10-Q 1 form-10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

Commission File Number: 001-39701

 

INVO Bioscience, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   20-4036208

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5582 Broadcast Court    
Sarasota, FL   34240
(Address of principal executive offices)   (Zip Code)

 

(978) 878-9505

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 par value per share   INVO   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐    
Non-accelerated filer   Smaller reporting company   Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 13, 2023, the Registrant had 2,474,756 shares of common stock outstanding.

 

 

 

 

 

 

INVO BIOSCIENCE, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED September 30, 2023

 

TABLE OF CONTENTS

 

Item   Page Number
PART I. FINANCIAL INFORMATION  
     
1. Financial Statements (Unaudited): 4
  Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 4
  Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (Unaudited) 5
  Consolidated Statements of Stockholders’ Equity (Deficit) for the nine months ended September 30, 2023 and 2022 (Unaudited) 6
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited) 7
  Notes to the Consolidated Financial Statements 8
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
3. Quantitative and Qualitative Disclosures about Market Risks 36
4. Controls and Procedures 36
     
PART II. OTHER INFORMATION  
     
1. Legal Proceedings 37
1A. Risk Factors 37
2. Unregistered Sales of Equity Securities and Use of Proceeds 38
3. Defaults Upon Senior Securities 38
4. Mine Safety Disclosure 38
5. Other Information 38
6. Exhibits 39
  Signatures 40

 

2

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

 

our business strategies;
   
the timing of regulatory submissions;
   
our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;
   
risks relating to the timing and costs of clinical trials and the timing and costs of other expenses;
   
risks related to market acceptance of products;
   
the ultimate impact of the ongoing Coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole;
   
intellectual property risks;
   
risks associated with our reliance on third-party organizations;
   
our competitive position;
   
our industry environment;
   
our anticipated financial and operating results, including anticipated sources of revenues;
   
assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches;
   
management’s expectation with respect to future acquisitions;
   
statements regarding our goals, intentions, plans and expectations, including the introduction of new products and markets; and
   
our cash needs and financing plans.

 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.

 

3

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INVO BIOSCIENCE, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   September 30,   December 31, 
   2023   2022 
       (audited) 
ASSETS          
Current assets          
Cash  $1,055,544   $90,135 
Accounts receivable   116,781    77,149 
Inventory   254,220    263,602 
Prepaid expenses and other current assets   365,227    190,201 
Total current assets   1,791,772    621,087 
Property and equipment, net   772,447    436,729 
Lease right of use   5,858,042    1,808,034 
Intangible assets   

1,750,000

    

-

 
Goodwill   8,224,708    - 
Investment in joint ventures   1,079,202    1,237,865 
Total assets  $19,476,171   $4,103,715 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable and accrued liabilities  $1,851,783   $1,349,038 
Accrued compensation   590,598    946,262 
Notes payable– current portion, net   822,574    100,000 
Notes payable – related parties, net   880,000    662,644 
Deferred revenue   229,921    119,876 
Lease liability, current portion   385,836    231,604 
Other current liabilities   123,432    - 
Total current liabilities   4,884,144    3,409,424 
Notes payable, net of current portion   1,095,000    

 
Lease liability, net of current portion   5,622,279    1,669,954 
Deferred tax liability   1,949    1,949 
Additional payments for acquisition   7,500,000    - 
Total liabilities   19,103,372    5,081,327 
           
Stockholders’ equity (deficit)          
Common Stock, $.0001 par value; 50,000,000 shares authorized; 2,474,756 and 608,611 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   247    61 
Additional paid-in capital   56,195,915    48,805,860 
Accumulated deficit   (55,823,363)   (49,783,533)
Total stockholders’ equity (deficit)   372,799    (977,612)
Total liabilities and stockholders’ equity (deficit)  $19,476,171   $4,103,715 

 

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

 

4

 

 

INVO BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

                 
   For the Three Months   For the Nine Months 
   Ended September 30,   Ended September 30, 
   2023   2022   2023   2022 
                 
Revenue:                    
Clinic revenue  $947,891   $176,395   $1,499,636   $394,601 
Product revenue   27,003    58,926    139,185    149,453 
Total revenue   974,894    235,321    1,638,821    544,054 
Operating expenses                    
Cost of revenue   580,968    248,977    1,047,687    616,184 
Selling, general and administrative expenses   1,257,044    2,316,763    5,630,487    7,308,478 
Research and development expenses   2,668    175,267    160,038    470,208 
Depreciation and amortization   20,504    19,732    59,296    57,361 
Total operating expenses   1,861,184    2,760,739    6,897,508    8,452,231 
Loss from operations   (886,290)   (2,525,418)   (5,258,687)   (7,908,177)
Other income (expense):                    
Loss from equity method joint ventures   (8,163)   (21,470)   (32,110)   (210,565)
Interest income   -    34    -    307 
Interest expense   (352,085)   (1,761)   (743,866)   (3,319)
Foreign currency exchange loss   (16)   (1,008)   (416)   (2,922)
Total other income (expense)   (360,264)   (24,205)   (776,392)   (216,499)
Net loss before income taxes   (1,246,554)   (2,549,623)   (6,035,079)   (8,124,676)
Income taxes   1,886    -    4,751    800 
Net loss  $(1,248,440)  $(2,549,623)  $(6,039,830)  $(8,125,476)
                     
Net loss per common share:                    
Basic  $(0.70)  $(4.19)  $(5.76)  $(13.42)
Diluted  $(0.70)  $(4.19)  $(5.76)  $(13.42)
Weighted average number of common shares outstanding:                    
Basic   1,776,898    607,783    1,048,115    605,356 
Diluted   1,776,898    607,783    1,048,115    605,356 

 

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

 

5

 

 

INVO BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

 

                     
   Common Stock   Additional
Paid-in
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
                     
Balances, June 30, 2022   606,514   $60   $47,823,240   $(44,466,875)  $3,356,425 
Common stock issued to directors and employees   1,784    -    79,479    -    79,479 
Proceeds from sale of common stock, net of fees and expenses   -    -    (25,200)   -    (25,200)
Stock options issued to directors and employees as compensation   -    -    426,143    -    426,143 
Net loss   -    -    -    

(2,549,623

)   (2,549,623)
Balances, September 30, 2022   608,298   $60   $48,303,662   $(47,016,498)  $1,287,224 
                          
Balances, June 30, 2023   826,886   $83   $52,869,346   $(54,574,923)  $(1,705,494)
                          
Common stock issued to directors and employees 

-

    -    2,670    -    2,670 
Common stock issued for services   

-

    -    11,249    -    11,249 
Proceeds from the sale of common stock, net of fees and expenses   1,587,500    158    2,995,903    -    2,996,061 
Common stock issued for liability settlement   16,250    2    65,196    -    65,198 
Warrants exercised   43,985    4    (4)   -    - 
Stock options issued to directors and employees as compensation   -    -    251,555    -    251,555 
Rounding for reverse split   135    -    -    -    - 
Net loss   -    -    -    

(1,248,440

)   (1,248,440)
Balances, September 30, 2023   2,474,756   $247   $56,195,915   $(55,823,363)  $372,799 

 

   Common Stock   Additional
Paid-in
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
                     
Balances, December 31, 2021   596,457   $60   $46,201,642   $(38,891,022)  $7,310,680 
Common stock issued to directors and employees   4,360    -    408,027    -    408,027 
Common stock issued for services   2,750    -    116,766    -    116,766 
Proceeds from sale of common stock, net of fees and expenses   4,731    -    289,800    -    289,800 
Stock options issued to directors and employees as compensation   -    -    1,287,427    -    1,287,427 
Net loss   -    -    -    (8,125,476)   (8,125,476)
Balances, September 30, 2022   608,298   $60   $48,303,662   $(47,016,498)  $1,287,224 
                          
Balances, December 31, 2022   608,611   $61   $48,805,860   $(49,783,533)  $(977,612)
                          
Common stock issued to directors and employees   3,994    -    54,235    -    54,235 
Common stock issued for services   25,817    2    255,422    -    255,424 
Proceeds from the sale of common stock, net of fees and expenses   1,771,500    177    5,724,823    -    5,725,000 
Common stock issued with notes payable   4,167    1    56,313    -    56,314 
Common stock issued for liability settlement   16,250    2    65,196    -    65,198 
Options exercised for cash   297    -    2,375    -    2,375 
Warrants exercised   43,985    4    (4)   -    - 
Stock options issued to directors and employees as compensation   -    -    904,305    -    904,305 
Warrants issued with notes payable   -    -    327,390    -    327,390 
Rounding for reverse split   135    -    -    -    - 
Net loss   -    -    -    (6,039,830)   (6,039,830)
Balances, September 30, 2023   2,474,756   $247   $56,195,915   $(55,823,363)  $372,799 

 

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

 

6

 

 

INVO BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

-          
     
   For the Nine Months Ended 
   September 30, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(6,039,830)  $(8,125,476)
Adjustments to reconcile net loss to net cash used in operating activities:          
Non-cash stock compensation issued for services   255,424    116,766 
Non-cash stock compensation issued to directors and employees   54,235    408,027 
Fair value of stock options issued to employees   904,305    1,287,427 
Non-cash compensation for services   135,000    75,000 
Amortization of discount on notes payable   612,259    - 
Loss from equity method investment   32,110    210,565 
Depreciation and amortization   59,296    57,361 
Changes in assets and liabilities:          
Accounts receivable   (39,632)   (20,841)
Inventory   9,382    7,642 
Prepaid expenses and other current assets   (175,026)   (22,400)
Accounts payable and accrued expenses   567,944    246,136 
Accrued compensation   (355,664)   61,919 
Deferred revenue   110,045    92,759 
Other current liabilities   (226,568)   - 
Leasehold liability   56,549    5,941 
Net cash used in operating activities   (4,040,171)   (5,599,174)
Cash from investing activities:          
Payments to acquire property, plant, and equipment   

(369,722

)   (10,920)
Payments to acquire intangible assets   -    (1,943)
Investment in joint ventures   (8,447)   (76,937)
Payment for acquisitions   (2,150,000)   

-

 
Net cash used in investing activities   (2,528,169)   (89,800)
Cash from financing activities:          
Proceeds from the sale of notes payable   3,060,250    - 
Proceeds from the sale of notes payable – related parties   100,000      
Proceeds from the sale of common stock, net of offering costs   5,725,000    289,800 
Proceeds from option exercise   2,375    - 
Principal payments on note payable   (1,353,876)   - 
Net cash provided by financing activities   7,533,749    289,800 
           
Increase (decrease) in cash and cash equivalents   965,409    (5,399,174)
Cash and cash equivalents at beginning of period   90,135    5,684,871 
Cash and cash equivalents at end of period  $1,055,544   $285,697 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $9,640   $- 
Taxes  $-   $800 
Noncash activities:          
Fair value of warrants issued with debt  $383,704   $- 
Fair value of shares issued for settlement of liability  $65,198   $- 
Initial ROU asset and lease liability  $4,269,881   $- 

 

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

 

7

 

 

INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(UNAUDITED)

 

Note 1 – Summary of Significant Accounting Policies

 

Description of Business

 

INVO Bioscience, Inc. (“INVO” or the “Company”) is a healthcare services fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. The Company’s commercialization strategy is focused on the opening of dedicated “INVO Centers” offering the INVOcell and IVC procedure (with three centers in North America now operational), the acquisition of US-based, profitable in vitro fertilization (“IVF”) clinics (with one such clinic acquired in August 2023) and the sale and distribution of our technology solution into existing fertility clinics. The Company’s proprietary technology, INVOcell, is a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. This treatment solution is the world’s first intravaginal culture technique for the incubation of oocytes and sperm during fertilization and early embryo development.

