UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, |
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to |
INVO BIOSCIENCE, INC.
(Exact name of registrant as specified in Charter)
Nevada | 001-39701 | 20-4036208 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File No.) | (IRS Employee Identification No.) |
5582 Broadcast Court Sarasota, Florida, 34240
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (978) 878-9505
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 |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of the voting stock and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter ended June 30, 2022 was $7,763,391based onupon the closing price of the shares ofregistrant’s common stock of $0.64 on the Nasdaq Stock Market on June 30, 2021, was $46,939,332.NASDAQ as of that date.
The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of March 31, 2022April 17, 2023 was .
DOCUMENTS INCORPORATED BY REFERENCE
None.Portions of the registrant’s Proxy Statement for the 2023Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2022.
FORM 10-K
INVO BIOSCIENCE, INC.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, the impact of the COVID-19 pandemic on our ability to advance our clinical programs and raise additional financing and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Reverse Stock Splits
On May 26, 2020, the Company effected a 1-for-20 reverse stock split of its common stock. All shares, options and warrants throughout these consolidated financial statements have been retroactively restated to reflect the reverse split.
On November 9, 2020, the Company effected a 5-for-8 reverse stock split of its common stock. All shares, options and warrants throughout these consolidated financial statements have been retroactively restated to reflect the reverse split.
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Part I
Item 1. Business
Introduction
This Annual Report on Form 10-K should be read together and in connection with the other reports that have been filed by us with the SEC for a comprehensive description of our financial condition and operating results. In the interest of disclosure, we have included in this Form 10-K certain material events and developments that have taken place through the date of filing of this Form 10-K with the SEC.
In this Annual Report on Form 10-K, INVO Bioscience, Inc. (INVO Bioscience, Inc., together with its subsidiaries, is referred to in this document as “we”, “us”, “INVO Bioscience”, “INVO,” or the “Company”), incorporates by reference certain information from parts of other documents filed with the Securities and Exchange Commission (“SEC”). The SEC allows us to disclose important information by referring to it in that manner. Please refer to all such information when reading this Annual Report on Form 10-K. All information is as of December 31, 2021,2022, unless otherwise indicated. For a description of the risk factors affecting or applicable to our business, see “Risk Factors,” below.
The Company
We are a commercial-stage fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. Our primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. Our flagship product is INVOcell, a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. Our primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. 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 a more natural,connected and intimate andexperience at a more affordable experiencecost in comparison to in vitro fertilization (“IVF”), the other advanced ART treatments.treatment. The IVC procedure can deliver comparable results at a lower cost than traditional in vitro fertilization (“IVF”)to IVF and is a significantly more effective treatment than intrauterine insemination (“IUI”). 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), and the acquisition of existing IVF clinics, in addition to continuing to sell our technology solution into existing fertility clinics.
Recent Developments
January and March 2023 Convertible Note and Warrant Financings
In January and March 2023, we sold unsecured convertible notes of the Company in the aggregate original principal amount of $410,000 (the “Convertible Notes”) with a fixed conversion prices of $0.50 (for the $275,000 of January 2023 Notes) and $0.60 (for the $135,000 of March 2023 Notes) and (ii) 5-year warrants (the “Note Warrants”) to purchase 387,500 shares of the Company’s common stock at an exercise price of $1.00 (subject to adjustments) (the “Note and Warrant Private Placement”). The proceeds were used for working capital and general corporate purposes.
Interest on the Convertible 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 the Company’s common stock at the conversion price set forth in the Convertible Notes on December 31, 2023, unless converted earlier.
All amounts due under the Convertible 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 Company’s common stock at a fixed conversion price for the Notes as described above.
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Upon any issuance by the Company of any of its equity securities in an underwritten offering, including Common Stock, for cash consideration, indebtedness or a combination thereof after the date hereof (a “Subsequent Equity Financing”), each holder shall have the option to convert the outstanding principal and accrued but unpaid interest of its Convertible Note into the number of fully paid and non-assessable shares of securities issued in the Subsequent Equity Financing equal to the product of unpaid principal, together with the balance of unpaid and accrued interest and other amounts payable hereunder, divided by the price per share paid by the investors in the Subsequent Equity Financing multiplied by 80%, provided however, that any conversion shall only be allowed if the Subsequent Equity Financing conversion price is equal to or greater than the Minimum Price (as defined in the Convertible Notes) including an appropriate allocation any warrants offered.
