Zivo Bioscience, Inc. ZIVO US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains certain forward-looking statements that involve risk and uncertainties. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled “Risk Factors,” and other documents we file with the SEC. Historical results are not necessarily indicative of future results.

Overview

We have put in place a business model in which we may derive future income from licensing and selling natural bioactive ingredients including algal biomass and products that may be derived from or are initially based on the algal biomass. We expect that these planned new products will likely be sold or licensed to much larger, better-financed human and animal pharma companies, and to food, dietary supplement, and skin care manufacturers. The anticipated income streams are to be generated from a) sales of algal biomass or extracts thereof, and b) license payments in the form of royalties and / or other contractual payments for licensed natural bioactive ingredients. Our manufacturing strategy is to create contract manufacturers for our non-licensed products which products will be sold by us to food distributors and retailers, animal food, dietary supplement, and medical food processors and/or name-brand marketers. Further, we expect to license our bioactive fractions and molecules as lead compounds or templates for synthetic variants intended for therapeutic applications.

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Financial Overview

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs for personnel in functions not directly associated with research and development activities, professional fees and consultant expenses, and other overhead spending. Personnel related costs include cash compensation, benefits, and stock-based compensation expenses. Professional fees and consultant expenses consist primarily of legal fees relating to corporate matters, intellectual property costs, professional fees for consultants assisting with regulatory, and financial matters. Other overhead spending includes cost to support information technology, rent, insurances, public company listing, and supplies.

We anticipate that our general and administrative expenses will significantly increase in the future to support our continued research and development activities, potential commercialization of our product candidates, hiring of additional personnel, legal and professional services, and other public company related costs.

Research and Development

Research and development expenses are incurred in developing our product candidates, compensation and benefits for research and development employees, including stock-based compensation, research related overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to research consultants and other outside expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed.

We expect our research and development expenses to significantly increase over the next several years as we continue to develop product candidates targeting additional pharma and algal biomass applications. These additional activities will increase the need to conduct preclinical testing and clinical trials and will depend on the duration, costs and timing to complete our preclinical programs and clinical trials.

Interest Expense

Interest expense primarily consists of interest costs related to our convertible notes and for interest on short term debt, as discussed in detail below.

Other Income

Other income consists of proceeds derived from activity outside of normal operating activity, including amortization of debt discounts where appropriate.

Results of Operations

Comparison of Year Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the year ended December 31, 2023 and 2022:

Year ended December 31,

Total revenue $ 27,650 $ -

Total cost of goods sold (16,040 ) $ -

Costs and expenses:

Total interest and other (expense), net (514,172 ) $ (13,319 )

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Revenue

During the year ended December 31, 2023, the Company recorded commercial revenue relating to sales of the Company’s dried algal biomass product as a human food or food ingredient. The $27,650 for the year ending December 31, 2023 is an increase over the $0 in revenue in the prior year. The $27,650 increase is the result of product volume sold in the year ended December 31, 2023, versus no recorded product volume or revenue in the year ended December 31, 2022.

Costs of Goods Sold

Cost of goods sold for the year ended December 31, 2023 was $16,040. This is $16,040 higher than the same period last year, attributable to product volume as no product was shipped in the comparable prior year period.

General and Administrative Expenses

General and administrative expenses were $5.9 million for the 12 months ended December 31, 2023, which is about $600,000 lower than the approximately $6.5 million for the comparable prior period, explained by the following changes: a decrease of $270,000 in labor expense ($750,000 non-cash decrease due to stock options issued to employees partially offset by a roughly $480,000 increase in cash compensation and benefits), and a decrease in overhead expense of $330,000 ($820,000 decrease in directors fees, $290,000 decrease in consultant expense, partially offset by an increase of $260,000 in accounting, increase of $430,000 in legal, and increase in other overhead of $90,000). The increases in accounting and legal fees versus the prior year period were largely the result of legal and accounting fees incurred in capital raising efforts in 2023.

Research and Development Expenses

For the 12 months ended December 31, 2023, we incurred $1.4 million in net R&D expenses, as compared to $2.2 million for the comparable period in 2022.

Of these costs in 2023, $1.2 million is for salary and other internal costs, a decrease of approximately $325,000 from the prior year. The decrease is primarily explained by lower stock related compensation costs of $260,000 and lower travel expense by $30,000. Third party research and development spending of $856,000 was $610,000 lower than the prior year due to fewer third-party research studies and the end of our development program in our nutrition business. For the year ending December 31, 2023, the Company recognized a reduction in gross research and development spending of roughly $700,000 to account for the amortization of the spending obligation created through the complete funding of the Participation Agreements, roughly $70,000 lower than the amount research and development was reduced in 2022. (See Note 8: Deferred R&D Obligations - Participation Agreements)

December 31, December 31,

Subject to the availability of funding, we expect our R&D costs to grow as we work to complete the research in the development of natural bioactive compounds for use as dietary supplements and food ingredients, as well as biologics for medicinal and pharmaceutical applications in humans and animals. The Company’s scientific efforts presently are focused on the licensing products for healthy immune response in livestock and growing of our proprietary algal culture in commercial scale facilities.

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Liquidity and Capital Resources

Historical Capital Resources

As of December 31, 2023, our principal source of liquidity consisted of cash deposits of 274,380. We expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless we generate an adequate level of revenue from potential commercial sales to cover expenses.

We anticipate that our expenses will increase substantially as we develop and seek to commercialize our 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.

Our source of cash to date has been proceeds from the issuances of notes, common stock with and without warrants and unsecured loans, and the entry into Participation Agreements, the terms of which are further described below. See also “Funding Requirements and Outlook” below.

Unsecured Loans

From January 1, 2022 to December 31, 2023, the Company received gross proceeds of $2,384,200 in unsecured loans. As of December 31, 2023, no principal and accrued interest remained outstanding under such loans.

Private Placements

In the year ending December 31, 2023, we entered into Subscription Agreements with accredited investors pursuant to which we, in private placements, issued and sold an aggregate of 734,682 shares of common stock for gross proceeds in the amount of $4,640,000.

Funding Requirements and Outlook

At December 31, 2023, we had $274,380 in cash deposits.

Management has noted the existence of substantial doubt about our ability to continue as a going concern. Additionally, our independent registered public accounting firm included explanatory paragraphs in the reports on our financial statements as of and for the years ended December 31, 2023, noting the existence of substantial doubt about our ability to continue as a going concern. Our existing cash is not sufficient to fund our operating expenses through at least twelve months from the date of this filing. To continue to fund operations, we will need to secure additional funding through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital when needed could compromise our ability to execute on our business plan. If we are unable to raise additional funds, or if our anticipated operating results are not achieved, we believe planned expenditures may need to be reduced in order to extend the time period that existing resources can fund our operations. If we are unable to obtain the necessary capital, it may have a material adverse effect on our operations and the development of our technology, or we may have to cease operations altogether.