 

Basis of Presentation

 

The accompanying consolidated financial statements present on a consolidated basis the accounts of the Company and its wholly owned subsidiaries and controlled affiliates. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets and the amount of consolidated net income (loss) that is attributable to the Company and to the noncontrolling interest in its consolidated statement of operations. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The Company uses the equity method of accounting when it owns an interest in an entity whereby it can exert significant influence over but cannot control the entity’s operations.

 

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

The Company considers events or transactions that have occurred after the consolidated balance sheet date of September 30, 2023, but prior to the filing of the consolidated financial statements with the SEC in this Quarterly Report on Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q.

 

Reclassifications

 

Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows.

 

Business Segments

 

The Company operates in one segment and therefore segment information is not presented.

 

Business Acquisitions

 

The Company accounts for all business acquisitions at fair value and expenses acquisition costs as they are incurred. Any identifiable assets acquired and liabilities assumed are recognized and measured at their respective fair values on the acquisition date. If information about facts and circumstances existing as of the acquisition date is incomplete at the end of the reporting period in which a business acquisition occurs, the Company will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once the Company receives sufficient information to finalize the fair values; however, the period will not exceed one year from the acquisition date. Any adjustments to provisional amounts that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined.

 

Variable Interest Entities

 

The Company’s consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and variable interest entities (“VIE”), where the Company is the primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The Company reconsiders whether an entity is still a VIE only upon certain triggering events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary. See “Note 3 – Variable Interest Entities” for additional information on the Company’s VIEs.

 

8

 

 

Equity Method Investments

 

Investments in unconsolidated affiliates, which the Company exerts significant influence but does not control or otherwise consolidate, are accounted for using the equity method. Equity method investments are initially recorded at cost. These investments are included in investment in joint ventures in the accompanying consolidated balance sheets. The Company’s share of the profits and losses from these investments is reported in loss from equity method joint venture in the accompanying consolidated statements of operations. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the investees and records reductions in carrying values when necessary.

 

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation.

 

Inventory

 

Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value, using the first-in, first-out method as a cost flow method.

 

Property and Equipment

 

The Company records property and equipment at cost. Property and equipment is depreciated using the straight-line method over the estimated economic lives of the assets, which are from 3 to 10 years. The Company capitalizes the expenditures for major renewals and improvements that extend the useful lives of property and equipment. Expenditures for maintenance and repairs are charged to expense as incurred. The Company reviews the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of long-lived assets is measured by a comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

 

9

 

 

Long- Lived Assets

 

Long-lived assets and certain identifiable assets related to those assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the non-discounted future cash flows of the asset are less than their carrying amount, their carrying amounts are reduced to fair value and an impairment loss recognized. There was no impairment recorded during the nine months ended September 30, 2023, and 2022.

 

Fair Value of Financial Instruments

 

ASC 825-10-50, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

 

Effective January 1, 2008, the Company adopted ASC 820-10, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Income Taxes

 

The Company is subject to income taxes in the United States and its domestic tax liabilities are subject to the allocation of expenses in multiple state jurisdictions. The Company uses the asset and liability method to account for income taxes. Under this method, deferred income 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. 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 recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including taxable income in prior carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent the Company does not consider it more-likely-than-not that a deferred tax asset will be recovered, a valuation allowance is established.

 

Concentration of Credit Risk

 

Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (“FDIC”) limits. As of September 30, 2023, the Company had cash balances in excess of FDIC limits.

 

Revenue Recognition

 

The Company recognizes revenue on arrangements in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services ASC 606 requires companies to assess their contracts to determine the timing and amount of revenue to recognize under the new revenue standard. The model has a five-step approach:

 

1. Identify the contract with the customer.
   
2. Identify the performance obligations in the contract.
   
3. Determine the total transaction price.
   
4. Allocate the total transaction price to each performance obligation in the contract.
   
5. Recognize as revenue when (or as) each performance obligation is satisfied.

 

10

 

 

Revenue generated from the sale of INVOcell is typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations.

 

Revenue generated from clinical and lab services related at the Company’s affiliated INVO Centers is typically recognized at the time the service is performed.

 

Stock Based Compensation

 

The Company accounts for stock-based compensation under the provisions of Accounting Standards Codification (“ASC”) subtopic 718-10, Compensation (“ASC 718-10”). This statement requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service or based on performance goals in exchange for the award, which is usually the vesting period.

 

Loss Per Share

 

Basic loss per share calculations are computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share are computed similar to basic earnings per share except that the denominator is increased to include potentially dilutive securities. The Company’s diluted loss per share is the same as the basic loss per share for the three and nine months ended September 30, 2023, and 2022, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

 

Schedule of Earnings Per Share Basic and Diluted

-  -   -    -    - 
  

Three Months Ended

September 30,

   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Net loss (numerator)  $(1,248,440)   (2,549,623)   (6,039,830)   (8,125,476)
Basic and diluted weighted-average number of common shares outstanding (denominator)   1,776,898    607,783    1,048,115    605,356 
Basic and diluted net loss per common share   (0.70)   (4.19)   (5.76)   (13.42)

 

The Company has excluded the following dilutive securities from the calculation of fully diluted shares outstanding because the result would have been anti-dilutive:

 Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

   -    - 
   As of September 30, 
   2023   2022 
Options   112,628    73,980 
Convertible notes and interest   40,768    - 
Unit purchase options and warrants   3,493,269    13,008 
Total   3,646,665    86,988 

 

Recently Adopted Accounting Pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.

 

Note 2 – Liquidity

 

Historically, the Company has funded its cash and liquidity needs primarily through revenue collection, equity financings, and convertible notes. For the nine months ended September 30, 2023, and 2022, the Company incurred a net loss of approximately $6.0 million and $8.1 million, respectively, and has an accumulated deficit of approximately $55.8 million as of September 30, 2023. Approximately $2.1 million of the net loss was related to non-cash expenses for the nine months ended September 30, 2023, compared to $2.3 million for the nine months ended September 30, 2022.

 

11

 

 

The Company has been dependent on raising capital from debt and equity financings to meet its needs for cash flow used in operating and investing activities. During the first nine months of 2023, the Company received net proceeds of approximately $5.8 million for the sale of its common stock par value $0.0001 per share (“Common Stock”) as well as approximately $3.2 million from the sale of convertible notes. Over the next 12 months, the Company’s plan includes opening additional INVO Centers and pursuing additional IVF clinic acquisitions. Until the Company can generate positive cash from operations, it will need to raise additional funding to meet its liquidity needs and to execute its business strategy. As in the past, the Company will seek debt and/or equity financing, which may not be available on reasonable terms, if at all.

 

Although the Company’s audited financial statements for the year ended December 31, 2022 were prepared under the assumption that it would continue operations as a going concern, the report of the Company’s independent registered public accounting firm that accompanies the Company’s financial statements for the year ended December 31, 2022 contains a going concern qualification in which such firm expressed substantial doubt about the Company’s ability to continue as a going concern, based on the financial statements at that time. Specifically, as noted above, the Company has incurred significant operating losses and the Company expects to continue to incur significant expenses and operating losses as it continues to develop new INVO Centers. These prior losses and expected future losses have had, and will continue to have, an adverse effect on the Company’s financial condition. If the Company cannot continue as a going concern, its stockholders would likely lose most or all of their investment in the Company.

 

Note 3 – Business Combinations

 

Wisconsin Fertility Institute

 

On August 10, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Buyer”) and wholly owned subsidiary of INVO Centers LLC (“INVO CTR”), a Delaware company wholly-owned by INVO, consummated its acquisition of the Wisconsin Fertility Institute (“WFI”) for a combined purchase price of $10 million, of which $2.5 million was paid on the closing date (net cash paid was $2,150,000 after a $350,000 holdback) plus assumption of the inter-company loan owed by WFRSA (as defined below) in the amount of $528,756. The remaining three installments of $2.5 million each will be paid on the subsequent three anniversaries of closing. The sellers have the option to take all or a portion of the final three installments in shares of INVO common stock valued at $125.00, $181.80, and $285.80, for the second, third, and final installments, respectively.

 

WFI is comprised of (a) a medical practice, Wisconsin Fertility and Reproductive Surgery Associates, S.C., a Wisconsin professional service corporation d/b/a Wisconsin Fertility Institute (“WFRSA”), and (b) a laboratory services company, Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”). WFRSA owns, operates and manages WFI’s fertility practice that provides direct treatment to patients focused on fertility, gynecology and obstetrics care and surgical procedures, and employs physicians and other healthcare providers to deliver such services and procedures. FLOW provides WFRSA with related laboratory services.

 

INVO purchased the non-medical assets of WFRSA and one hundred percent of FLOW’s membership interests. The Buyer and WFRSA entered into a management services agreement pursuant to which WFRSA outsourced all its non-medical activities to the Buyer.

 

The Company’s consolidated financial statements for the nine months ended September 30, 2023 include WFI’s results of operations. For the nine months ended September 30, 2023, WFI’s results of operations are included from the acquisition date of August 10, 2023 through September 30, 2023. The Company’s condensed consolidated financial statements reflect the preliminary purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.

 

The following allocation of the purchase price is as follows:

 

Consideration given:     
Cash   2,150,000 
Holdback   350,000 
Additional payments   7,500,000 
Business acquisition cost   10,000,000 
      
Assets and liabilities acquired:     
FLOW intercompany receivable   528,756 
Property and equipment, net   25,292 
Tradename   

1,000,000

 
Assembled workforce   

500,000

 
Noncompetition agreement   

250,000

 
Goodwill   8,224,708 
WFRSA intercompany note   (528,756)
Total assets and liabilities acquired   10,000,000 

 

Pro Forma Financial Information

 

The following unaudited pro forma consolidated results of operations for the nine months ended September 30, 2023 and 2022 assume the acquisition was completed on January 1, 2023:

 

   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2023   2022   2023   2022 
Pro forma revenue   1,492,520    1,533,957    4,846,417    4,793,450 
Pro forma net loss   (998,380)   (2,057,245)   (5,128,430)   (9,571,686)

 

Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results. The share and per share data have been retroactively reflected for the acquisition.