A Convertible Note may not be converted and shares of common stock may not be issued under the Convertible Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding ordinary shares.
The Company may prepay the Convertible Notes at any time in whole or in part by paying a s sum of money equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest.
The Company entered into a registration rights agreement with the holders of and of even date with the Convertible Notes (the “Note RRA”). Pursuant to the terms of Note RRA, if the Company determines to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans on Form S-8 (or any successor form) or (ii) a registration relating solely to a Commission Rule 145 transaction on Form S-4 (or any successor form), the Company will include in such registration, and in any underwriting involved therein, the shares underlying the Convertible Notes and Note Warrants delivered pursuant to the Note and Warrant Purchase Agreements, subject to, in the case of an underwritten registration, the discretion of the managing underwriter to reduce any or all piggyback registration shares if in its good faith judgment such inclusion would affect the successful marketing of the underwritten offering.
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 Warrant”) to purchase 250,000 shares (the “February Warrant Shares”) of the Company’s common stock par value $0.0001 per share (“Common Stock”) at an exercise price of $0.75 per share, and (iii) 83,333 shares of Common Stock (the “February Commitment Shares”) issued as an inducement for issuing the Debentures. The proceeds, net of placement agent and legal fees, are being used for working capital and general corporate purposes.
Pursuant to the February Debentures, interest on the February Debentures accrues at a rate of eight percent (8%) per annum and is payable at maturity, one year from the date of the February Debentures.
All amounts due under the February Debentures are 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 $0.52 per share. This conversion price is subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments and is subject to a floor price.
The Company may 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 remains outstanding, if the Company receives 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 shall have 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.
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The Company entered into a Registration Rights Agreement (the “February RRA”) with the February Investor that signed its purchase agreement on February 3, 2023 (the “Feb 3 Investor”). Pursuant to the terms of February RRA, the Company has agreed to file with the SEC an initial registration statement on Form S-3 (or Form S-1 if S-3 is not available) covering the resale of all of the securities acquired by the Feb 3 Investor under its February Purchase Agreement. The filing of such initial registration statement is to occur within 90 days of February 3, 2023.
On March 31, 2023, having received notice from the February Investor that signed its purchase agreement on February 17, 2023 (the “Feb 17 Investor”) requesting repayment of its February Debenture, the Company paid the Feb 17 Investor $170,000, including interest and the prepayment premium. After such payment, the principal due the Feb 17 Investor under its debenture was reduced from $200,000 to $39,849.
On April 3, 2023, having received notice from the Feb 3 Investor requesting repayment of its February Debenture, the Company paid the Feb 3 Investor $213,879, including interest and the prepayment premium. After such payment, the principal due the Feb 3 Investor under its debenture was reduced from $300,000 to $100,000.
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 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.
We were formedAlso on January 5, 2007, underFebruary 3, 2023, the laws of the Commonwealth of Massachusetts under the name Bio X Cell, Inc. to acquire the assets of Medelle Corporation (“Medelle”). Dr. Claude Ranoux purchased and contributed all of the assets of Medelle, including four patents relatingCompany issued to the INVOcell technology,Feb 3 Investor 150,000 shares of Common Stock for its commitment to Bio X Cell, Inc. upon its formation in January 2007.
enter into the ELOC.
On December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and eachThe obligation of the shareholdersFeb 3 Investor to purchase shares of INVO Bioscience entered into a share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation (“Emy’s”). UponCommon Stock pursuant to the closingELOC 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 share exchange on December 5, 2008,ELOC (February 3, 2025), (iii) written notice of termination by the INVO Bioscience shareholders transferredCompany, (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 their sharesits property, or the Company makes a general assignment for the benefit of common stock in INVO Bioscience to Emy’s. In connection with the share exchange, Emy’s changed its name to INVO Bioscience, Inc. and Bio X Cell, Inc. became a wholly owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.creditors (the “Commitment Period”).