Our material cash requirements relate to the funding of our ongoing product development. See “Item 1-Business-Clinical Development and Regulatory Pathway-Clinical Experience, Future Development and Clinical Trial Plans” in this Report for a discussion of design, development, pre-clinical and clinical activities that we may conduct in the future, including expected cash expenditures required for some of those activities, to the extent we are able to estimate such costs.

The development of our product candidates is subject to numerous uncertainties, and we could use our cash resources sooner than we expect. Additionally, the process of development is costly, and the timing of progress in pre-clinical tests and clinical trials is uncertain. Our ability to successfully transition to profitability will be dependent upon achieving further regulatory approvals and achieving a level of product sales adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

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Cash Flows

Cash Flows from Operating Activities. During the 12 months ended December 31, 2023, our operating activities used $5.8 million in cash, a decrease of cash used of roughly $1.3 million from the comparable prior period. The approximate $1.3 million decrease in cash used by operating activities was primarily attributable to the following (all of which are approximated): a $900,000 decrease in net loss, a decrease in non-cash expenses of $1.3 million (explained by a decrease of stock issued for services of $1.8 million, higher debt discount amortization of $(440,000), and lower amortization of deferred R&D obligations of $(70,000)), and changes is assets and liabilities of $1.7 million (mostly explained by an increase in accrued liabilities for unpaid bonus payments to certain employees of $940,000, an increase in accounts payable of $720,000 including $170,000 in overdue board of directors fees and $570,000 in legal and accounting professional services).

Cash Flows from Investing Activities. During the 12 months ended December 31, 2023 and 2022, there were no investing activities.

Cash Flows from Financing Activities. During the 12 months ended December 31, 2023, we generated $4.3 million in cash from financing activities; a private placement of stock and warrants in July 2023 in the amount of $3.6 million, and several private placements of common stock in December 2023 totaling $640,000, compared to zero provided in the prior year.

We estimate that we would require approximately $5 million in cash over the next 12 months in order to fund our basic operations, excluding our R&D initiatives. Based on this cash requirement, we have a near-term need for additional funding to continue to develop our products and intellectual property. Historically, we have had substantial difficulty raising funds from external sources. If we are unable to raise the required capital, we will be forced to curtail our business operations, including our R&D activities. The following table shows a summary of our cash flows for the periods indicated:

Twelve months ended December 31,

Net cash provided by (used in):

Investing activities - -

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

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Fair Value of Financial Instruments

We account for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhering to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

As of December 31, 2023 and December 31, 2022, fair values of cash, prepaid, other assets, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. We elected to account for the convertible notes while they were outstanding on a fair value basis under ASC 825 to comprehensively value and streamline the accounting for the embedded conversion options. The fair value of these convertible notes were based on both the fair value of our common stock, discount associated with the embedded redemption features, and cash flow models discounted at current implied market rates evidenced in recent arms-length transactions representing expected returns by market participants for similar instruments and are based on Level 3 inputs.

Complex Financial Instruments

We evaluate all conversion and redemption features contained in a debt instrument to determine if there are any embedded derivatives that require separation from the host debt instrument. An embedded derivative that requires separation is bifurcated from its host debt instrument and a corresponding discount to the host debt instrument is recorded. The discount is amortized and recorded to interest expense over the term of the host debt instrument using the straight-line method which approximates the effective interest method. The separated embedded derivative is accounted for separately on a fair market value basis. We record the fair value changes of a separated embedded derivative at each reporting period in the consolidated statements of comprehensive loss as a fair value change in derivative and warrant liabilities.

Stock-Based Compensation

We account for share‐based compensation in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation. Accordingly, compensation costs related to equity instruments granted are recognized at the grant‐date fair value. The Company records forfeitures when they occur. Share‐based compensation arrangements to non‐employees are accounted for in accordance with the applicable provisions of ASC 718.

Recent Accounting Pronouncements

See “Note 3 - Summary of Significant Accounting Policies” in this Report regarding the impact of certain recent accounting pronouncements on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not required for smaller reporting companies.

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Item 8. Financial Statements and Supplementary Data.

Reference is made to the Consolidated Financial Statements, the Reports thereon, and the Notes thereto, commencing on page F-1 of this report, which Consolidated Financial Statements, Reports, Notes and data are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Incorporated by reference to “Proposal No. 2 - Ratification of Independent Registered Public Accounting Firm” in the Registrant’s 2023 Proxy Statement to be filed within 120 days after the Registrant’s fiscal year end.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, as our principal financial and accounting officer, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting, described below.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management utilized the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to conduct an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023. As previously reported, we identified material weaknesses that continued to exist at December 31, 2023. In addition, in connection with the audit of our consolidated financial statements for the year ended December 31, 2023, we identified additional material weaknesses in internal control over financial reporting, as described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Material Weaknesses in Internal Control Over Financial Reporting

Management has determined that the Company had the following material weaknesses in its internal control over financial reporting.

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Control Environment, Risk Assessment, and Monitoring

Management did not design and maintain appropriate entity-level controls impacting the control environment, risk assessment procedures, and monitoring activities to prevent or detect material misstatements to the consolidated financial statements. These deficiencies were attributed to: (i) lack of structure and responsibility, insufficient number of qualified resources, and inadequate oversight and accountability over the performance of controls, (ii) ineffective identification and assessment or risks impacting internal control over financial reporting, and (iii) ineffective evaluation and determination as to whether the components of internal control were present and functioning.

Control Activities and Information and Communication

These material weaknesses contributed to the following additional material weaknesses within certain business processes and the information technology environment:

Based on the assessment and identification of the material weaknesses described above, management has concluded that, as of December 31, 2023, our internal control over financial reporting was not effective and could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control deficiencies constitute material weaknesses.

However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S. GAAP, our management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.

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Remediation

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. The remediation actions include:

Changes in Internal Control Over Financial Reporting

Except for the material weaknesses discussed above, there was no other change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Incorporated by reference to “Proposal No. 1 - Election of Directors - Management,” “Information with Respect to the Board of Directors,” and “Management” in the Registrant’s 2024 Proxy Statement to be filed within 120 days after the Registrant’s fiscal year end.

Item 11. Executive Compensation

Incorporated by reference to “Executive Compensation” in the Registrant’s 2024 Proxy Statement to be filed within 120 days after the Registrant’s fiscal year end.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated by reference to “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” in the Registrant’s 2024 Proxy Statement to be filed within 120 days after the Registrant’s fiscal year end.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Incorporated by reference to “Certain Relationships and Related Transactions” and “Proposal No. 1 - Election of Directors”in the Registrant’s 2024 Proxy Statement to be filed within 120 days after the Registrant’s fiscal year end.