 

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Note 4 – Variable Interest Entities

 

Consolidated VIEs

 

Bloom INVO, LLC

 

On June 28, 2021, INVO CTR entered into a limited liability company agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center (the “Atlanta Clinic”) in the Atlanta, Georgia metropolitan area.

 

In consideration for INVO’s commitment to contribute up to $800,000 within the 24-month period following the execution of the Bloom Agreement to support the start-up operations of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute physician services having an anticipated value of up to $1,200,000 over the course of a 24-month vesting period, the Georgia JV issued 1,200 of its units to Bloom.

 

The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR also performs all required, industry specific compliance and accreditation functions, and product documentation for product registration.

 

The Bloom Agreement provides Bloom with a “profits interest” in the Georgia JV and, in connection with such profits interest, states that profits and losses be allocated to its members based on a hypothetical liquidation of the Georgia JV. In such a scenario, liquidation proceeds would be distributed in the following order: (a) to INVO CTR until the difference between its capital contributions and distributions equals $0; (b) to Bloom until its distributions equal 150% of the liquidation amounts distributed to INVO CTR (a “catch-up” to rebalance the distributions between members); and (c) thereafter on a pro rata basis. The Georgia JV had no assets or liabilities at the time the units were issued, and, as of September 30, 2023, INVO CTR had made capital contributions greater than the net loss of the Georgia JV. As such, the entire net loss was allocated to INVO CTR, and no loss was allocated to the noncontrolling interest of Bloom.

 

The Georgia JV opened to patients on September 7, 2021.

 

The Company determined the Georgia JV is a VIE, and that the Company is its primary beneficiary because the Company has an obligation to absorb losses that are potentially significant and the Company controls the majority of the activities that impact the Georgia JV’s economic performance, specifically control of the INVOcell and lab services quality management. As a result, the Company consolidated the Georgia JV’s results with its own. As of September 30, 2023, the Company invested $0.9 million in the Georgia JV in the form of capital contributions as well as $0.5 million in the form of a note. For the nine months ended September 30, 2023 and 2022, the Georgia JV recorded net losses of $0.1 million and $0.2 million respectively. Noncontrolling interest in the Georgia JV was $0.

 

Unconsolidated VIEs

 

HRCFG INVO, LLC

 

On March 10, 2021, INVO CTR entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture entity is HRCFG INVO, LLC (the “Alabama JV”). The Company also provides certain funding to the Alabama JV. Each party owns 50% of the Alabama JV.

 

The Alabama JV opened to patients on August 9, 2021.

 

The Company determined the Alabama JV is a VIE, and that there is no primary beneficiary. As a result, the Company uses the equity method to account for its interest in the Alabama JV. As of September 30, 2023, the Company invested $1.5 million in the Alabama JV in the form of a note. For the nine months ended September 30, 2023, the Alabama JV recorded net income of $32 thousand, of which the Company recognized a gain from equity method investments of $16 thousand. For the nine months ended September 30, 2022, the Alabama JV recorded a net loss of $0.3 million, of which the Company recognized a loss from equity method investments of $0.2 million.

 

Positib Fertility, S.A. de C.V.

 

On September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”).

 

The Mexico JV opened to patients on November 1, 2021.

 

The Company determined the Mexico JV is a VIE, and that there is no primary beneficiary. As a result, the Company uses the equity method to account for its interest in the Mexico JV. As of September 30, 2023, the Company invested $0.1 million in the Mexico JV. For the nine months ended September 30, 2023 and 2022, the Mexico JV recorded net losses of $0.1 million and $0.1 million, respectively, of which the Company recognized a loss from equity method investments of $48 thousand and $47 thousand, respectively.

 

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The following table summarizes our investments in unconsolidated VIEs:

 

Schedule of Investments in Unconsolidated Variable Interest Entities 

      Carrying Value as of 
   Location  Percentage Ownership  

September 30,

2023

  

December 31,

2022

 
HRCFG INVO, LLC  Alabama, United States   50%  $993,339    1,106,905 
Positib Fertility, S.A. de C.V.  Mexico   33%   85,863    130,960 
Total investment in unconsolidated VIEs          $1,079,202    1,237,865 

 

Earnings from investments in unconsolidated VIEs were as follows:

 

Schedule of Earnings from Investments in Unconsolidated Variable Interest Entities

                 
  

Three Months Ended

September 30,

   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
HRCFG INVO, LLC  $14,993   $(4,737)  $15,798   $(163,912)
Positib Fertility, S.A. de C.V.   (23,156)   (16,733)   (47,908)   (46,653)
Total earnings from unconsolidated VIEs   (8,163)   (21,470)   (32,110)   (210,565)

 

The following tables summarize the combined unaudited financial information of our unconsolidated VIEs:

 

Schedule of Financial Information of Investments in Unconsolidated Variable Interest Entities

                 
  

Three Months Ended

September 30,

   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Statements of operations:                    
Operating revenue  $404,990   $273,737   $1,212,385   $610,049 
Operating expenses   (444,478)   (333,414)   (1,324,528)   (1,077,835)
Net loss   (39,488)   (59,677)   (112,143)   (467,786)

 

  

September 30,

2023

  

December 31,

2022

 
Balance sheets:          
Current assets  $353,074    261,477 
Long-term assets   1,017,098    1,094,490 
Current liabilities   (492,727)   (396,619)
Long-term liabilities   (117,989)   (107,374)
Net assets  $759,456    851,974 

 

Note 5 – Agreements and Transactions with VIE’s

 

The Company sells the INVOcell to its consolidated and unconsolidated VIEs and anticipates continuing to do so in the ordinary course of business. All intercompany transactions with consolidated entities are eliminated in the Company’s consolidated financial statements. Per ASC 323-10-35-8 the Company eliminates any sales to an unconsolidated VIE for INVOcell inventory that the VIE still has remaining on the books at period end.

 

The following table summarizes the Company’s transactions with VIEs:

 

                 
  

Three Months Ended

September 30,

   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Bloom INVO, LLC                    
INVOcell revenue  $9,000   $6,000   $19,500   $6,000 
Unconsolidated VIEs                    
INVOcell revenue  $(3,975)  $6,000   $5,775   $22,500 

 

The Company had balances with VIEs as follows:

 

Summary of Balances with Variable Interest Entities

  

September 30,

2023

  

December 31,

2022

 
Bloom INVO, LLC          
Accounts receivable  $27,000    13,500 
Notes payable   472,839    468,031 
Unconsolidated VIEs          
Accounts receivable  $14,460    46,310 

 

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Note 6 – Inventory

 

Components of inventory are:

 

  

September 30,

2023

  

December 31,

2022

 
Raw materials  $62,440   $68,723 
Finished goods   191,780    194,879 
Total inventory  $254,220   $263,602 

 

Note 7 – Property and Equipment

 

The estimated useful lives and accumulated depreciation for equipment are as follows as of September 30, 2023, and December 31, 2022:

 

Schedule of Estimated Useful Lives of Property and Equipment

   Estimated Useful Life 
Manufacturing equipment   6 to 10 years 
Medical equipment   7 to 10 years 
Office equipment   3 to 7 years 

 

Schedule of Property and Equipment

  

September 30,

2023

  

December 31,

2022

 
Manufacturing equipment  $132,513   $132,513 
Medical equipment   303,943    283,065 
Office equipment   85,403    77,601 
Leasehold improvements   463,151    96,817 
Less: accumulated depreciation   (212,563)   (153,267)
Total equipment, net  $772,447   $436,729 

 

During the three months ended September 30, 2023, and 2022, the Company recorded depreciation expense of $20,504 and $19,279, respectively.

 

During the nine months ended September 30, 2023, and 2022, the Company recorded depreciation expense of $59,296 and $56,004, respectively.

 

Note 8 – Intangible Assets

 

The Company capitalizes the initial expense related to establishing patents by country and then amortizes the expense over the life of the patent, typically 20 years. It then expenses annual filing fees to maintain the patents. The Company regularly reviews the value of its patents in the marketplace in proportion to the expense it must spend to maintain the patent. The Company fully impaired its patents as of December 31, 2022.

 

During the three months ended September 30, 2023, and 2022, the Company recorded amortization expenses related to patents of $0 and $453, respectively.

 

During the nine months ended September 30, 2023, and 2022, the Company recorded amortization expenses related to patents of $0 and $1,357, respectively.

 

The trademarks have an indefinite life and therefore are not amortized. Trademarks are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. The Company fully impaired its trademarks as of December 31, 2022.

 

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Note 9 – Leases

 

The Company has various operating lease agreements in place for its office and joint ventures. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2019, the Company is required to report a right-of-use asset and corresponding liability to report the present value of the total lease payments, with appropriate interest calculation. Per the terms of ASU 2016-02, the Company can use its implicit interest rate, if known, or applicable federal rate otherwise. Since the Company’s implicit interest rate was not readily determinable, the Company utilized the applicable federal rate, as of the commencement of the lease. Lease renewal options included in any lease are considered in the lease term if it is reasonably certain the Company will exercise the option to renew. The Company’s operating lease agreements do not contain any material restrictive covenants.

 

As of September 30, 2023, the Company’s lease components included in the consolidated balance sheet were as follows:

 

Schedule of Lease Components

Lease component  Balance sheet classification  September 30, 2023 
Assets        
ROU assets – operating lease  Other assets  $5,858,042 
Total ROU assets     $5,858,042 
         
Liabilities        
Current operating lease liability  Current liabilities  $385,836 
Long-term operating lease liability  Other liabilities   5,622,279 
Total lease liabilities     $6,008,115 

 

Future minimum lease payments as of September 30, 2023 were as follows:

 

Schedule of Future Minimum Lease Payments

      
2023     144,953  
2024     616,158  
2025     622,676  
2026     638,469  
2027 and beyond     5,943,918  
Total future minimum lease payments   $ 7,966,174  
Less: Interest     (1,958,059 )
Total operating lease liabilities   $ 6,008,115  

 

Note 10 – Notes Payable

 

Notes payables consisted of the following:

 

Schedule of Notes Payable

  

September 30,

2023

  

December 31,

2022

 
Note payable. 35% - 100 % cumulative interest. Matures on June 29, 2028  $1,500,000   $- 
Related party demand notes with a 10% financing fee. 10% annual interest from issuance. Notes are callable starting September 30, 2023   880,000    770,000 
Convertible notes. 10% annual interest. Conversion price of $10.00-$12.00   410,000    100,000 
Cash advance agreement   380,374    - 
Less debt discount and financing costs   (372,800)   (107,356)
Total, net of discount  $2,797,574   $762,644 

 

Related Party Demand Notes

 

In the fourth quarter of 2022, the Company received $500,000 through the issuance of five demand notes (the “JAG Notes”) from a related party, JAG Multi Investments LLC (“JAG”). The Company’s CFO is a beneficiary of JAG but does not have any control over JAG’s investment decisions with respect to the Company. The JAG Notes accrue 10% annual interest from their respective dates of issuance. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest. On July 10, 2023, the Company received an additional $100,000 from JAG through the issuance of an additional demand note.