Recent Developments
In January 2022, we issued 94,623During the Commitment Period, 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.
Execution of Definitive Agreements to Acquire the Wisconsin Fertility Institute
On March 16, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Wood Violet”) and wholly owned subsidiary of INVO Centers LLC, a Delaware company (“INVO CTR”) wholly-owned by INVO, entered into binding purchase agreements to acquire Wisconsin Fertility Institute (“Wisconsin Fertility”) for a combined purchase price of $10 million.
The purchase price is payable in four installments of $2.5 million each (which payments may be offset by assumption of certain Wisconsin Fertility liabilities, payable at closing and on each of 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 to Paradigm Opportunities Fund, LPvalued at $6.25, $9.09, and $14.29, for the second, third, and final installments, respectively.
Wisconsin Fertility 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 (“Paradigm”WFRSA”), and (b) a laboratory services company, Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”). WFRSA owns, operates and manages the Clinic’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.
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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, 1,380,000 shares (the “March Shares”) of Common Stock, and pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 2,300,000 shares of Common Stock, at an exercise price of $0.01 per share, and (ii) in a concurrent private placement, common stock purchase warrants (the “March Warrants”), exercisable for an aggregate of up to 5,520,000 shares of Common Stock, at an exercise price of $0.63 per share. The sharessecurities to be issued in the registered direct offering (priced at the marked under Nasdaq rules) were issuedoffered pursuant to the Company’s shelf registration statement on Form S-3 (File 333-255096) (the “Shelf Registration Statement”), initially filed by the Company with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), on April 7, 2021 and declared effective on April 16, 2021. The Pre-Funded Warrants are exercisable upon issuance and will remain exercisable until all of the Pre-Funded Warrants are exercised in full.
The March Warrants (and the shares of Common Stock issuable upon the exercise of the Private Warrants) were not registered under the Securities Act and were offered pursuant to an exemption from the registration requirements of the Securities Act provided byin Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrants are immediately exercisable upon issuance, will expire eight years from the date of 1933, as amended. Weissuance, and in certain circumstances may be exercised on a cashless basis.
On March 27, 2023, the Company closed the offering, raising gross proceeds of approximately $3 million before deducting placement agent fees and other offering expenses payable by the Company. In the event that all March Warrants are exercised for cash, the Company would receive additional gross proceeds of approximately $3.5 million. Under the March Purchase Agreement, the Company may use a portion of the net proceeds of the offering to (a) repay February Debentures, and (b) to pay the down payment for Wisconsin Fertility acquisition. The remainder of the net proceeds will be used for working capital, capital expenditures, and other general corporate purposes.
Under the March Purchase Agreement, the Company is required within 30 days of the closing date of the offering to file a registration statement on Form S-1 (the “Resale Registration Statement”) registering the resale of the shares of Common Stock issuable upon the exercise of the March Warrants. The Company is required to use commercially reasonable efforts to cause such registration to become effective within 75 days of the closing date of the offering (or 120 days if the registration statement is subject to a full-review by the SEC), and to keep such registration statement effective at all times until no March Warrants remain outstanding.
In addition, pursuant to certain “lock-up” agreements, our officers and directors have agreed, for a period of 180 days from the date of the offering, not to engage in any of the following, whether directly or indirectly, without the consent of the March Purchase Agreement investor: offer to sell, sell, contract to sell pledge, grant, lend, or otherwise transfer or dispose of our common stock or any securities convertible into or exercisable or exchangeable for Common Stock (the “Lock-Up Securities”); enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities; make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Lock-Up Securities; enter into any transaction, swap, hedge, or other arrangement relating to any Lock-Up Securities subject to customary exceptions; or publicly disclose the intention to do any of the foregoing.
Notices from Nasdaq of Failure to Satisfy Continued Listing Rules.