Item 14. Principal Accountant Fees and Services

Incorporated by reference to “Proposal No. 2 - Ratification of Independent Registered Public Accounting Firm” in the Registrant’s 2024 Proxy Statement to be filed within 120 days after the Registrant’s fiscal year end. Information about aggregate fees billed to us by our principal accountant, BDO USA, P.C. (PCAOB ID No. 243) will be included under the caption “Independent Auditor Fees” in the 2024 Proxy Statement, and that information is incorporated by reference herein.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) (1) (2) Financial Statements.

Financial Statements begin on page F-1 of this report.

All schedules have been omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or Notes thereto.

(3) Exhibits.

EXHIBIT

NUMBER DESCRIPTION OF DOCUMENT

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21.1* Subsidiaries of the Registrant

23.1* Consent of BDO USA, P.C.

101.INS* Inline XBRL Instance Document

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

____________

* Filed herewith.

**Furnished herewith.

+ Indicates a management contract or compensatory plan.

†Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

Item 16. Form 10-K Summary.

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ZIVO BIOSCIENCE, INC.

By: /s/ Keith R. Marchiando

Keith R. Marchiando

Chief Financial Officer, and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ John B. Payne

John B. Payne,

Chief Executive Officer, President and Director

By: /s/ Keith R. Marchiando

Keith R. Marchiando

Chief Financial Officer, and Secretary

By: /s/ Christopher D. Maggiore

Christopher D. Maggiore,

Director

By: /s/ Nola E. Masterson

Nola E. Masterson,

Director

By: /s/ Alison A. Cornell

Alison A. Cornell,

Director

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Zivo Bioscience, Inc.

Bloomfield Hills, Michigan

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Zivo Bioscience, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Private Placement Warrants

As discussed in Note 5 to the consolidated financial statements, the Company completed a private placement whereby the Company issued warrants to purchase 65,000 shares of the Company's common stock, and as discussed in Note 9 to the consolidated financial statements, the Company completed a registered direct offering whereby the Company issued pre-funded warrants to purchase 78,021 shares of common stock, Series A Warrants to purchase 249,688 shares of common stock, and Series B Warrants to purchase 249,688 shares of common stock (collectively, the “Private Placement Warrants”). The Company determined that the Private Placement Warrants should be classified as equity.

We identified the assessment of the accounting treatment for Private Placement Warrants as equity or liability as a critical audit matter. The principal considerations that led to this determination was the complexity in assessing the warrant features, which requires management to make significant judgments in the interpretation of the terms of the agreements and the application of the appropriate accounting guidance. Auditing the Company’s application of appropriate accounting guidance for the Private Placement Warrants required challenging and complex auditor judgment due to the nature and extent of audit effort required, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

/s/ BDO USA, P.C.

We have served as the Company’s auditor since 2022.

Troy, Michigan

March 15, 2024

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, December 31,

ASSETS

CURRENT ASSETS:

Accounts receivable 3,735 -

PROPERTY AND EQUIPMENT, NET - -

OTHER ASSETS:

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT):

CURRENT LIABILITIES:

Accounts payable – related party 172,670 -

Current portion of long-term operating lease 106,342 99,259

Deferred R&D obligations - participation agreements - 525,904

Deferred R&D obligations - participation agreements related parties - 175,427

LONG TERM LIABILITIES:

Long-term operating lease, net of current portion - 105,919

Total long-term liabilities - 105,919

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ (DEFICIT):

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) $ 555,715 $ 2,123,019

(a) Results have been adjusted for the 1-6 Reverse Split in October 2023. See Note 9, “Stockholders' Equity (Deficit)” for details regarding the stock split.

The accompanying notes are an integral part of these consolidated financial statements.

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the year endedDecember 31,2023 For the year endedDecember 31,2022

REVENUE:

Product revenue $ 27,650 $ -

Total Revenues $ 27,650 $ -

COST OF GOODS SOLD

Total Cost of Goods Sold 16,040 -

COSTS AND EXPENSES:

OTHER (EXPENSE):

Amortization of debt discount (439,594 ) -

Interest expense - related parties (50,785 ) -

BASIC AND DILUTED LOSS PER SHARE $ (4.60 ) $ (5.57 )(a)

WEIGHTED AVERAGE

(a) Results have been adjusted for the 1-6 Reverse Split in October 2023. See Note 9, “Stockholders' Equity (Deficit)” for details regarding the stock split.

The accompanying notes are an integral part of these consolidated financial statements.

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2022 THROUGH DECEMBER 31, 2023

Additional

Common Stock Paid in Accumulated

Shares (a) Amount (a) Capital (a) Deficit Total

Employee and director equity-based compensation - - 2,692,462 - 2,692,462

Additional

Common Stock Paid in Accumulated

Shares (a) Amount (a) Capital (a) Deficit Total

Employee and director equity-based compensation - - 867,359 - 867,359

Debt discount for related party loan warrants - - 439,594 - 439,594

Fractional Shares from Split (290 ) - - - -

Common stock issued on prefunded warrant exercise 78,021 78 (31 ) - 47

(a) Results have been adjusted for the 1-6 Reverse Split in October 2023. See Note 9, “Stockholders' Equity (Deficit)” for details regarding the stock split.

The accompanying notes are an integral part of these consolidated financial statements.

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended For the Year Ended

December 31, December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization on debt discount 439,594 -

Employee and director equity-based compensation expense 867,359 2,692,462

Changes in assets and liabilities:

Security deposits - (29,058 )

Accounts payable – related party 172,670 -

Accounts receivable (3,735 ) -

Cash flows from investing activities:

Net cash (used) in investing activities $ - $ -

Cash Flow from Financing Activities:

Proceeds of loans payable, related party 1,150,000 -

Payment of loans payable, related party (1,150,000 ) -

Proceeds from private placement of registered securities, net 3,634,963 -

Exercise of common stock warrants 47 -

Proceeds from direct sale of common stock, related party 485,000 -

Proceeds from direct sales of common stock 155,000 -

Net cash provided by financing activities $ 4,275,010 $ -

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Income taxes $ - $ -

The accompanying notes are an integral part of these consolidated financial statements.

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Supplemental Schedule of Non-Cash Investing and Financing Activities:

For the Year Ended December 31, 2023:

During the year ended December 31, 2023, the Company had no non-cash investing or financing transactions.

For the Year Ended December 31, 2022:

During the year ended December 31, 2022, the Company had no non-cash financing transactions.

During the year ended December 31, 2022, the Company had non-cash investing activities in the amount of $241,694 related to ROU assets obtained in exchange for ROU liabilities.

The accompanying notes are an integral part of these consolidated financial statements.

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ZIVO BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS

The business model of Zivo Bioscience, Inc. and its subsidiaries (Health Enhancement Corporation, HEPI Pharmaceuticals, Inc., Zivo Bioscience, LLC, Wellmetrix, LLC, WellMetris, LLC, Zivo Biologic, Inc., ZIVOLife, LLC, and Zivo Zoologic, Inc. (collectively the “Company”)) is to derive future income from licensing and selling natural bioactive ingredients derived from their proprietary algae cultures to animal, human and dietary supplement and medical food manufacturers.

