Zivo Bioscience, Inc.: Form 10-Q for the period ended Jun 30, 2015

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the three months ended June 30, 2015 and 2014.

Overview:

For ZIVO, we have put in place a business model in which we would derive future income from licensing and selling natural bioactive ingredients that may be derived from or are initially based on the algae cultures. We expect that these planned new products will likely be sold to much larger, better-financed animal, food, dietary supplement and medical food manufacturers. The anticipated income streams are to be generated from a) royalties and advances for licensed natural bioactive ingredients, and b) bulk sales of such ingredients. These bulk ingredients will likely be made by contracted ingredient manufacturers and then sold by us to animal food, dietary supplement and medical food processors and/or name-brand marketers. Further, we expect to license our bioactive molecules as lead compounds or templates for synthetic variants intended for therapeutic applications.

For WellMetris, we are developing, manufacturing, marketing, and selling tests that we believe will allow people to optimize their health and identify future health risks. We plan to develop and commercialize such tests in three phases:

• In phase one (“Phase One”), we plan to develop and commercialize a series of tests, which are intended to measure indicators of good health and optimal metabolic function (collectively, the “Phase One Test”). The Phase One Test is being designed to measure biomarkers related to oxidative stress, inflammation, and antioxidant status to establish a metabolic assessment from which intervention can commence, and from which metabolic syndrome can be inferred.
• In phase two (“Phase Two”), we plan to develop and commercialize a testing technology focused on the positive or negative metabolic effects of diet and dietary supplements in a self-administered format that integrates with smartphone operating systems.
• In phase three (“Phase Three”), we plan to develop and commercialize tests intended to provide a complete metabolic profile for an individual utilizing the metabolites present in urine. The Company believes the Phase Three Tests will allow identification of healthy versus unhealthy bodily processes in real-time for both humans and animals.

Net Sales.

We had no sales during the three months ended June 30, 2015 and 2014. We implemented a new business model starting in 2012, and expect to derive future income from the licensing and sale of natural bioactive ingredients derived from algae cultures to much larger, better-financed animal, food, dietary supplement and medical food manufacturers. The anticipated income streams are to be generated from a) royalties and advances for licensed natural bioactive ingredients, and b) bulk sales of such ingredients. These bulk ingredients will be made by contracted ingredient manufacturers and then sold by us to food, dietary supplement and medical food processors and/or name-brand marketers. Because we are engaged in a collaboration agreement with Zoetis to determine the market validity of our candidate products in addressing bovine mastitis, we expect that at the conclusion of our joint study period, the two parties will engage in discussions regarding options and licenses, whereupon revenues can be expected. We do not believe that these revenues will likely materialize in the last two quarters of 2015, as the option/collaboration agreement allows for up to six months for negotiations, which could carry over into 2016.

Further, our current canine joint health studies may culminate in another option/collaboration agreement with a larger animal health company, or we may elect to pursue a direct supply contract with an established canine dietary supplement maker/marketer. Should any revenue materialize in 2015 for this specific product category, it would consist of an option payment, license fee or marketing consideration.

With respect to our WellMetris, LLC subsidiary, potential revenue may be expected in the first half of 2016 should capital funding be secured to activate the manufacturing of analyzers and test cartridges to build inventory, as well as product launch expenses.

Cost of Sales.

We had no cost of sales during the three months ended June 30, 2015 and 2014.

Selling and Marketing Expenses.

We had no selling and marketing expenses during the three months ended June 30, 2015 and 2014.

General and Administrative Expenses.

General and administrative expenses were $191,278 for the three months ended June 30, 2015, as compared to $262,145 for the comparable prior period. The decrease in general and administrative expense during 2015 is primarily due to a reduction in personnel expenses and travel.

Professional and Consulting Expenses.

Professional and consulting expenses were $504,007 for the three months ended June 30, 2015, as compared to $132,777 for the comparable prior period. The increase in professional and consulting expense during 2015 is mainly due to the issuance of warrants to purchase 3,125,000 shares of common stock pursuant to an agreement with a financial consultant. The warrants were valued at $285,305. In addition, approximately $85,000 of the increase is due to the engagement of an investor relations firm and use of additional financial consultants.

Research and Development Expenses.

For the three months ended June 30, 2015, we incurred $346,500 in research and development expenses, as compared to $405,790 for the comparable period in 2014. These expenses are mainly comprised of costs associated with external research. To the extent that we are able to raise sufficient funding, our research and development costs (for Zivo) will 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. For WellMetris, the Company’s scientific efforts are focused on the metabolic aspects of oxidation and inflammation, with a parallel program to validate and license products for healthy cholesterol balance.

Results of Operations for the six months ended June 30, 2015 and 2014.

Net Sales.