Notice Regarding Non-Compliance with Minimum Stockholders’ Equity
On November 23, 2022, we received $315,000notice (the “Stockholders’ Equity Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that we were not in proceeds from this issuance. Pursuantcompliance with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires companies listed on The Nasdaq Capital Market to its terms,maintain stockholders’ equity of at least $2,500,000 (the “Stockholders’ Equity Requirement). In our Quarterly Report on MarchForm 10-Q for the quarter ended September 30, 2022, we terminatedreported stockholders’ equity of $1,287,224, which is below the Stockholders’ Equity Requirement for continued listing. Additionally, as of the date of the Notice, we did not meet either of the alternative Nasdaq continued listing standards under the Nasdaq Listing Rules, market value of listed securities of at least $35 million, or net income of $500,000 from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years.
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The Notice has no immediate effect on the listing of our common stock purchase agreementand our common stock continues to trade on The Nasdaq Capital Market under the symbol “INVO” subject to our compliance with Paradigm,the other continued listing requirements.
Pursuant to the Notice, Nasdaq gave us 45 calendar days, or until January 7, 2023, to submit to Nasdaq a plan to regain compliance. If our plan is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the Notice to evidence compliance.
On January 18, 2023, we received a letter from Nasdaq under which Paradigm had committedit stated that based on our submission that Nasdaq has determined to purchase 600,703 sharesgrant us an extension of time to regain compliance with Nasdaq Listing Rule 5550(b) until May 22, 2023. We must furnish to the SEC and Nasdaq a publicly available report (e.g. a Form 8-K) which report, among other things, includes a description of the completed transaction or event that enabled us to satisfy the stockholders’ equity requirement for continued listing After filing the publicly available report described above, if we fail to evidence compliance upon filing its periodic report for the June 30, 2023, with the SEC and Nasdaq, we may be subject to delisting. In the event we do not satisfy these terms, Nasdaq will provide written notification that its securities will be delisted. At that time, we may appeal Nasdaq’s determination to a Hearings Panel.
Notice Regarding Failure to Maintain Minimum Bid Price
On January 11, 2023, we received a letter from the staff (the “Staff”) of Nasdaq listing qualifications group indicating that, based upon the closing bid price of our common stock for an aggregate purchasethe last 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1,999,740.29. $1.00 per share for continued listing under Nasdaq Listing Rule 5550(a)(2).
The notice has no immediate effect on the listing of our common stock, and our common stock will continue to trade on The Nasdaq Capital Market under the symbol “INVO.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until July 10, 2023, to regain compliance with the minimum bid price requirement. If at any time before July 10, 2023, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance prior to July 10, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we (i) meets the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and (ii) notifies Nasdaq of its intent to cure the deficiency within such second 180 calendar day period, by effecting a reverse stock split, if necessary.
We issuedwill continue to monitor the closing bid price of our termination notice when it became clearcommon stock and will consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. If we do not regain compliance with the minimum bid price requirement within the allotted compliance periods, we will receive a written notification from Nasdaq that Paradigmits securities are subject to delisting. We would notthen be ableentitled to fulfil its commitment inappeal that determination to a timely fashion.Nasdaq hearings panel. There can be no assurance that we will regain compliance during either compliance period, or maintain compliance with the other Nasdaq listing requirements.
On March 29, 2022, the joint venture agreement between INVO and Medesole Healthcare and Trading Private Limited, India was terminated by us pursuant to the terms of the joint venture agreement after mutual agreement with Medesole that Medesole would not be able to fulfil its commitments in a timely fashion.
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Operations
We operate with a core internal team and outsource certain operational functions in order to help accelerate our efforts as well as reduce internal fixed overhead needs 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, packaging/labeling and sterilization of the device to a contract medical manufacturing company that completes final product manufacturing as well as manages the gamma sterilization process at a U.S. Food and Drug Administration (“FDA”) registered contract sterilization facility.
Employees
As of December 31, 2021,2022, we had tenfifteen full time and twoone part time employees.employee. We also engage key consultants to further support our operations.
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).
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 the 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, which is similar to most markets around the world.
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 practicingseveral 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 conventional 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, with volume often 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 dramatically open up access to care for 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 ethical or religious concerns, or fears of laboratory mix-ups.
Sales and Marketing
Our product commercialization efforts areapproach to market is focused on identifying distributors and partners within targeted geographic regions that we believe can best promote, market, and sell the INVOcell and 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 U.S. fertilityIVF clinics and developing key international market partnershipsvia distributors and other partners around the world.