NOTE 2 - BASIS OF PRESENTATION

Going Concern

The Company has incurred net losses since inception, experienced negative cash flows from operations for the year ended December 31, 2023 and has an accumulated deficit of $123.6 million. The Company has historically financed its operations primarily through the issuance of common stock, warrants, and debt.

The Company expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue to support its cost structure. There can be no assurance that the Company will achieve profitable operations, and, if achieved, whether it will be sustained on a continued basis.

The Company intends to fund ongoing activities by utilizing its current cash on hand and by raising additional capital through equity or debt financings. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.

These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

Stock Split

On October 26, 2023, the Company effected a 1-for-6 reverse stock split of its common stock and proportionately decreased the number of authorized shares of common stock. All share, per share, options, and warrants information has been retroactively adjusted to reflect the reverse split. The shares of common stock retain a par value of $0.001 per share

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Zivo Bioscience, Inc. and its wholly-owned subsidiaries, Health Enhancement Corporation, HEPI Pharmaceuticals, Inc., Wellmetrix, LLC, Wellmetris, LLC, Zivo Bioscience, LLC, Zivo Biologic, Inc., ZIVOLife, LLC, and Zivo Zoologic, Inc. All significant intercompany transactions and accounts have been eliminated in consolidation.

Accounting Estimates

The Company’s 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. Due to the inherent uncertainty involved in making estimates, 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.

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Cash

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. The Company maintains cash and cash equivalents balances at financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, balances in certain bank accounts may exceed the FDIC insured limits. At December 31, 2023 and 2022, the Company did not have any cash equivalents.

Leases

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases, requires the recognition of a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet. ROU assets represent the right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments resulting from the lease agreement. ROU assets and lease liabilities are recognized on commencement of the lease agreement.

ROU assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are recorded as current portion of long-term operating lease, and within long-term liabilities as long-term operating lease, net of current portion on the Company’s Consolidated Balance Sheets as of December 31, 2023 and 2022.

Lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised, as comparable locations could generally be identified within the same trade areas for comparable lease rates. Because the Company's leases do not provide an implicit rate of return, the Company used its incremental borrowing rate in determining the present value of lease payments. We have elected the practical expedient not to separate lease and nonlease components for all of our building leases.

Revenue Recognition

Revenue is recognized in accordance with ASC 606, which utilizes five steps to determine whether revenue can be recognized and to what extent: (i) identify the contract with a customer; (ii) identify the performance obligation(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) determine the recognition period. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, Revenue from Contracts with Customers, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied when control of the product is transferred according to agreed shipping terms, and revenue is recognized at that single point in time.

Significant judgments exercised by management include the identification of performance obligations, and whether such promised goods or services are considered distinct. The Company evaluates promised goods or services on a contract-by-contract basis to determine whether each promise represents a good or service that is distinct or has the same pattern of transfer as other promises. A promised good or service is considered distinct if the customer can benefit from the good or service independently of other goods/services either in the contract or that can be obtained elsewhere, without regard to contract exclusivity, and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contact. If the good or service is not considered distinct, the Company combines such promises and accounts for them as a single combined performance obligation.

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Research and Development

Research and development (“R&D”) costs are expensed as incurred. The Company’s R&D costs, including internal expenses, consist of clinical study expenses as it relates to the therapeutic (biotech) business and the development and growing of algae as it relates to the nutrition (agtech) business. External clinical studies expenses were approximately $900,000 and $1.4 million for the years ended December 31, 2023 and 2022, respectively. Internal expenses, composed of staff salaries compose approximately $1.2 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively. These costs were offset by the amortization of the R&D obligation of $701,332 and $774,025 for the years ending December 31, 2023 and 2022, respectively; of which, $175,427 and $193,160, for the years ended December 31, 2023 and 2022, respectively were attributable to related parties (see “Note 8 - Deferred R&D Obligations - Participation Agreements”).

Income Taxes

The Company follows the authoritative guidance for accounting for income taxes. Deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 were primarily attributable to net operating loss carry forwards. Since the Company has a history of losses, and it is more likely than not that some portion or all of the deferred tax assets will not be realized, a full valuation allowance has been established. In addition, utilization of net operating loss carry-forwards is subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss carry-forwards before utilization.

Stock Based Compensation

The Company accounts 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, from time to time, issues common stock or grants common stock options 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. Issuances of common stock are valued at the closing market price on the date of issuance and the fair value of any stock option or warrant awards is calculated using the Black Scholes option pricing model and employing the simplified term method as the Company does not have a historical basis to determine the term. The Company records forfeiture of options when they occur.

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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. In considering the expected term of the options, the Company employs the simplified method. The Company uses this method as it does not have a history of option exercises to establish a robust estimated term based on experience. The simplified term is used for the determination of expected volatility as well as the identification of the risk free rate.

Income (Loss) Per Share

Basic loss per share is computed by dividing the Company’s net loss by the weighted average number of shares of common stock 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 options and warrants and conversions of debentures. Potentially dilutive securities as of December 31, 2023, consisted of 8,746 shares of common stock from convertible debentures and related accrued interest and 1,459,881 shares of common stock underlying outstanding options and warrants. Potentially dilutive securities as of December 31, 2022, consisted of 8,924 shares of common stock from convertible debentures and related accrued interest and 1,044,600 shares of common stock underlying outstanding options and warrants. For 2023 and 2022, diluted and basic weighted average shares were the same, as potentially dilutive shares are anti-dilutive.

Segment Reporting

The company reports all financial results as one segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker (CODM), reviews financial information presented on a consolidated basis, accompanied by information about operations for purposes of making operating decisions and assessing financial performance. The Company operates solely in the United States.

Warrants

The Company accounts for warrants issued on June 2, 2021 in connection with a public offering of commons stock and common stock warrants, and traded on the OTC Pink under the symbol ZIVOW, (“Public Warrants”) and Private Placement Warrants issued in July 2023, see Note 9 – STOCKHOLDERS’ EQUITY (DEFICIT), (collectively “Warrants”) as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the Warrants and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). The assessment considers whether the Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815-40, including whether the Warrants are indexed to the Company’s own stock and whether the events where holders of the warrants could potentially require net cash settlement are within the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. The fair value of Warrants is estimated using Black Scholes modeling. Inputs under the model include the Company’s Common Share price, the risk-free interest rate, the expected term, the volatility, and the dividend rate. Warrants that are determined to require liability classifications are measured at fair value upon issuance and are subsequently remeasured to their then fair value at each subsequent reporting period with changes in fair value recorded in current earnings. Warrants that are determined to require equity classifications measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified.