 

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In consideration for subscribing to the JAG Note for $100,000 dated December 29, 2022, and for agreeing to extend the date on which the other JAG Notes are callable to March 31, 2023, the Company issued JAG a warrant to purchase 17,500 shares of Common Stock. The warrant may be exercised for a period of five (5) years from issuance at a price of $10.00 per share. The financing fees for said JAG Note and the fair value of the warrant issued were capped at the total proceeds. The relative fair value of the warrant was recorded as a debt discount and as of September 30, 2023 the Company had fully amortized the discount. On July 10, 2023 JAG agreed to extend the date on which the JAG Notes are callable to September 30, 2023.

 

In the fourth quarter of 2022, the Company received $200,000 through the issuance of demand promissory notes of which (1) $100,000 was received from our chief executive officer, Steven Shum ($60,000 on November 29, 2022, $15,000 on December 2, 2022, and $25,000 on December 13, 2022) and (2) $100,000 was received from an entity controlled by our chief financial officer, Andrea Goren ($75,000 on November 29, 2022 and $25,000 on December 13, 2022). These notes accrue 10% annual interest accrues from the date of issuance. These notes are callable with 10 days prior written notice. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest.

 

The financing fees for all demand notes were recorded as a debt discount and as of September 30, 2023 the Company had fully amortized the discount.

 

For the nine months ended September 30, 2023, the Company incurred $55,444 in interest related to these demand notes.

 

Jan and March 2023 Convertible Notes

 

In January and March 2023, the Company issued $410,000 of convertible notes, for $310,000 in cash and the conversion of $100,000 of demand notes from the fourth quarter of 2022. These convertible notes were issued with fixed conversion prices of $10.00 (for the $275,000 issued in January 2023) and $12.00 (for the $135,000 issued in March 2023) and (ii) 5-year warrants to purchase 19,375 shares of the Common Stock at an exercise price of $20.00.

 

The cumulative fair value of the warrants at issuance was $132,183. This was recognized as a debt discount and will to be amortized on a straight-line basis over the life of the respective notes. For the nine months ending September 30, 2023 the Company amortized $95,710 of the debt discount and as of September 30, 2023 had a remaining debt discount balance of $36,472.

 

Interest on these notes accrues at a rate of ten percent (10%) per annum and is payable at the holder’s option either in cash or in shares of Common Stock at the conversion price set forth in the notes on December 31, 2023, unless converted earlier. For the nine months ended September 30, 2023 the Company incurred $27,933 in interest related to these convertible notes.

 

All amounts due under these notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders into the Common Stock at a fixed conversion price for the notes as described above.

 

February 2023 Convertible Debentures

 

On February 3, and February 17, 2023, the Company entered into securities purchase agreements (the “February Purchase Agreements”) with accredited investors (the “February Investors”) for the purchase of (i) convertible debentures of the Company in the aggregate original principal amount of $500,000 (the “February Debentures”) for a purchase price of $450,000, (ii) warrants (the “February Warrants”) to purchase 12,500 shares (the “February Warrant Shares”) of Common Stock at an exercise price of $15.00 per share, and (iii) 4,167 shares of Common Stock issued as an inducement for issuing the February Debentures. The proceeds, net of placement agent and legal fees, were used for working capital and general corporate purposes.

 

The cumulative fair value of the warrants at issuance was $291,207. This was recognized as a debt discount and will be amortized on a straight-line basis over the life of the respective notes. For the nine months ending September 30, 2023 the Company amortized $347,520 of the debt discount and as of September 30, 2023 the Company had fully amortized the discount.

 

Pursuant to the February Debentures, interest on the February Debentures accrued at a rate of eight percent (8%) per annum payable at maturity, one year from the date of the February Debentures. For the nine months ended September 30, 2023 the Company incurred $9,640 in interest on the February Debentures.

 

All amounts due under the February Debentures were convertible at any time after the issuance date, in whole or in part, at the option of the February Investors into Common Stock at an initial price of $10.40 per share. This conversion price was subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments and is subject to a floor price.

 

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The Company could prepay the February Debentures at any time in whole or in part by paying a sum of money equal to 105% of the principal amount to be redeemed, together with accrued and unpaid interest.

 

While any portion of each February Debenture remained outstanding, if the Company received cash proceeds of more than $2,000,000 (the “Minimum Threshold”) in the aggregate from any source or series of related or unrelated sources, the February Investors had the right in their sole discretion to require the Company to immediately apply up to 50% of all proceeds received by the Company above the Minimum Threshold to repay the outstanding amounts owed under the February Debentures. In April 2023, the Company used $360,151 in proceeds from the RD Offering (as described in Note 11 below) to repay a portion of the February Debentures. On August 8, 2023, the Company repaid the remaining balance of $139,849 with proceeds from the August Public Offering (as described in Note 16 below).

 

The February Warrants included anti-dilution protection whereby a subsequent offering priced below the February Warrants’ strike price then in effect would entitle the February Investors to a reduction of such strike price to the price of such subsequent offering and an increase in the February Warrant Shares determined by dividing the dollar amount for which the February Warrants are exercisable by such lower strike price. As a result of the $2.85 unit purchase price of the August Public Offering (as described in Note 16 below), following consummation of the August Public Offering, the February Warrants now entitle the February Investors to purchase a total 65,790 at an exercise price of $2.85 per February Warrant Share. On August 8, 2023, the Company issued 26,391 shares of Common Stock upon exercise of one of the February Warrants on a net-exercise basis and on August 21, 2023, the Company issued 17,594 shares of Common Stock upon exercise of the other February Warrant on a net-exercise basis. Following these exercises, there were no February Warrants outstanding.

 

Standard Merchant Cash Advance

 

On July 20, 2023, the Company entered into a Standard Merchant Cash Advance Agreement (the “Cash Advance Agreement”) with Cedar Advance LLC (“Cedar”) under which Cedar purchased $543,750 of the Company’s receivables for a gross purchase price of $375,000 (the “Initial Advance”). The Company received cash proceeds of $356,250, net of a financing fee. Until the purchase price is repaid, the Company agreed to pay Cedar $19,419.64 per week. Since, through the refinancing described below, the Company repaid Cedar within 30 days, the amount payable under the Initial Advance was reduced from $543,750 to $465,000.

 

On August 31, 2023, the Company refinanced the Initial Advance through the purchase by Cedar of $746,750 of the Company’s receivables for a gross purchase price of $515,000 (the “Refinanced Advance”). The Company received net cash proceeds of $134,018 after applying $390,892 towards the repayment of the Initial Advance. The new Cash Advance Agreement provides that if the Company repays the Refinanced Advance within 30 days then the amount payable to Cedar shall be reduced to $643,750, and if the Refinanced Advance is repaid on days 31 to 60 then the amount payable to Cedar shall be reduced to $674,650. Until the purchase price is repaid, the Company agreed to pay Cedar $16,594 per week. On September 29, 2023, the Company repaid $0.3 million of the Cash Advance Agreement with proceeds from the RLSA Loan (as defined below). As a result of such payment, the weekly payment was reduced to $9,277.

 

The financing fees were recorded as a debt discount. For the nine months ending September 30, 2023 the Company amortized $51,672 of the debt discount and as of September 30, 2023 had a remaining debt discount balance of $321,328.

 

Revenue Loan and Security Agreement

 

On September 29, 2023, the Company, Steven Shum, as a Key Person, and the Company’s wholly-owned subsidiaries Bio X Cell, Inc, INVO CTR, Wood Violet Fertility LLC, FLOW and Orange Blossom Fertility LLC as guarantors (the “Guarantors”), entered into a Revenue Loan and Security Agreement (the “Loan Agreement”) with Decathlon Alpha V LP (the “Lender”) under which the Lender advanced a gross amount of $1,500,000 to the Company (the “RSLA Loan”). The RSLA Loan has a maturity date of June 29, 2028, is payable in fixed monthly installments, as set forth in the Loan Agreement, and may be prepaid without penalty at any time. The installments include an interest factor that varies based on when the RSLA Loan is fully repaid and is based on a minimum amount that increases from thirty five percent (35%) of the RSLA Loan principal, if fully repaid in the first six months, to 100% of the RSLA Loan principal, if fully repaid after 30 months from the RSLA Loan’s effective date.

 

The financing fees for the RSLA Loan were recorded as a debt discount. For the nine months ending September 30, 2023, the Company amortized $0 of the debt discount and as of September 30, 2023 had a remaining debt discount balance of $15,000.

 

Note 11 – Related Party Transactions

 

In the fourth quarter of 2022, the Company received $700,000 through the issuance of demand notes from related parties, as follows: (a) $500,000 from JAG; (b) $100,000 from our chief executive officer, Steve Shum; and (c) $100,000 from our chief financial officer, Andrea Goren. On July 10, 2023, the Company received an additional $100,000 through the issuance of a demand note from JAG. The Company’s CFO is a beneficiary of JAG but does not have any control over JAG’s investment decisions with respect to the Company. See Note 9 of the Notes to Consolidated Financial Statements for additional information.

 

As of September 30, 2023, the Company owed accounts payable to related parties totaling $188,162, primarily related to unpaid employee expense reimbursements and unpaid board fees.

 

Note 12 – Stockholders’ Equity

 

Reverse Stock Split

 

On June 28, 2023, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 1-for-20 and also approved a proportionate decrease in its authorized common stock to 6,250,000 shares from 125,000,000. On July 26, 2023, the Company filed a certificate of change (with an effective date of July 28, 2023) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 1-for-20 reverse stock split of its outstanding common stock. On July 27, 2023, the Company received notice from Nasdaq that the reverse split would take effect at the open of business on July 28, 2023, and the reverse stock split took effect on that date. All share information included in this Form 10-Q has been reflected as if the reverse stock split occurred as of the earliest period presented.

 

Increase in Authorized Common Stock

 

On October 13, 2023, shareholders of the Company approved an increase to the number of authorized shares of the Company’s common stock from 6,250,000 shares to 50,000,000 shares as set forth below. On October 13, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock from 6,250,000 shares to 50,000,000 shares.

