company sold common stock in 9 private unregistered transactions to related parties resulting in total proceeds of $659,999 and the issuance of 83,887 shares of common stock.
During the six months ended June 30, 2024, Included in the totals are 140,553 shares of common stock sold to related parties for proceeds of $790,781.
During the six months ended June 30, 2024, the Company exchanged $172,670 in accounts payable to related parties for 261,619 shares of common stock (see NOTE 4 STOCKHOLDERS EQUITY (DEFICIT) Equity Compensation Restricted Stock Awards Stock Award in Lieu of Unpaid Directors Fees).

Stakeholder Impact

Shareholders face the risk of further dilution due to potential equity financings.
Employees may be impacted by potential reductions in operations if the company is unable to secure additional funding.
The company's ability to develop and commercialize its products could impact customers and partners in the human and animal health sectors.
Creditors face increased risk due to the company's financial difficulties and going concern uncertainty.

Next Steps

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.
ZIVO will continue to seek strategic partners for late stage development, regulatory preparation and commercialization of its products in key global markets.
The company plans to invest in full commercial-scale ponds and product processing equipment.
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.

Key Dates

Date	Description
2023-02-14	Company entered into a short-term unsecured loan agreement to finance a portion of the Company's directors' and officers', and employment practices liability insurance premiums.
2023-06-30	Company sold 171,666 shares of common stock and pre-funded warrants to purchase up to an aggregate of 78,021 shares of Common Stock to a single institutional investor.
2024-03-05	Company entered into a short-term unsecured loan agreement to finance a portion of the Company's directors' and officers', and employment practices liability insurance premiums.
2024-05-31	Board of Directors adopted the 2024 Equity Incentive Plan for Non-Employee Directors (the Director Equity Plan).
2024-05-31	The Board granted common stock RSAs with a value of $300,000 under the Director Equity Plan to director Alison Cornell.
2024-05-31	The Board approved a Stock in Lieu of Unpaid Director's fees that would allow for the granting of a total of 261,619 common stock RSAs to the non-employee Board members in lieu of unpaid non-employee director service fees earned during the calendar year ending December 31, 2023.
2024-06-05	Pursuant to the Director Stock Option Replacement Program, 127,364 shares of restricted stock were granted under the Director Equity Plan to replace all 62,451 outstanding options that were previously granted to non-employee directors under the 2021 Plan.
2024-06-05	The Board awarded 50,251 common stock options to the Companys Chief Executive Officer in exchange for a prior agreed to cash payment yet unpaid in the amount of $400,000.
2024-06-05	Pursuant to the Employee Stock Option Replacement Program, 981,174 common stock option shares were approved by the Board of Directors from the 2021 Plan to replace all 230,064 outstanding options that were previously granted to executive and employees under both the 2019 Plan and the 2021 Plan.
2024-06-10	The Board of Directors appointed a pricing committee of the board to establish an enhanced private direct offering which resulted in the 2024 Private Offering.
2024-06-11	18,819 RSA were issued to non-employee directors on June 11, 2024 pursuant to the Amended Non-Employee Director Compensation Policy whereby each non-employee director receives $50,000 in value of RSA calculated from the closing price of the Companys common stock on that day.
2024-06-30	End of the quarterly period.
2024-07-07	The Company sold and issued common stock and warrants in three private transactions since July 1, 2024, the first for 20,000 common shares and 2,000 warrant shares to an investor for proceeds of $156,800.
2024-07-24	The Company sold and issued common stock and warrants in three private transactions since July 1, 2024, the second for 2,080 common shares and 208 warrant shares to a related party for $16,752 in proceeds.
2024-07-24	The Company sold and issued common stock and warrants in three private transactions since July 1, 2024, the third of 25,000 common shares and 2,500 warrant shares to an investor for $201,250 in proceeds.
2024-08-09	Date shares outstanding was calculated.
2024-08-14	Date of report.

Keywords

Zivo Bioscience, financial results, algal biomass, research and development, going concern, equity financing, internal control, net loss, revenue, expenses

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