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Fair Value of Financial Instruments

We account for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhering to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

As of December 31, 2023 and 2022, fair values of cash, prepaid expenses, accounts receivable,, other assets, accounts payable, accrued expenses, and other liabilities approximated their carrying values because of the short-term nature of these assets or liabilities. As of December 31, 2023 and 2022 the fair value of the convertible notes approximated their carrying value. We elected to account for the convertible notes while they were outstanding on a fair value basis under ASC 825 to comprehensively value and streamline the accounting for the embedded conversion options. The fair value of these convertible notes were based on both the fair value of our common stock, discount associated with the embedded redemption features, and cash flow models discounted at current implied market rates evidenced in recent arms-length transactions representing expected returns by market participants for similar instruments and are based on Level 3 inputs.

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 has historically maintained cash balances at financial institutions which exceed the current FDIC limit of $250,000 at times during the year.

The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such account.

Recently Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this ASU beginning January 1, 2023. The Company has determined there is no impact of this standard on its financial statements.

In August 2020, the FASB ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The Company adopted ASU 2020-06 effective January 1, 2023, using the modified retrospective approach. The adoption of AASU 2020-06 did not have an impact on any amounts recorded the Company's consolidated financial statements. In addition, the adoption requires the use of the if-converted method for all convertible notes in the diluted net income (loss) per share calculation and the inclusion of the effect of potential share settlement of the convertible notes, if the effect is more dilutive. There was no impact to diluted earnings per share for the year ended December 31, 2023, as the convertible debentures were not in the money during the period.

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NOTE 4 - LEASES

On December 17, 2020, the Company entered into a 25 1⁄2 month lease agreement for a facility that contains office, warehouse, lab and R&D space in Ft. Myer, Florida. The lease agreement commenced on December 17, 2020 and ends on January 31, 2023. The lease agreement provided for a total rent of $54,993 over the period. Occupancy of the property commenced on December 17, 2020, and there was a 6-week rent holiday and a commencement date of February 1, 2021. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Rent is $3,291 per month from January 15, 2021 to January 31, 2022 and $1,154 from February 1, 2022 to January 31, 2023. On June 5, 2022, the Company exercised an option to extend the lease through December 31, 2024. The lease extension rent is $2,261 per month for calendar year 2023, and $2,300 per month for calendar year 2024, and totals an additional rent obligation of $54,743 of rent over the extension period.

On January 14, 2022, the Company entered into a 34-month sublease agreement for a 4,843 square-foot office in Bloomfield Hills, Michigan. The Company moved its headquarters to this location. The agreement commenced on January 29, 2022 and ends on November 30, 2024. The agreement provided for a total rent of $232,464. Occupancy of the property commenced on January 29, 2022, there was a three-month rent holiday with a rent commencement date of April 29, 2022. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Rent is $7,265 per month from commencement to November 30, 2022, $7,466 from November 30, 2022 to November 30, 2023, and $7,668 from November 30, 2023 to the lease end date.

The balances for our operating lease where we are the lessee are presented as follows within our consolidated balance sheet:

Operating leases:

Liabilities:

Current portion of long-term operating lease $ 106,342 $ 99,259

Long-term operating lease, net of current portion - 105,919

The components of lease expense are as follows within our consolidated statement of operations:

For the Year ended

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Other information related to leases where we are the lessee is as follows:

For the Year ended

Weighted-average remaining lease term:

Operating leases 0.94 Years 1.94 Years

Discount rate:

Supplemental cash flow information related to leases where we are the lessee is as follows:

For the Year ended

Non-cash investment in ROU asset - 241,694

As of December 31, 2023, the maturities of our operating lease liability are as follows:

Year Ended: Operating Lease

Total minimum lease payments $ 112,407

Less: Interest (9,471 )

Present value of lease obligations $ 102,936

Long-term portion of lease obligations $ -

NOTE 5 - LOAN PAYABLE, RELATED PARTIES

Payne Bridge Loan

On April 3, 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with the Company’s Chief Executive Officer (the “Subscriber”), pursuant to which the Company, in a private placement (the “Private Placement”), agreed to issue and sell to the Subscriber a 10% promissory note with a principal amount of $1 million (the “Payne Note”) and a warrant (the “Payne Warrant”) to purchase 65,000 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”). The Company had the ability to prepay all or a portion of the outstanding Payne Note principal and accrued and unpaid interest without any prepayment fee.

Each warrant is exercisable for a period of three years from issuance at a per-share exercise price equal to $17.46. The exercise price and number of the shares of our Common Stock issuable upon exercising the Payne Warrant will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization, or similar transaction, as described therein.

The allocation of fair value between the Payne Note and the Payne Warrant was recorded at the issuance date using a relative fair value allocation method. The Company determined the fair value of the Payne Warrants as of April 3, 2023 using the Black-Scholes option pricing model and applying the following assumptions as of April 3, 20233 not adjusted for the subsequent 1-6 Stock Split in October 2023:

Fair value of common stock $ 3.11

Expected term (in years) 3

Risk-free interest rate 3.73 %

Dividend yield -

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As a result, $439,594 or the proceeds were allocated to the Payne Warrant and the debt discount. The Payne Warrant, which qualified for the derivatives scope exception, met equity classification, and were recognized as a component of permanent stockholders’ equity within additional paid-in-capital and as a debt discount on the consolidated balance sheet.

The Payne Note matured on October 2, 2023, and bore interest at an annual rate of 10.0%. The debt discount was amortized using the effective interest rate method over the term of the Payne Note. The effective interest rate on the Payne Note, including the amortization of the discount was 49.0% as of October 2, 2023. In the year ended December 31, 2023, the Company recorded $489,594 of interest expense related to the Note, which included $439,594 of non-cash amortization of the loan discount. The Payne Note was satisfied in full on October 2, 2023.

HEP Investments, LLC

On November 16, 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with the HEP Investments, LLC a greater than 10% shareholder of the Company (the “November Subscriber”), pursuant to which the Company, in a private placement (the “Private Placement”), agreed to issue and sell to the November Subscriber a 10% promissory note with a principal amount of $150,000 (the “November Note”). The Company had the ability to prepay all or a portion of the outstanding November Note principal and accrued and unpaid interest without any prepayment fee.

On December 5, 2023 the Company repaid the principal in full and $784 of accrued interest to satisfy the November Note in full.

As of December 31, 2023, there were no Loans Payable to related parties.

NOTE 6 - CONVERTIBLE DEBT

The Company has $240,000 of outstanding convertible debentures. The debentures carry 1% per annum interest rate which is accrued until maturity. The original maturity dates have passed and the lender allows for rolling 30-day extensions until notice is given by the lender to the Company to the contrary. As of December 31, 2023, that agreement is still in place.

NOTE 7 - NOTE PAYABLE

Short Term Loans

On February 14, 2023, the 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. The note in the amount of $605,600 carries an 8.4% annual percentage rate and will be paid down equal monthly payments of $69,666, which payment began March 10, 2023. The loan was fully paid off, and there was no remaining principal balance as of December 31, 2023.