 

18

 

 

February 2023 Equity Purchase Agreement

 

On February 3, 2023, the Company entered into an equity purchase agreement (the “ELOC”) and registration rights agreement (the “ELOC RRA”) with an accredited investor (the “Feb 3 Investor”) pursuant to which the Company has the right, but not the obligation, to direct the Feb 3 Investor to purchase up to $10.0 million (the “Maximum Commitment Amount”) of shares of Common Stock, in multiple tranches. Further, under the ELOC and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit notices to the Feb 3 Investor to purchase shares of Common Stock (i) in a minimum amount of not less than $25,000 and (ii) in a maximum amount of up to the lesser of (a) $750,000 or (b) 200% of the Company’s average daily trading value of the Common Stock.

 

Also on February 3, 2023, the Company issued to the Feb 3 Investor 7,500 shares of Common Stock for its commitment to enter into the ELOC.

 

The obligation of the Feb 3 Investor to purchase shares of Common Stock pursuant to the ELOC ends on the earlier of (i) the date on which the purchases under the ELOC equal the Maximum Commitment Amount, (ii) 24 months after the date of the ELOC (February 3, 2025), (iii) written notice of termination by the Company, (iv) the date that the ELOC RRA is no longer effective after its initial effective date, or (v) the date that the Company commences a voluntary case or any person or entity commences a proceeding against the Company pursuant to or within the meaning of federal or state bankruptcy law, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).

 

During the Commitment Period, and subject to the shares of Common Stock underlying the ELOC be registered, the price that Feb 3 Investor will pay to purchase the shares of Common Stock that it is obligated to purchase under the ELOC shall be 97% of the “market price,” which is defined as the lesser of (i) the lowest closing price of our Common Stock during the 7 trading day-period following the clearance date associated with the applicable put notice from the Company or (ii) the lowest closing bid price of the Common Stock on the principal trading market for the Common Stock (currently, the Nasdaq Capital Market) on the trading day immediately preceding a put date.

 

To date, the Company has not been in a position to register the shares underlying the ELOC as a result of standstill agreements related to the RD Offering and the August 2023 Offering (both as defined below).

 

March 2023 Registered Direct Offering

 

On March 23, 2023, INVO entered into a securities purchase agreement (the “March Purchase Agreement”) with a certain institutional investor, pursuant to which the Company agreed to issue and sell to such investor (i) in a registered direct offering (the “RD Offering”), 69,000 shares of Common Stock, and a pre-funded warrant (the “Pre-Funded Warrant”) to purchase up to 115,000 shares of Common Stock, at an exercise price of $0.20 per share, and (ii) in a concurrent private placement (the “March Warrant Placement”), a common stock purchase warrant (the “March Warrant”), exercisable for an aggregate of up to 276,000 shares of Common Stock, at an exercise price of $12.60 per share. The securities to be issued in the RD Offering (priced at the marked under Nasdaq rules) were offered pursuant to the Company’s shelf registration statement on Form S-3 (File 333-255096), initially filed by the Company with the SEC under the Securities Act, on April 7, 2021 and declared effective on April 16, 2021. All Pre-Funded Warrants were exercised by the investor in June 2023.

 

The March Warrant (and the shares of Common Stock issuable upon the exercise of the March Warrant) was not registered under the Securities Act and was offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrant is immediately exercisable upon issuance, will expire eight years from the date of issuance, and in certain circumstances may be exercised on a cashless basis.

 

On March 27, 2023, the Company closed the RD Offering and March Warrant Placement, raising gross proceeds of approximately $3 million before deducting placement agent fees and other offering expenses payable by the Company. In the event the March Warrant were fully exercised for cash, the Company would receive additional gross proceeds of approximately $3.5 million. Under the March Purchase Agreement, the Company was entitled to use a portion of the net proceeds of the offering to (a) repay the February Debentures, and (b) to make the down payment for the WFI acquisition. The remainder of the net proceeds could be used for working capital, capital expenditures, and other general corporate purposes. The Company used $383,879 in proceeds to repay a portion of the February Debentures and related fees and interest and the remainder of the proceeds were used for working capital and general corporate purposes.

 

19

 

 

August 2023 Public Offering

 

On August 4, 2023, the Company, entered into securities purchase agreements (the “Purchase Agreements”) with certain institutional and other investors, pursuant to which the Company agreed to issue and sell to such investors in a public offering (the “August 2023 Offering”), 1,580,000 units (the “Units”) at a price of $2.85 per Unit, with each Unit consisting of (i) one share of Common Stock (the “Shares”) of the Company, and (ii) two common stock purchase warrants (the “Warrants”), each exercisable for one share of Common Stock at an exercise price of $2.85 per share. In the aggregate, in the August 2023 Offering the Company issued 1,580,000 Shares and 3,160,000 Warrants. The securities issued in the August 2023 Offering were offered pursuant to the Company’s registration statement on Form S-1 (File 333-273174) (the “Registration Statement”), initially filed by the Company with the SEC under the Securities Act, on July 7, 2023 and declared effective on August 3, 2023.

 

The Company closed the Offering on August 8, 2023, raising gross proceeds of approximately $4.5 million before deducting placement agent fees and other offering expenses payable by the Company. The Company used (i) $2,150,000 to fund the initial installment of the WFI purchase price (net of a $350,000 holdback) on August 10, 2023, (ii) $1,000,000 to pay Armistice the Armistice Amendment Fee (as defined below), and (iii) $139,849 to complete repayment of the February Debentures to the February Investors, plus accrued interest and fees of approximately $10,911. The Company is using the remaining proceeds from the August 2023 Offering for working capital and general corporate purposes. 

 

In connection with the August 2023 Offering, on August 4, 2023, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with Maxim Group LLC (the “Placement Agent”), pursuant to which (i) the Placement Agent agreed to act as placement agent on a “best efforts” basis in connection with the August 2023 Offering and (ii) the Company agreed to pay the Placement Agent an aggregate fee equal to 7.0% of the gross proceeds (and 5% for certain investors) raised in the August 2023 Offering and warrants to purchase up to 110,600 shares of Common Stock at an exercise price of $3.14 (the “Placement Agent Warrants”). The Placement Agent Warrants (and the shares of Common Stock issuable upon the exercise of the Placement Agent Warrants) were not registered under the Securities Act and were offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder.

 

The August 2023 Offering was facilitated by the Company entering into an Amendment to Securities Purchase Agreement on July 7, 2023 (the “Armistice Amendment”) with Armistice Capital Markets Ltd. to delete Section 4.12(a) of our March 23, 2023 Securities Purchase Agreement (the “Armistice SPA”) with Armistice pursuant to which we agreed that from March 23, 2023 until 45 days after the effective date of the Resale Registration Statement (as defined below) we would not (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents or (ii) file any registration statement or any amendment or supplement thereto, other than the prospectus supplement filed in connection with that offering and the Resale Registration Statement (the “Subsequent Equity Financing Provision”). In consideration of Armistice’s agreement to enter into the Armistice Amendment and delete the Subsequent Equity Financing Provision from the Armistice SPA, we agreed to pay Armistice a fee a $1,000,000 (the “Armistice Amendment Fee”) within two days of the closing of the August 2023 Offering. Additionally, we agreed to include a proposal in our proxy statement for our 2023 Annual Meeting of Stockholders for the purpose of obtaining the approval of the holders of a majority of our outstanding voting common stock, to effectuate the reduction of the exercise price (the “Exercise Price Reduction”) set forth in Section 2(b) of the Common Stock Purchase Warrants issued to Armistice on March 27, 2023 (the “Existing Warrants”) to the per unit public offering price of the August 2023 Offering (or $2.85), in accordance with Nasdaq Rule 5635(d) (the “Shareholder Approval”) with the recommendation of our board of directors that such proposal be approved. We also agreed to solicit proxies from our shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and that all management-appointed proxyholders shall vote their proxies in favor of such proposal. Further, if we did not obtain Shareholder Approval at the first meeting, we agree to call a meeting every six (6) months thereafter to seek Shareholder Approval until the earlier of the date Shareholder Approval is obtained or the Existing Warrants are no longer outstanding. Until such approval is obtained, the exercise price of the Existing Warrants will remain unchanged. At the special meeting on October 13, 2023, Company shareholders rejected the Exercise Price Reduction.

 

Nine Months Ended September 30, 2023

 

During the nine months ended September 30, 2023, the Company issued 3,994 shares of Common Stock to employees and directors and 12,202 shares of Common Stock to consultants with a fair value of $54,235 and $106,174, respectively. The shares were issued under the Company’s 2019 Stock Incentive Plan (the “2019 Plan”).

 

During the nine months ended September 30, 2023, the Company issued 297 shares of Common Stock upon the exercise of options. The Company received proceeds of $2,375.

 

In February 2023, the Company issued 4,167 shares of Common Stock with a fair value of $56,313 as inducement for issuing the February Debentures. The fair value of the shares was recognized as a discount to the February Debentures and will be amortized over the life of the notes.

 

In February 2023, the Company 7,500 shares of Common Stock in connection with the ELOC with a fair value of $93,000 that was expensed in the period.

 

20

 

 

In March 2023, the Company issued 69,000 shares of Common Stock in the RD Offering and March Warrant Placement. The Company received net proceeds of approximately $2.7 million.

 

In May 2023, the Company issued 6,115 shares of Common Stock to consultants in consideration of services rendered with a fair value of $45,000. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Company did not receive any cash proceeds from this issuance.

 

On July 11, 2023, the Company issued 16,250 shares of Common Stock in consideration of a settlement with an unrelated third party. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Company did not receive any cash proceeds from this issuance.

 

In August 2023, the Company issued 43,985 shares of Common Stock upon exercise of an existing warrant on a net-exercise basis. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) and/or 3(a)(9) of the Securities Act of 1933, as amended.

 

On August 8, 2023, the Company issued 1,580,000 shares of Common Stock in the August 2023 Offering. The Company received net proceeds of approximately $4.1 million.

 

In September 2023, the Company issued 7,500 shares of Common Stock to consultants in consideration of services rendered with a fair value of $11,250. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Company did not receive any cash proceeds from this issuance.

 

Note 13 – Equity-Based Compensation

 

Equity Incentive Plans

 

In October 2019, the Company adopted the 2019 Plan. Under the 2019 Plan, the Company’s board of directors is authorized to grant stock options to purchase Common Stock, restricted stock units, and restricted shares of Common Stock to its employees, directors, and consultants. The 2019 Plan initially provided for the issuance of 25,000 shares. A provision in the 2019 Plan provides for an automatic annual increase equal to 6% of the total number of shares of Common Stock outstanding on December 31 of the preceding calendar year. In January 2023, the number of available shares increased by 36,498 shares bringing the total shares available under the 2019 Plan to 125,000.

 

Options granted under the 2019 Plan generally have a life of 3 to 10 years and exercise prices equal to or greater than the fair market value of the Common Stock as determined by the Company’s board of directors. Vesting for employees typically occurs over a three-year period.