We had no sales during the six months ended June 30, 2015 and 2014. We implemented a new business model starting in 2012, and expect to derive future income from the licensing and sale of natural bioactive ingredients derived from algae cultures to much larger, better-financed animal, food, dietary supplement and medical food manufacturers. The anticipated income streams are to be generated from a) royalties and advances for licensed natural bioactive ingredients, and b) bulk sales of such ingredients. These bulk ingredients will be made by contracted ingredient manufacturers and then sold by us to food, dietary supplement and medical food processors and/or name-brand marketers. Because we are engaged in a collaboration agreement with Zoetis to determine the market validity of our candidate products in addressing bovine mastitis, we expect that at the conclusion of our joint study period, the two parties will engage in discussions regarding options and licenses, whereupon revenues can be expected. We do not believe that these revenues will likely materialize in the last two quarters of 2015, as the option/collaboration agreement allows for up to six months for negotiations, which could carry over into 2016.

Further, our current canine joint health studies may culminate in another option/collaboration agreement with a larger animal health company, or we may elect to pursue a direct supply contract with an established canine dietary supplement maker/marketer. Should any revenue materialize in 2015 for this specific product category, it would consist of an option payment, license fee or marketing consideration.

With respect to our WellMetris, LLC subsidiary, potential revenue may be expected in the first half of 2016 should capital funding be secured to activate the manufacturing of analyzers and test cartridges to build inventory, as well as product launch expenses.

Cost of Sales.

We had no cost of sales during the six months ended June 30, 2015 and 2014.

Selling and Marketing Expenses.

We had no selling and marketing expenses during the six months ended June 30, 2015 and 2014.

General and Administrative Expenses.

General and administrative expenses were $383,846 for the six months ended June 30, 2015, as compared to $532,748 for the comparable prior period. The decrease in general and administrative expense during 2015 is primarily due to a reduction in personnel expenses and travel.

Professional and Consulting Expenses.

Professional and consulting expenses were $664,808 for the six months ended June 30, 2015, as compared to $249,909 for the comparable prior period. The increase in professional and consulting expense during 2015 is mainly due to the issuance of warrants to purchase 3,125,000 shares of common stock pursuant to an agreement with a financial consultant. The warrants were valued at $285,305. In addition, approximately $85,000 of the increase is due to the engagement of an investor relations firm and use of additional financial consultants.

Research and Development Expenses.

For the six months ended June 30, 2015, we incurred $555,573 in research and development expenses, as compared to $796,811 for the comparable period in 2014. Of these expenses, $379,602 and $598,874 for the six months ended June 30, 2015 and 2014, respectively, are costs associated with external research relating to Zivo. Our research and development costs will 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 are focused on the metabolic aspects of oxidation and inflammation, with a parallel program to validate and license products for healthy immune response. The reduction of $219,000 from the prior period is due to the lack of available funding.

With respect to our WellMetris, LLC subsidiary, we incurred $175,971 and $197,937 in research and development expenses for the first six months ended June 30, 2015 and 2014, respectively. The R&D effort to date has centered on optimizing dry chemistry, developing lower-cost alternatives for the proprietary analyzer device, negotiating and collaborating with offshore manufacturers and assembling the FDA pre-submission package for product classification and approval. The reduction of $21,000 from the prior period is due the lack of available funding.

Liquidity and Capital Resources

The unaudited condensed consolidated financial statements contained in this Quarterly Report have been prepared on a “going concern” basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a near term need for additional capital. For the reasons discussed herein, there is a significant risk that we will be unable to continue as a going concern, in which case, you would suffer a total loss of your investment in our company.

As of August 8, 2015, we had a cash balance of approximately $10,000. We have incurred significant net losses since inception. We have, since inception, consistently incurred negative cash flow from operations. During the period ended June 30, 2015, we incurred negative cash flows from operations of $1,254,287. As of June 30, 2015, we had a working capital deficiency of $7,129,595 and a stockholders’ deficiency of $7,954,319. Although we recently raised a limited amount of capital, we have had difficulty raising capital and we have a near term need for significant additional capital.

During the six months ended June 30, 2014, our operating activities used $1,254,287 in cash, an increase of $33,183 from the comparable prior period. The approximate $33,000 increase in cash used by operating activities was primarily attributable to the following (all of which are approximated): a $6,592,000 decrease in net income, offset by $6,773,000 in non-cash expenses, $169,000 of changes (decrease) in prepaid expenses, miscellaneous receivables, security deposits and $34,000 of changes (increase) in accounts payable and accrued liabilities.

Our financing activities generated approximately $1,269,000, an approximate $508,000 increase from the comparable prior period. The increase in cash provided by financing activities was due to an approximately $1,068,000 increase of proceeds from issuance of convertible debentures, an increase of approximately $127,000 of proceeds of loans from related parties, offset by a decrease in proceeds of $651,000 from the sale of common stock and the exercise of common stock warrants.

Controls and Procedures

Management’s Report on Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible changes or additions to our controls and procedures.

As of June 30, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive/principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our principal executive/principal financial officer concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, are effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period.

Changes in Internal control Over Financial Reporting.

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.