On February 21, 2022, the Company entered into a short-term, unsecured loan agreement to finance a portion of the Company’s directors’ and officers’ insurance premiums. The note in the amount of $628,600 carried a 4.15% annual percentage rate and was paid down in nine equal payments of $71,058 beginning in March 2022. The loan was fully paid off, and there was no remaining principal balance as of December 31, 2022.

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NOTE 8 - DEFERRED R&D OBLIGATIONS - PARTICIPATION AGREEMENTS

The Company entered into twenty-one (21) License Co-Development Participation Agreements (the “Participation Agreements”) with certain investors (“Participants”) for aggregate proceeds of $2,985,000. The Participation Agreements provide for the issuance of warrants to such Participants and allows the Participants to participate in the fees (the “Fees”) from licensing or selling bioactive ingredients or molecules derived from ZIVO’s algae cultures. Specifically, ZIVO has agreed to provide to the Participants a 44.78% “Revenue Share” of all license fees generated by ZIVO from any licensee (See the Table below).

According to the terms of the Agreements, and pursuant to ASC 730-20-25 the Company has bifurcated the proceeds of $2,985,000 as follows: 1) the 17,712 warrants sold were attributed a value of $953,897 based on the Black Scholes pricing model using the following assumptions: volatilities ranging from 129.13% to 154.26%; annual rate of dividends 0%; discount rates ranging from 0.26% to 0.87%, and recorded as Additional Paid In Capital; 2) the remaining $2,031,103 was recorded as Deferred R&D Obligation - Participation Agreements. Since the Company believes there is an obligation to perform pursuant to ASC 730-20-25, the Deferred R&D Obligation will be amortized ratably based on expenses incurred as the Company develops the technology for bioactive ingredients or molecules (including its TLR4 Inhibitor molecule) derived from the Company’s algae cultures. In the year ending December 31, 2023, the Company recognized $701,332 as a contra R&D expense related to personnel and third-party expenses to develop the subject technology. $175,427 of this total contra R&D expense was attributed to deferred R&D obligations funded by a related party. As of December 31, 2023, the R&D obligation has been fully amortized, and no balance remains. In the prior year ending December 31, 2022, the Company recognized $774,025 as a contra R&D expense related to personnel and third-party expenses to develop the subject technology. $193,610 of this total contra R&D expense was attributed to deferred R&D obligations funded by a related party. As of December 31, 2022, the remaining R&D obligation was $701,332, of which $175,427 was attributed to a related party.

The Participation Agreements allow the Company the option to buy back the right, title and interest in the Revenue Share for an amount equal to the amount funded plus a forty percent (40%) premium, if the option is exercised less than 18 months following execution, and for either forty (40%) or fifty percent (50%) if the option is exercised more than 18 months following execution. Pursuant to the terms of twelve of the Participation Agreements, the Company may not exercise its option until it has paid the Participants a revenue share equal to a minimum of thirty percent (30%) of the amount such Participant’s total payment amount. Pursuant to the terms of one of the Participation Agreements, the Company may not exercise its option until it has paid the Participant a revenue share equal to a minimum of one hundred forty percent (140%) of such Participant’s total payment amount. Five of the Participation Agreements have no minimum threshold payment. Once this minimum threshold is met, the Company may exercise its option by delivering written notice to a Participant of its intent to exercise the option, along with repayment terms of the amount funded, which may be paid, in the Company’s sole discretion, in one lump sum or in four (4) equal quarterly payments. If the Company does not make such quarterly payments timely for any quarter, then the Company shall pay the prorated Revenue Share amount, retroactive on the entire remaining balance owed, that would have been earned during such quarter until the default payments have been made and the payment schedule is no longer in default. See below a summary of the Participation Agreements:

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Buy-back Buy-back

Minimum Premium % Premium %

Agreement Date of Amount Exercise Revenue Payment pre-18 post 18

# Funding Funded Warrants Term Price Share Threshold mos. mos.

Certain of the Participation Agreements are owned by related parties. Participation Agreement numbers 8, 14, and 19 totaling $265,000 are owned by HEP Investments, Participation Agreement 21 in the amount of $45,000 is owned by MKY MTS LLC an entity controlled by the owners of HEP Investments, and Participation Agreement 13 in the amount of $500,000 is owned by an investment company owned by a significant shareholder Mark Strome (“Strome”).

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NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)

June 2023 Registered Direct Offering and 2023 Private Placement Warrants

On July 5, 2023, the Company, closed on a Securities Purchase Agreement dated June 30, 2023 (the “Purchase Agreement”) with a single institutional investor (the “Investor”), pursuant to which the Investor agreed to purchase from the Company, in a registered direct offering (the “Registered Offering”), (i) an aggregate of 171,666 shares of the Company’s Class A Common Stock, par value $0.001 per share at a price of $16.02 per share, (ii) an aggregate of 78,021 pre-funded warrants to purchase 78,021 shares of Common Stock, at an offering price of $16.0194 per pre-funded warrant at an exercise price of $0.0006 per share, with a term of exercise of five years (collectively, the “Registered Offering Securities”). The gross proceeds to the Company from the Registered Offering and concurrent private placement described below were approximately $4,000,000 (before deducting the placement agent’s fees and other offering expenses paid by the Company approximately $365,000).

As additional consideration for the purchase of the Private Placement Securities, we agreed to issue to the Investors Series A Warrants to purchase 249,688 shares of common stock at an exercise price of $16.80 per share, and Series B Warrants to purchase 249,688 shares of common stock at an exercise price of $16.80 per share (collectively, the “Private Placement Warrants”). The exercise price of the Private Placement Warrants is $16.80 per share, however, is subject to adjustment 100% of the highest VWAP during the period beginning on the trading day immediately preceding a public announcement of an applicable fundamental transaction and ending within 30 trading days following the fundamental transaction. In such event, the Investor shall have the right to receive, for each Private Placement Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, at the option of the Investor, the number of Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of Shares for which this Private Placement Warrant is exercisable. Further, if the Company is given any choice as to the securities, cash or property to be received in a fundamental transaction, then the Investor shall be given the same choice as to the alternate consideration it receives upon any exercise of these Private Placement Warrants following such fundamental transaction.

All the pre-funded warrants associated with the Registered Offering and the Series A and Series B warrants have been classified and accounted for under the equity method. The net proceeds of the offering, including the fair value assigned to the Private Placement Warrants were recorded as a component of stockholders’ equity within additional paid-in-capital.

Recapitalization - Reverse Stock Split

On October 26, 2023, the Company filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State, of Nevada (the “Certificate of Amendment”), to (i) effectuate a reverse stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock and treasury shares on a 1-for-6 basis and (ii) decrease the number of total authorized shares of common stock of the Company from 150,000,000 to 25,000,000 shares.