 

The following table sets forth the activity of the options to purchase Common Stock under the 2019 Plan.

 

 

  

Number of

Shares

  

Weighted

Average

Exercise

Price

  

Aggregate

Intrinsic

Value

 
Outstanding as of December 31, 2022   64,850   $68.00   $          - 
Granted   59,048    7.74    - 
Exercised   (297)   8.00    - 
Canceled   (10,973)   70.68    - 
Balance as of September 30, 2023   112,628   $41.90   $- 
Exercisable as of September 30, 2023   82,661   $58.23   $- 

 

The fair value of each option granted is estimated as of the grant date using the Black-Scholes option pricing model with the following assumptions:

  

Nine months ended

September 30,

 
   2023   2022 
Risk-free interest rate range  3.6-3.69%  1.6 to 1.9%
Expected life of option-years  5-5.63   5.25 to 5.75 
Expected stock price volatility  106.6-114.9%  110.4 to 113.2%
Expected dividend yield  -%  -%

 

The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options. Expected volatility is based upon the average historical volatility of the Common Stock over the period commensurate with the expected term of the related instrument. The expected life and estimated post-employment termination behavior is based upon historical experience of homogeneous groups, executives and non-executives, within the Company. The Company does not currently pay dividends on its Common Stock, nor does it expect to do so in the foreseeable future.

 

21

 

 

  

Total

Intrinsic

Value of

Options

Exercised

  

Total Fair

Value of Options

Vested

 
Year ended December 31, 2022  $        -   $1,616,401 
Nine months ended September 30, 2023  $-   $896,257 

 

For the nine months ended September 30, 2023, the weighted average grant date fair value of options granted was $6.38 per share. The Company estimates the fair value of options at the grant date using the Black-Scholes model. For all stock options granted through September 30, 2023, the weighted average remaining service period is 1 year.

 

Restricted Stock and Restricted Stock Units

 

In the nine months ended September 30, 2023, the Company granted 13,272 restricted stock units and shares of restricted stock to certain employees, directors, and consultants under the 2019 Plan. Restricted stock issued to employees, directors, and consultants generally vest either at grant or vest over a period of one year from the date of grant.

 

The following table summarizes the Company’s restricted stock awards activity under the 2019 Plan during the nine months ended September 30, 2023:

 

  

Number of

Unvested

Shares

  

Weighted

Average

Grant Date

Fair Value

  

Aggregate

Value

of Shares

 
             
Balance as of December 31, 2022   3,533   $8.40   $29,949 
Granted   13,272    8.88    117,847 
Vested   (16,505)   18.82    310,554 
Forfeitures   -    -    - 
Balance as of September 30, 2023   300    18.42    5,525 

 

Note 14 – Unit Purchase Options and Warrants

 

The following table sets forth the activity of unit purchase options:

  

Number of

Unit Purchase

Options

  

Weighted

Average

Exercise

Price

  

Aggregate

Intrinsic

Value

 
Outstanding as of December 31, 2022  $4,649   $64.00   $        - 
Granted   -    -    - 
Exercised   -    -    - 
Canceled   -    -    - 
Balance as of September 30, 2023  $4,649   $64.00   $- 

 

The following table sets forth the activity of warrants:

  

Number of

Warrants

  

Weighted

Average

Exercise

Price

  

Aggregate

Intrinsic

Value

 
Outstanding as of December 31, 2022   25,884   $30.20   $        - 
Granted   3,643,526    3.63    - 
Exercised   (180,790)   1.16    - 
Canceled   -    -    - 
Balance as of September 30, 2023   3,488,620   $3.95   $- 

 

Note 15 – Income Taxes

 

The Company uses the asset and liability method to account for income taxes. Under this method, deferred income 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. 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. If a carryforward exists, the Company decides as to whether the carryforward will be utilized in the future. Currently, a valuation allowance is established for all deferred tax assets and carryforwards as their recoverability is deemed to be uncertain. If the Company’s expectations for future operating results at the federal or at the state jurisdiction level vary from actual results due to changes in healthcare regulations, general economic conditions, or other factors, it may need to adjust the valuation allowance, for all or a portion of the Company’s deferred tax assets. The Company’s income tax expense in future periods will be reduced or increased to the extent of offsetting decreases or increases, respectively, in the Company’s valuation allowance in the period when the change in circumstances occurs. These changes could have a significant impact on the Company’s future earnings.

 

Income tax expense was $1,886 and $4,751 for the three and nine months ended September 30, 2023, compared to $0 and $800 for the three and nine months ended September 30, 2022. The annual forecasted effective income tax rate for 2023 is 0%, with a year-to-date effective income tax rate for the nine months ended September 30, 2023, of 0%.

 

 

Note 16 – Commitments and Contingencies

 

Insurance

 

The Company’s insurance coverage is carried with third-party insurers and includes: (i) general liability insurance covering third-party exposures; (ii) statutory workers’ compensation insurance; (iv) excess liability insurance above the established primary limits for general liability and automobile liability insurance; (v) property insurance, which covers the replacement value of real and personal property and includes business interruption; and (vi) insurance covering our directors and officers for acts related to our business activities. All coverage is subject to certain limits and deductibles, the terms and conditions of which are common for companies with similar types of operations.

 

Legal Matters

 

The Company is not currently subject to any material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business, or legal proceedings it considered immaterial may in the future become material. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and can divert management resources.

 

22

 

 

Note 17 – Subsequent Events

 

Increase in Authorized Common Stock

 

On October 13, 2023, shareholders of the Company approved an increase to the number of authorized shares of the Company’s common stock from 6,250,000 shares to 50,000,000 shares and the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State on such date to increase its authorized shares of common stock from 6,250,000 shares to 50,000,000 shares.

 

NAYA Biosciences Merger

 

On October 22, 2023, the Company, INVO Merger Sub Inc., a wholly owned subsidiary of the Company and a Delaware corporation (“Merger Sub”), and NAYA Biosciences, Inc., a Delaware corporation (“NAYA”), entered into an Agreement and Plan of Merger, as amended on October 25, 2023 (the “Merger Agreement”).

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge (the “Merger”) with and into NAYA, with NAYA continuing as the surviving corporation and a wholly owned subsidiary of the Company.

 

At the effective time and as a result of the Merger, each share of Class A common stock, par value $0.000001 per share, of NAYA (the “NAYA common stock”) outstanding immediately prior to the effective time of the Merger, other than certain excluded shares held by NAYA as treasury stock or owned by the Company or Merger Sub, will be converted into the right to receive 7.33333 (subject to adjustment as set forth in the Merger Agreement) shares of a newly designated series of common stock, par value $0.0001 per share, of the Company which shall be entitled to ten (10) votes per each share (“Company Class B common stock”) for a total of approximately 18,150,000 shares of the Company (together with cash proceeds from the sale of fractional shares, the “Merger Consideration”).

 

Immediately following the effective time of the Merger, Dr. Daniel Teper, NAYA’s current chairman and chief executive officer, will be named chairman and chief executive officer of the Company, and the board of directors will be comprised of at least seven (7) directors, of which (i) one shall be Steven Shum, the Company’s current chief executive officer, and (ii) six shall be identified by NAYA, of which four (4) shall be independent directors.

 

The completion of the Merger is subject to satisfaction or waiver of certain customary mutual closing conditions, including (1) the adoption of the Merger Agreement by the stockholders of the Company and NAYA, (2) the absence of any injunction or other order issued by a court of competent jurisdiction or applicable law or legal prohibition prohibiting or making illegal the consummation of the Merger, (3) the completion of due diligence, (4) the completion of an interim private offering of shares of Company common stock at a price that is a premium to the market price of the Company common stock in an estimated amount of $5,000,000 or more of gross proceeds, (5) the aggregate of the liabilities of the Company, excluding certain specified liabilities, shall not exceed $5,000,000, (6) the receipt of waivers from any and all holders of warrants (and any other similar instruments) to securities of the Company, with respect to any fundamental transaction rights such warrant holders may have under any such warrants, (7) the continued listing of the Company common stock on NASDAQ through the effective time of the Merger and the approval for listing on NASDAQ of the shares of the Company common stock to be issued in connection with the Merger, the interim private offering, and a private offering of shares of Company common stock at a target price of $5.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Company common stock) resulting in sufficient cash available for the Company for one year of operations, as estimated by NAYA, (8) the effectiveness of a registration statement on Form S-4 to be filed by the Company pursuant to which the shares of Company common stock to be issued in connection with the Merger will be registered with the SEC, and the absence of any stop order suspending such effectiveness or proceeding for the purpose of suspending such effectiveness being pending before or threatened by the SEC, and (9) the Company shall have received customary lock-up Agreement from certain Company stockholders. The obligation of each party to consummate the Merger is also conditioned upon (1) the other party having performed in all material respects its obligations under the Merger Agreement and (2) the other party’s representations and warranties in the Merger Agreement being true and correct (subject to certain materiality qualifiers); provided, however, that these conditions, other than with respects to certain representations and warranties, will be deemed waived by the Company upon the closing of the interim private offering.

 

The Merger Agreement contains termination rights for each of the Company and NAYA, including, among others: (1) if the consummation of the Merger does not occur on or before December 31, 2023 (the “End Date”), except that any party whose material breach of the Merger Agreement caused or was the primary contributing factor that resulted in the failure of the Merger to be consummated on or before the End Date, (2) if any governmental authority has enacted any law or order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger, and (3) if the required vote of the stockholders of either the Company or NAYA has not been obtained. The Merger Agreement contains additional termination rights for NAYA, including, among others: (1) if the Company materially breaches its non-solicitation obligations or fails to take all action necessary to hold a stockholder meeting to approve the transactions contemplated by the Merger Agreement, (2) if the aggregate of the liabilities of the Company, excluding certain specified liabilities, exceed $5,000,000, (3) if NAYA determines that the due diligence contingency will not be satisfied by October 26, 2023, (4) if NAYA determines that the Company has experienced a material adverse effect, or (5) the Company material breaches any representation, warranty, covenant, or agreement such that the conditions to closing would not be satisfied and such breach is incapable of being cured, unless such breach is caused by NAYA’s failure to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the closing.

 

If all of NAYA’s conditions to closing are satisfied or waived and NAYA fails to consummate the Merger, NAYA would be required to pay the Company a termination fee of $1,000,000. If all of the Company’s conditions to closing conditions are satisfied or waived and the Company fails to consummate the Merger, the Company would be required to pay NAYA a termination fee of $1,000,000.

 

Following the Merger, NAYA plans to operate in three sectors focused on: (a) increasing patient access to life-transforming treatments in oncology (“NAYA Oncology”); (b) fertility; and (c) regenerative medicine.

