8-K: Zivo Bioscience to Exchange Debt for Equity with Accredited Investors

Zivo Bioscience is set to cancel participation agreements with accredited investors, exchanging their rights to revenue share and buy-out options for shares of common stock.

Summary

• Zivo Bioscience has authorized a series of Exchange Agreements with accredited investors who previously funded the company's license development.
• These investors had Participation Agreements entitling them to a revenue share and warrants in exchange for funding.
• The Exchange Agreements will cancel these Participation Agreements, forfeiting the investors' rights to the revenue share and buy-out option.
• In return, the investors will receive an aggregate of 212,260 shares of Zivo Bioscience's common stock.
• To date, the company has completed an exchange with two investors for a total of 14,200 shares of Common Stock.
• The original Participation Agreements were entered into between April 13, 2020, and May 14, 2021, involving approximately twenty investors.
• The company had a buy-out option to purchase the investors' revenue share rights for a minimum of $5,306,500.
• The Exchange Agreements include a release of claims and standard representations and warranties from both parties.
• Laith Yaldoo, a director of the Company, manages, directs, and controls two entities that are expected to participate in the Exchange Program as Investors.

Sentiment

Score: 6

Explanation: Neutral sentiment as the exchange simplifies the capital structure but dilutes existing shareholders.

Positives

• Simplifies the company's capital structure by removing revenue share obligations.
• Reduces potential future cash outflows related to the buy-out option, which had a minimum price of $5,306,500.
• Provides legal certainty through the release of claims included in the Exchange Agreements.
• Investors retain their warrants, maintaining some upside potential in the company.

Negatives

• Dilution of existing shareholders due to the issuance of 212,260 new shares of common stock.
• The company is giving up equity to eliminate the revenue share obligations, which may have been valuable if the underlying licenses proved successful.

Risks

• The value of the common stock issued may not be sufficient compensation for the forfeited revenue share rights if the company's licenses become highly profitable.
• The participation of entities managed by a company director, Laith Yaldoo, could raise potential conflicts of interest, although this is disclosed.

Future Outlook

The company aims to simplify its capital structure and reduce future cash obligations by exchanging equity for debt-like revenue sharing agreements.

Industry Context

This type of debt-for-equity swap is common in the biotechnology industry, especially for companies in the early stages of development seeking to streamline their financial obligations.

Comparison to Industry Standards

• Similar deals are often seen with biotech companies that initially raise capital through complex financing structures like revenue-sharing agreements.
• Comparable companies might include early-stage pharmaceutical or agricultural technology firms that have used similar funding mechanisms.
• The valuation of the revenue share rights being exchanged for equity would be a key metric to compare against industry benchmarks for similar agreements.

Related Party Transactions

• Laith Yaldoo, a director of the Company, manages, directs, and controls two entities that are expected to participate in the Exchange Program as Investors.

Stakeholder Impact

• Shareholders will experience dilution due to the issuance of new shares.
• The company's financial flexibility may improve due to the elimination of revenue share obligations.
• Investors participating in the exchange will convert their revenue share rights into equity.

Next Steps

• Complete the Exchange Agreements with the remaining accredited investors.
• Issue the agreed-upon shares of common stock to the investors.
• Monitor the impact of the exchange on the company's capital structure and financial performance.

Key Dates