As of the Effective Time, every 6 shares of issued and outstanding common stock were converted into one share of common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, a holder of record of old common stock as of immediately prior to the Effective Time who would otherwise have been entitled to a fraction of a share was entitled to receive cash in lieu thereof.

The Company’s transfer agent, Issuer Direct Corporation, acted as the exchange agent for the Reverse Stock Split. The Reverse Stock Split did not alter the par value of the Company’s common stock or modify any voting rights or other terms of the common Stock. In addition, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable under all of the Company’s outstanding stock options and warrants to purchase shares of common Stock, and the number of shares authorized and reserved for issuance pursuant to the Company’s equity incentive plan will be reduced proportionately.

All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock. A proportionate adjustment was also made to the number of shares reserved for issuance pursuant to the Company’s equity incentive compensation plans to reflect the Reverse Stock Split.

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Board of Directors Fees

On July 28, 2022, our Board of Directors awarded options pursuant to the Non-Employee Director Compensation Policy. The Board granted to each of the three non-employee directors $50,000 in value of common stock options. The Company used the Black Scholes option pricing model to determine the number of shares that would derive a value of $50,000 for each non-employee director. The Black Scholes pricing model used the following assumptions: term of 5.31 years; volatility 120.99%; annual rate of dividends 0%; discount rate 2.69%. The model yielded an award grant of 7,896 total options, 2,632 for each of the three non-employee directors.

On December 16, 2022, our Board of Directors awarded options to each of the three non-employee directors of $10,000 in value of common stock options. The Company used the Black Scholes option pricing model to determine the number of shares that would derive a value of $10,000 for each non-employee director. The Black Scholes pricing model used the following assumptions: term of 5 years; volatility 116.42%; annual rate of dividends 0%; discount rate 3.61%. The model yielded an award grant of 2,121 total options, 707 for each of the three non-employee directors. The options vested immediately upon issuance.

On December 19, 2022, our Board of Directors appointed Ms. Alison Cornell as lead independent director. In recognition of that appointment the Board of Directors awarded to Ms. Cornell $300,000 in value of common stock options. The Company used the Black Scholes option pricing model to determine the number of shares that would derive a value of $300,000 for the lead independent director. The Black Scholes pricing model used the following assumptions: term of 5 years; volatility 116.47%; annual rate of dividends 0%; discount rate 3.70%. The model yielded an award grant of 23,240 total options. The options vested immediately upon issuance.

On June 12, 2023, our Board of Directors awarded options pursuant to the Non-Employee Director Compensation Policy. The Board granted to each of the three non-employee directors $50,000 in value of common stock options. The Company used the Black Scholes option pricing model to determine the number of shares that would derive a value of $50,000 for each non-employee director. The Black Scholes pricing model used the following assumptions: term of 5.31 years; volatility 112.25%; annual rate of dividends 0%; discount rate 3.88%. The model yielded an award grant of 10,878 total options, 3,626 for each of the three non-employee directors.

The Company recorded directors’ fees of $337,682 and $1,155,722 for the years ended December 31, 2023 and 2022, respectively, representing the cash fees paid or accrued and the expense associated with the common stock options described above. As of December 31, 2023 the Company had unpaid directors' fees accrued in the amount of $172,670. There were no unpaid directors' fees as of December 31, 2022.

Stock Issuances

During the month of December 2023, the Company issued 563,016 shares of common stock for proceeds of $640,000 to various investors in private placements. Included in those amounts were issuances of 437,692 shares of common stock for proceeds of $485,000 to two related parties.

Stock Based Compensation

During 2023, options were granted to the directors of the Company, and during 2022 options were granted to the employees and directors of the Company. As a result of these and continued vesting of prior grants, the Company recorded expenses of approximately $870,000 during the year ended December 31, 2023, of which approximately $230,000 of this expense was for R&D and $640,000 was attributed to G&A. During the year ending December 31, 2022 the Company recorded expenses of approximately $2.7 million, of which approximately $500,000 of this expense was for R&D and $2.2 million was attributed to G&A.

The fair value of options was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:

Year Ended December 31,

Expected dividends 0 % 0 %

Expected term 5.31 years 5 to 5.75 years

On February 22, 2022, the Board of directors granted options under its 2021 equity incentive plan (the “2021 Plan”) to purchase 28,747 shares of common stock to certain employees of the Company. The options have a term of ten years and vest over three years. The options were valued at $493,536 using the Black Scholes pricing model relying on the following assumptions: simplified term of 5.75 years; volatility 130.18%; annual rate of dividends 0%; discount rate 1.88%.

On August 29, 2022, the Board of directors granted options under its 2021 equity incentive plan (the “2021 Plan”) to purchase 28,831 shares of common stock to certain employees of the Company. The options have a term of ten years and vest over three years. The options were valued at $590,896 using the Black Scholes pricing model relying on the following assumptions: simplified term of 5.75 years; volatility 121.19%; annual rate of dividends 0%; discount rate 3.25%.

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On December 16, 2022, the Board of directors granted options under its 2021 equity incentive plan (the “2021 Plan”) to purchase 31,836 shares of common stock to the Chief Executive Officer of the Company. The options have a term of ten years and vested immediately upon issuance. The options were valued at $450,000 using the Black Scholes pricing model relying on the following assumptions: simplified term of 5.0 years; volatility 116.41%; annual rate of dividends 0%; discount rate 3.6%.

Stock Warrants Exercised

During the twelve months ended December 31, 2023, the Prefunded Warrants in connection with the Securities Purchase Agreement dated June 30, 2023 were exercised on a cash basis. The Company received $47 in exchange for the issuance of 78,021 shares of common stock. See NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT) - June 2023 Registered Direct Offering and 2023 Private Placement Warrants.

2021 Equity Incentive Plan

On October 12, 2021, after approval from the stockholders at the Company’s 2021 annual meeting of stockholders, the Company adopted the 2021 Plan for the purpose of enhancing the Company’s ability to attract and retain highly qualified directors, officers, key employees and other persons and to motivate such persons to improve the business results and earnings of the Company by providing an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. The 2021 Plan is administered by the compensation committee of the Board who will, amongst other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2021 Plan. Pursuant to the 2021 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, unrestricted shares and dividend equivalent rights. The 2021 Plan has a duration of 10 years.

Subject to adjustment as described in the 2021 Plan, the aggregate number of shares of common stock available for issuance under the 2021 Plan is initially set at 166,666 shares; this number is automatically increased each January 1st by an amount equal to 5% of the number of common stock shares outstanding at that date. As of December 31, 2023, 232,101 options have been issued under the 2021 Plan, and 91,559 shares remained available for issuance.

2019 Omnibus Long-Term Incentive Plan

Prior to the adoption of the 2021 Equity Incentive Plan, the Company maintained a 2019 Omnibus Long-Term Incentive Plan (the “2019 Plan”). Following the approval by the shareholders of the 2021 Equity Incentive Plan, no additional awards have been or will be made under the 2019 Plan. As of December 31, 2023, 130,203 stock options had been issued under the 2019 Plan with terms between 5 years and 10 years, of which 60,414 remained outstanding.