 

NAYA Oncology has acquired two clinical-stage bispecific antibody assets for the treatment of Hepatocellular Carcinoma and Multiple Myeloma from Cytovia Therapeutics (“Cytovia”), a biopharmaceutical company focused on immune cell engager bispecific antibodies and gene-edited cell therapeutics, for a consideration in cash and shares at an agreed price of $5 in the merged company.

 

Under the terms of the Merger Agreement, pending approval of the transaction by INVO’s, Cytovia’s, and NAYA’s stockholders and subject to key closing conditions, INVO will acquire 100% of the outstanding equity interests in NAYA by means of a reverse triangular merger, pursuant to which INVO will issue to NAYA more than eighty percent (80%) of its common stock, effectively resulting in a change of control.

 

Warrant Solicitation

 

On November 9, 2023, the Company announced that it had commenced a solicitation of waivers (the “Waiver Solicitation”) from holders of the Company’s common stock purchase warrants dated August 8, 2023 (the “Warrants”) of the holder’s right to exercise a payment option upon consummation of the Merger with NAYA. Receipt of the waivers is a condition to the consummation of the Merger. The Waiver Solicitation is being made pursuant to a notice of waiver solicitation (the “Notice of Waiver Solicitation”) and accompanying form of waiver, which the Company is sending to the holders of the Warrants. The Notice of Waiver solicitation sets forth the terms of the Warrant Solicitation. The Waiver Solicitation is scheduled to expire at 5:00 p.m., New York City time, on November 15, 2023.

 

23

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. 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 discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.

 

Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” “INVO,” or “INVO Bioscience, Inc.” refer to INVO Bioscience, Inc.

 

Overview

 

We are a healthcare services fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. Our commercialization strategy is focused on the opening of dedicated “INVO Centers” offering the INVOcell® and IVC procedure (with three centers in North America now operational), the acquisition of US-based, profitable in vitro fertilization (“IVF”) clinics (with one such clinic acquired in August 2023) and the sale and distribution of our technology solution into existing fertility clinics. Our proprietary technology, INVOcell®, is a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. This treatment solution is the world’s first intravaginal culture technique for the incubation of oocytes and sperm during fertilization and early embryo development. This technique, designated as “IVC”, provides patients with a more natural, intimate, and more affordable experience in comparison to other ART treatments. We believe the IVC procedure can deliver comparable results at a fraction of the cost of traditional IVF and is a significantly more effective treatment than intrauterine insemination (“IUI”).

 

Unlike IVF where the oocytes and sperm develop into embryos in an expensive laboratory incubator, the INVOcell allows fertilization and early embryo development to take place in the woman’s body. This allows for many benefits in the IVC procedure, including:

 

  Reduces expensive and time-consuming lab procedures, helping clinics and doctors to increase patient capacity and reduce costs;
  Provides a natural, stable incubation environment;
  Offers a more personal, intimate experience in creating a baby; and
  Reduces the risk of errors and wrong embryo transfers.

 

In both current utilization of the INVOcell, and in clinical studies, the IVC procedure has demonstrated equivalent pregnancy success and live birth rates as IVF.

 

While the INVOcell remains important to our efforts, our commercialization and corporate development strategy has expanded to focus primarily on providing ART services to the significantly underserved patient population seeking access to affordable fertility treatment. We are now largely focused on the opening of dedicated “INVO Centers” offering the INVOcell and IVC procedure (with three centers in North America now operational) and the acquisition of existing IVF clinics, in addition to continuing to distribute and sell our technology solution to existing fertility clinics.

 

On August 10, 2023, we closed our first acquisition, Wisconsin Fertility Institute (“WFI”). The acquisition of WFI is expected to provide significant scale to our operations and complement our INVO Center strategy. The Madison-based fertility center primarily offers conventional IVF procedures and generated more than $5 million in revenue and approximately $1.7 million of net income based on fiscal 2022 audited results.

 

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Operations

 

We operate with a core internal team and outsource certain operational functions in order to help advance our efforts as well as reduce fixed internal overhead needs and costs and in-house capital equipment requirements. Our most critical management and leadership functions are carried out by our core management team. We have contracted out the manufacturing, assembly, packaging, labeling, and sterilization of the INVOcell device to a medical manufacturing company and a sterilization specialist to perform the gamma sterilization process.

 

To date, we have completed a series of important steps in the successful development and manufacturing of the INVOcell:

 

Manufacturing: we are ISO 13485:2016 certified and manage all aspects of production and manufacturing with qualified suppliers. Our key suppliers have been steadfast partners since our company first began and can provide us with virtually an unlimited capability to support our growth objectives, with all manufacturing performed in the New England region of the U.S..
Raw Materials: all raw materials utilized for the INVOcell are medical grade and commonly used in medical devices (e.g., medical grade silicone, medical grade plastic). Our principal molded component suppliers are well-established companies in the molding industry and are either ISO 13485 or ISO 9001 certified. The molded components are supplied to our contract manufacturer for assembly and packaging of the INVOcell system. The contract manufacturer is ISO 13485 certified, and U.S. Food & Drug Administration (“FDA”) registered.
CE Mark: INVO Bioscience received the CE Mark in October 2019. The CE Mark permits the sale of devices in Europe, Australia and other countries that recognize the CE Mark, subject to local registration requirements.
US Marketing Clearance: the safety and efficacy of the INVOcell has been demonstrated and cleared for marketing and use by the FDA in November 2015.
Clinical: In June 2023 we received FDA 510(k) clearance to expand the labeling on the INVOcell device and its indication for use to provide for a 5-day incubation period. The data supporting the expanded 5-day incubation clearance demonstrated improved patient outcomes.

 

Market Opportunity

 

The global ART marketplace is a large, multi-billion industry growing at a strong pace in many parts of the world as increased infertility rates, increased patient awareness, acceptance of treatment options, and improving financial incentives such as insurance and governmental assistance continue to drive demand. According to the European Society for Human Reproduction 2020 ART Fact Sheet, one in six couples worldwide experience infertility problems. Additionally, the worldwide market remains vastly underserved as a high percentage of patients in need of care continue to go untreated each year for many reasons, but key among them are capacity constraints and cost barriers. While there have been large increases in the use of IVF, there are still only approximately 2.6 million ART cycles, including IVF, IUI and other fertility treatments, performed globally each year, producing around 500,000 babies. This amounts to less than 3% of the infertile couples worldwide being treated and only 1% having a child though IVF. The industry remains capacity constrained which creates challenges in providing access to care to the volume of patients in need. A survey by “Resolve: The National Infertility Association,” indicates the two main reasons couples do not use IVF is cost and geographical availability (and/or capacity).

 

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In the United States, infertility, according to the American Society of Reproductive Medicine (2017), affects an estimated 10%-15% of the couples of childbearing-age. According to the Centers for Disease Control (“CDC”), there are approximately 6.7 million women with impaired fertility. Based on preliminary 2020 data from CDC’s National ART Surveillance System, approximately 326,000 IVF cycles were performed at 449 IVF centers, leaving the U.S. with a large, underserved patient population, similar to most markets around the world.

 

As part of the expanded corporate expansion efforts the Company has incorporated an acquisition strategy to the business. The Company estimates that there are approximately 80 to 100 established owner-operated IVF clinics that may represent suitable acquisitions as part of this additional effort.

 

Competitive Advantages

 

We believe that the INVOcell, and the IVC procedure it enables, have the following key advantages:

 

Lower cost than IVF with equivalent efficacy. The IVC procedure can be offered for less than IVF due to lower cost of supplies, labor, capital equipment and general overhead. The laboratory equipment needed to perform an IVF cycle is expensive and requires ongoing costs as compared to what is required for an IVC cycle. As a result, we also believe INVOcell and the IVC procedure enable a clinic and its laboratory to be more efficient as compared to conventional IVF.

 

The IVC procedure is currently being offered at several IVF clinics at a price range of $5,000 - $11,000 per cycle and from $4,500 to $7,000 at the existing INVO Centers, thereby making it more affordable than IVF (which tends to average $12,000 to $17,000 per cycle or higher).

 

Improved efficiency providing for greater capacity and improved access to care and geographic availability. In many parts of the world, including the U.S., IVF clinics tend to be concentrated in higher population centers and are often capacity constrained in terms of how many patients a center can treat, since volume is limited by the number of capital-intensive incubators available in IVF clinic labs. With the significant number of untreated patients along with the growing interest and demand for services, the industry remains challenged to provide sufficient access to care and to do so at an economical price. We believe INVOcell and the IVC procedure it enables can play a significant role in helping to address these challenges. According to the 2020 CDC Report, there are approximately 449 IVF centers in the U.S. We estimate that by adopting the INVOcell, IVF clinics can increase fertility cycle volume by up to 30% without adding to personnel, space and/or equipment costs. Our own INVO Centers also address capacity constraints by adding to the overall ART cycle capacity and doing so with comparable efficacy to IVF outcomes as well as at a lower per cycle price. Moreover, we believe that we are uniquely positioned to drive more significant growth in fertility treatment capacity in the future by partnering with existing OB/GYN practices. In the U.S., there are an estimated 5,000 OB/GYN offices, many of which offer fertility services (usually limited to consultation and IUI, but not IVF). Since the IVC procedure requires a much smaller lab facility, less equipment and fewer lab personnel (in comparison to conventional IVF), it could potentially be offered as an extended service in an OB/GYN office. With proper training and a lighter lab infrastructure, the INVOcell could expand the business for these physicians and allow them to treat patients that are unable to afford IVF and provide patients with a more readily accessible, convenient, and cost-effective solution. With our three-pronged strategy (IVF clinics, INVO Centers and OB/GYN practices), in addition to lowering costs, we believe INVOcell and the IVC procedure can address our industry’s key challenges, capacity and cost, by their ability to expand and decentralize treatment and increase the number of points of care for patients in need. This powerful combination of lower cost and added capacity has the potential to open up access to care for underserved patients around the world.

 

Greater patient involvement. With the IVC procedure, the patient uses their own body for fertilization, incubation, and early embryo development which creates a greater sense of involvement, comfort, and participation. In some cases, this may also free people from barriers related to due to ethical or religious concerns, or fears of laboratory mix-ups.

 

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INVOcell Sales and Marketing

 

Our approach to market is focused on identifying partners within targeted geographic regions that we believe can best promote support our efforts to expand access to advanced fertility treatment for the large number of underserved infertile people hoping to have a baby. We believe that the INVOcell-based IVC procedure is an effective and affordable treatment option that greatly reduces the need for more expensive IVF lab facilities and allows providers to pass on related savings to patients without compromising efficacy. We have been cleared to sell the INVOcell in the United States since November 2015 after receiving de novo class II clearance from the FDA. Our primary focus over the past two years has been on establishing INVO Centers in the U.S. and abroad to promote the INVOcell and the IVC procedure and acquiring existing U.S.-based IVF clinics where we can integrate the INVOcell. While we continue selling the INVOcell directly to IVF clinics and via distributors and other partners around the world, we have transitioned INVO from being a medical device company to one that is mostly focused on providing fertility services.