Common Stock Options

A summary of the status of the Company’s options issued under the Company’s equity incentive plans is presented below. As of December 31, 2023 there is no intrinsic value in any of the Company's outstanding options as the market price of the Company's common stock is in all cases lower than the exercise price of options.

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Options outstanding and exercisable by price range as of December 31, 2023 were as follows:

Outstanding Options Exercisable Options

Common Stock Warrants - Private

A summary of the status of the Company’s private warrants is presented below.

Cancelled - - - -

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Unregistered warrants outstanding and exercisable by price range as of December 31, 2023 were as follows:

Outstanding Warrants Exercisable Warrants

Common Stock Warrants - Public

A summary of the status of the Company’s public warrants is presented below:

Issued - - - -

Exercised - - - -

Cancelled - - - -

Expired - - - -

Registered warrants outstanding and exercisable by price range as of December 31, 2023, were as follows:

Outstanding Registered Warrants Exercisable Registered Warrants

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NOTE 10 - COMMITMENTS AND CONTINGENCIES

Alimenta Supply Agreement

In July 2023, the Company through it ZIVOLife LLC subsidiary and Alimenta Algae SAC, a Peruvian company, signed a binding Contract Manufacturing Term Sheet (the “Term Sheet”). This binding Term Sheet commits ZIVOLife to purchase all of the ZivolifeTM product produced by Alimenta at the site subject to certain capacity growth plans and overall capacity limitations. The purchase commitment will end on August 31, 2028. During the year ended December 31, 2023, the Company purchased $16,040 of product subject to this agreement. There were no purchases under this agreement in the year ended December 31, 2022.

Legal Contingencies

On April 13, 2022, AEGLE Partners, 2 LLC (“AEGLE”) initiated an arbitration in Michigan against the Company with the American Arbitration Association. AEGLE asserted claims related to a certain Supply Chain Consulting Agreement entered into between AEGLE and the Company in 2019 (as amended from time to time, the “Supply Chain Consulting Agreement”), and a disagreement between AEGLE and the Company regarding whether AEGLE was entitled to payment of certain fees and warrants pursuant to the Supply Chain Consulting Agreement. AEGLE's complaint sought, among other things, three times the payment of such alleged fees and warrants and recovery of AEGLE's costs and expenses. On April 20, 2023, the Company and AEGLE settled the pending arbitration matter for $13,000.

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

NOTE 11 - RELATED PARTY TRANSACTIONS

Loan Payable - Related Party

See “Note 5 - Loan Payable, Related Parties” for disclosure of loans payable to related parties.

Employment Agreement

The company presently has in place employment agreements with the Chief Executive Officer and the Chief Financial Officer.

Building Lease

In January 2022 the Company terminated its agreement for the rental of its office space from M&M Keego Center LLC, an entity controlled by an immediate family member of a principal shareholder.

Stock Issuances

During the month of December 2023, the Company issued 437,692 shares of common stock for proceeds of $485,000 to two related parties.

NOTE 12 - INCOME TAXES

The following table presents the components of net loss before income taxes:

Years Ended December 31,

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There was no income tax for the years ended December 31, 2023 and December 31, 2022. The Company’s tax expense differs from the “statutory” tax expense for the years ended December 31, 2023, and 2022 as noted below:

For the Years Ended December 31,

Other non-deductible items 1,195 0.0 % - 0.0 %

Total income tax provision $ - 0.0 % $ - 0.0 %

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. The tax effects of significant items comprising the Company’s deferred taxes were as follows:

For the Years Ended December 31,

Deferred tax assets/(liabilities)

Operating leases 1,973 -

Other deferred tax liabilities (178 ) (180 )

Total deferred income taxes $ - $ -

ASC 740 Income Taxes requires that the tax benefit of net operating losses (“NOLs”), temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Management believes that realization of the deferred tax assets arising from the above-mentioned future tax benefits from operating loss carryforwards is currently not more likely than not and, accordingly, has provided a valuation allowance. The valuation allowance increased by $1.6 million for the year ended December 31, 2023 and increased by $1.7 million for the year ended December 31, 2022.

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As of December 31, 2023 and 2022 the Company’s deferred tax asset contains the tax effect of approximately $41.4 million and $36.2 million of Federal NOLs, respectively. The Federal NOLs generated prior to December 31, 2017 were written off of the deferred tax asset, while NOLs generated subsequent to this date remain. Under the Tax Cuts and Jobs Act, all Federal NOLs incurred after December 31, 2017 are carried forward indefinitely for Federal tax purposes.

Total expiring operating losses (incurred prior to December 31, 2017) - -

In the ordinary course of its business the Company incurs costs that, for tax purposes, may be qualified research expenditures within the meaning of IRC Code Sec. 41 and are, therefore, may be eligible for the Increasing Research Activities credit under IRC Code Sec. 41. The Company has not claimed a credit pursuant to IRC Code Sec. 41 on its federal returns, i.e. no deferred tax asset is recorded on the books.

As of December 31, 2023, the Company has no uncertain tax positions. It is the Company’s policy to account for interest and penalties related to uncertain tax positions as interest expense and general and administrative expense, respectively in its statements of operations. No interest or penalties have been recorded related to the uncertain tax positions.

It is not expected that there will be a significant change in uncertain tax positions in the next 12 months. The Company is subject to U.S. federal and state income tax as well as to income tax in multiple state jurisdictions. In the normal course of business, the Company is subject to examination by tax authorities. As of the date of the financial statements, there are no tax examinations in progress. The statute of limitations for tax years ended after December 31, 2019, are open for federal and state tax purposes.

The 2017 Tax Act amended Section 174 of the Internal Revenue Code which affects the Federal tax treatment of research and experimental (R&E) expenditures. Preceding this law change, R&E expenditures were expensed as incurred for Federal Income Tax purposes. In taxable years beginning after December 31, 2021, R&E expenditures must be capitalized and amortized over 5 years for expenditures incurred in the United States, or 15 years for expenditures incurred outside the United States. Due to the nature of the Company’s operations, R&E expenditures are a significant portion of total expenditures. The Company calculated an estimated amount for income tax provision purposes based on guidance available to determine the capitalized amount.

NOTE 13 - SUBSEQUENT EVENTS

2021 Plan Evergreen Provision

Under the 2021 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date the 2020 Plan is approved by the stockholders of the Company, commencing on January 1, 2022, and ending on (and including) January 1, 2029, by an amount equal to 5% of the shares of common stock outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. On January 1, 2024, 119,117 shares were added to the 2021 Plan as a result of the evergreen provision.

Short Term Loan

On March 5, 2024, the 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. The note in the amount of $517,560 carries an 8.5% annual percentage rate and will be paid down in nine equal monthly payments of $59,563 beginning on March 10, 2024.