 

International Distribution Agreements

 

We have entered into exclusive distribution agreements for a number of international markets. These agreements usually have an initial term with renewal options and require the distributors to meet minimum annual purchases, which vary depending on the market. We are also required to register the product in each market before the distributor can begin importing, a process and timeline that can vary widely depending on the market.

 

The following table sets forth a list of our current international distribution agreements:

 

                INVOcell
Registration
Market   Distribution Partner   Date   Initial Term   Status in Country
                 
Mexico (a)   Positib Fertility, S.A. de C.V.   Sept 2020   TBD**   Completed
Malaysia   iDS Medical Systems   Nov 2020   3-year   Completed
Pakistan   Galaxy Pharma   Dec 2020   1-year   In process
Thailand   IVF Envimed Co., Ltd.   April 2021   1-year   Completed
Sudan   Quality Medicines, Cosmetics & Medical Equipment Import   Sept 2020   1-year   In process
Ethiopia   Quality Medicines, Cosmetics & Medical Equipment Import   Sept 2020   1-year   In process
Uganda   Quality Medicines, Cosmetics & Medical Equipment Import   Sept 2020   1-year   Not required
Nigeria   G-Systems Limited   Sept 2020   5-year   Completed
Iran   Tasnim Behboud   Dec 2020   1-year   Completed
Sri Lanka   Alsonic Limited   July 2021   1-year   In process
China   Onesky Holdings Limited   May 2022   5-year   In process

 

  (a) Our Mexico JV. Please note that the registration is temporarily in the name of Proveedora de Equipos y Productos, S.A. de C.V. and will be transferred to Positib Fertility as soon as practicable.

 

Investment in Joint Ventures and Partnerships

 

As part of our commercialization strategy, we entered into a number of joint ventures and partnerships designed to establish new INVO Centers.

 

The following table sets forth a list of our current joint venture arrangements:

 

Affiliate Name  Country  Percent (%)
Ownership
 
        
HRCFG INVO, LLC  United States   50%
Bloom INVO, LLC  United States   40%
Positib Fertility, S.A. de C.V.  Mexico   33%

 

Alabama JV Agreement

 

On March 10, 2021, our wholly owned subsidiary, INVO Centers, LLC (“INVO CTR”), entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture LLC is HRCFG INVO, LLC (the “Alabama JV”). The responsibilities of HRCFG’s principals include providing clinical practice expertise, performing recruitment functions, providing all necessary training, and providing day-to-day management of the clinic. The responsibilities of INVO CTR include providing certain funding to the Alabama JV and providing access to and being the exclusive provider of the INVOcell to the Alabama JV. INVO CTR will also perform all required, industry specific compliance and accreditation functions, and product documentation for product registration.

 

The Alabama JV opened to patients on August 9, 2021.

 

The Alabama JV is accounted for using the equity method in our financial statements. As of September 30, 2023, we invested $1.5 million in the Alabama JV in the form of a note. For the nine months ended September 30, 2023, the Alabama JV recorded net income of $32 thousand, of which we recognized a gain from equity method investments of $16 thousand. For the nine months ended September 30, 2022, the Alabama JV recorded a net loss of $0.3 million, of which we recognized a loss from equity method investments of $0.2 million.

 

Georgia JV Agreement

 

On June 28, 2021, INVO CTR entered into a limited liability company agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center, (the “Atlanta Clinic”) in the Atlanta, Georgia metropolitan area.

 

In consideration for INVO’s commitment to contribute up to $800,000 within the 24-month period following execution of the Bloom Agreement to support the start-up operations of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute physician services having an anticipated value of up to $1,200,000 over the course of a 24-month vesting period, the Georgia JV issued 1,200 of its units to Bloom.

 

The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR will also perform all required, industry specific compliance and accreditation functions, and product documentation for product registration.

 

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The Georgia JV opened to patients on September 7, 2021.

 

The results of the Georgia JV are consolidated in our financial statements. As of September 30, 2023, INVO invested $0.9 million in the Georgia JV in the form of capital contributions as well as $0.5 million in the form of a note. For the nine months ended September 30, 2023 and 2022, the Georgia JV recorded net losses of $0.1 million and $0.2 million respectively. Noncontrolling interest in the Georgia JV was $0. See Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information on the Georgia JV.

 

Mexico JV Agreement

 

Effective September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”).

 

The Mexico JV will operate in Monterrey, Nuevo Leon, Mexico and any other cities and places in Mexico as approved by the Mexico JV’s board of directors and Shareholders. In addition, the Shareholders agreed that the Mexico JV will be our exclusive distributor in Mexico. The Shareholders also agreed not to compete directly or indirectly with the Mexico JV in Mexico.

 

The Mexico JV opened to patients on November 1, 2021.

 

The Mexico JV is accounted for using the equity method in our financial statements. As of September 30, 2023, INVO invested $0.1 million in the Mexico JV. For the nine months ended September 30, 2023 and 2022, the Mexico JV recorded net losses of $144 thousand and $140 thousand, respectively, of which we recognized a loss from equity method investments of $48 thousand and $47 thousand, respectively.

 

Terminated JV Agreements

 

As of May 15, 2023, our JV agreements to establish INVO Centers in the Republic of North Macedonia and in the Bay Area of California were terminated due to lack of progress.

 

Recent Developments

 

NAYA Biosciences Merger

 

On October 22, 2023, the Company, INVO Merger Sub Inc., a wholly owned subsidiary of the Company and a Delaware corporation (“Merger Sub”), and NAYA Biosciences, Inc., a Delaware corporation (“NAYA”), entered into an Agreement and Plan of Merger, as amended on October 25, 2023 (the “Merger Agreement”).

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge (the “Merger”) with and into NAYA, with NAYA continuing as the surviving corporation and a wholly owned subsidiary of the Company.

 

At the effective time and as a result of the Merger, each share of Class A common stock, par value $0.000001 per share, of NAYA (the “NAYA common stock”) outstanding immediately prior to the effective time of the Merger, other than certain excluded shares held by NAYA as treasury stock or owned by the Company or Merger Sub, will be converted into the right to receive 7.33333 (subject to adjustment as set forth in the Merger Agreement) shares of a newly designated series of common stock, par value $0.0001 per share, of the Company which shall be entitled to ten (10) votes per each share (“Company Class B common stock”) for a total of approximately 18,150,000 shares of the Company (together with cash proceeds from the sale of fractional shares, the “Merger Consideration”).

 

Immediately following the effective time of the Merger, Dr. Daniel Teper, NAYA’s current chairman and chief executive officer, will be named chairman and chief executive officer of the Company, and the board of directors will be comprised of at least seven (7) directors, of which (i) one shall be Steven Shum, the Company’s current chief executive officer, and (ii) six shall be identified by NAYA, of which four (4) shall be independent directors.

 

The completion of the Merger is subject to satisfaction or waiver of certain customary mutual closing conditions, including (1) the adoption of the Merger Agreement by the stockholders of the Company and NAYA, (2) the absence of any injunction or other order issued by a court of competent jurisdiction or applicable law or legal prohibition prohibiting or making illegal the consummation of the Merger, (3) the completion of due diligence, (4) the completion of an interim private offering of shares of Company common stock at a price that is a premium to the market price of the Company common stock in an estimated amount of $5,000,000 or more of gross proceeds, (5) the aggregate of the liabilities of the Company, excluding certain specified liabilities, shall not exceed $5,000,000, (6) the receipt of waivers from any and all holders of warrants (and any other similar instruments) to securities of the Company, with respect to any fundamental transaction rights such warrant holders may have under any such warrants, (7) the continued listing of the Company common stock on NASDAQ through the effective time of the Merger and the approval for listing on NASDAQ of the shares of the Company common stock to be issued in connection with the Merger, the interim private offering, and a private offering of shares of Company common stock at a target price of $5.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Company common stock) resulting in sufficient cash available for the Company for one year of operations, as estimated by NAYA, (8) the effectiveness of a registration statement on Form S-4 to be filed by the Company pursuant to which the shares of Company common stock to be issued in connection with the Merger will be registered with the SEC, and the absence of any stop order suspending such effectiveness or proceeding for the purpose of suspending such effectiveness being pending before or threatened by the SEC, and (9) the Company shall have received customary lock-up Agreement from certain Company stockholders. The obligation of each party to consummate the Merger is also conditioned upon (1) the other party having performed in all material respects its obligations under the Merger Agreement and (2) the other party’s representations and warranties in the Merger Agreement being true and correct (subject to certain materiality qualifiers); provided, however, that these conditions, other than with respects to certain representations and warranties, will be deemed waived by the Company upon the closing of the interim private offering.

 

The Merger Agreement contains termination rights for each of the Company and NAYA, including, among others: (1) if the consummation of the Merger does not occur on or before December 31, 2023 (the “End Date”), except that any party whose material breach of the Merger Agreement caused or was the primary contributing factor that resulted in the failure of the Merger to be consummated on or before the End Date, (2) if any governmental authority has enacted any law or order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger, and (3) if the required vote of the stockholders of either the Company or NAYA has not been obtained. The Merger Agreement contains additional termination rights for NAYA, including, among others: (1) if the Company materially breaches its non-solicitation obligations or fails to take all action necessary to hold a stockholder meeting to approve the transactions contemplated by the Merger Agreement, (2) if the aggregate of the liabilities of the Company, excluding certain specified liabilities, exceed $5,000,000, (3) if NAYA determines that the due diligence contingency will not be satisfied by October 26, 2023, (4) if NAYA determines that the Company has experienced a material adverse effect, or (5) the Company material breaches any representation, warranty, covenant, or agreement such that the conditions to closing would not be satisfied and such breach is incapable of being cured, unless such breach is caused by NAYA’s failure to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the closing.

 

If all of NAYA’s conditions to closing are satisfied or waived and NAYA fails to consummate the Merger, NAYA would be required to pay the Company a termination fee of $1,000,000. If all of the Company’s conditions to closing conditions are satisfied or waived and the Company fails to consummate the Merger, the Company would be required to pay NAYA a termination fee of $1,000,000.

 

Wisconsin Fertility Institute Acquisition

 

On August 10, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Buyer”) and wholly owned subsidiary of INVO CTR, consummated its acquisition of WFI for a combined purchase price of $10 million, of which $2.5 million was paid on the closing date (net cash paid was $2,150,000 after a $350,000 holdback) plus assumption of the inter-company loan owed by WFRSA (as defined below) in the amount of $528,756. The remaining three installments of $2.5 million each will be paid on the subsequent three anniversaries of closing. The sellers have the option to take all or a portion of the final three installments in shares of INVO common stock valued at $125.00, $181.80, and $285.80, for the second, third, and final installments, respectively.