We anticipateworld, we have transitioned INVO from being a medical device company to one that we will experience quarterly fluctuations in our revenue as we expand the sales of the INVOcell to new markets in the U.S. and globally. We continue to seek partners that will contractually commit to meeting agreeable performance objectives that are consistent with our goals and objectives.is mostly focused on providing fertility services.
Ferring
On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Ferring Agreement”) with Ferring International Center S.A. (“Ferring”), which closedbecame effective on January 14, 2019. Pursuant to the Ferring Agreement, among other things, we granted Ferring an exclusive license in the United States to market, promote, distribute, and sell the INVOcell. Ferring was responsible, at its own cost, for all commercialization activities for in the United States. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to five INVO Centers in the United States, which as of March 2, 2021, was amended to seven centers. We retained all commercialization rights for the INVOcell outside of the United States.
On November 2, 2021, Ferring notified us of its intention to terminate the Ferring Agreement, which required 90-days prior written notice. Accordingly, the Ferring Agreement officially terminated on January 31, 2022. Pursuant to the terms of the Ferring Agreement, upon notice of termination, Ferring was required to use commercially reasonable efforts to transition any customers to us and otherwise facilitate the orderly transition of the distribution from Ferring to us. By its terms, our Supply Agreement with Ferring also terminated on January 31, 2022.
The Ferring license was deemed to be a functional license that provides the counterparty with a “right to access” to our intellectual property during the subscription period and accordingly, revenue is recognized over a period of time, which is generally the subscription period. During the years ended December 31, 2021, and 2020, we recognized $3.6 million and $0.7 million of revenue related to the Ferring license agreement, respectively.
As of December 31, 2021, we had no deferred revenue related to the Ferring Agreement as it was recognized in the fourth quarter of fiscal year 2021 in relation to the contract termination. The likelihood of Ferring exercising its rights became remote at the time notice of termination was received, therefore INVO recognized the full remaining amount of the deferred revenue.
revenue in the fourth quarter of fiscal year 2021. During the years ended December 31, 2022, and 2021, we recognized nil and $3.6 million of revenue related to the Ferring license agreement, respectively, and, as of December 31, 2022, we had no deferred revenue related to the Ferring Agreement.
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 | |||||
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 | |||||
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 | % | |||||
Ginekalix INVO Bioscience LLC Skopje | Republic of North Macedonia | 50 | % |
The following table sets forth a list of our current partnership arrangements:
Partner | Country | Partnership Split | Split | |||||
Lyfe Medical | United States | 40 | % |
Alabama JV Agreement
On March 10, 2021, our wholly owned subsidiary, INVO Centers, LLC (“INVO CTR”),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, and initial treatment cycles commenced in September 2021.
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.
The Georgia JV opened to patients on September 7, 2021, and commenced initial treatment cycles in November 2021.
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, and commenced initial treatment cycles beginning in January 2022.
Malaysia JV Agreement
On November 23, 2020, we entered into a joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated in Malaysia, to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market technologies related to the INVOcell and IVC Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Centers in Malaysia. The joint venture is co-managed and owned 50% by each of INVO Bioscience and SNS Murni. As of December 31, 2021, no joint venture entity had been formed.2021.
North Macedonia JV Agreement
On November 23, 2020, we entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote, and market technologies related to the INVOcell and IVC procedure in the Republic of North Macedonia, and (ii) establish an INVO Center. The joint venture will be co-managed and owned 50% by each of INVO and Ginekaliks. As of December 31, 2021,2022, no joint venture entity had been formed.
Lyfe Medical Center I, LLC Partnership agreement
On April 9, 2021, we entered into a partnership agreement (the “Lyfe Agreement”) with Lyfe Medical Center I, LLC (“Lyfe”) in connection with Lyfe’s intention to establish an INVO Center in the Bay Area of California (the “Bay Area Clinic”). Pursuant to the Lyfe Agreement, we will provide embryology laboratory services in connection with the IVC procedure and other fertility-related treatments (the “Lab Services”) to be provided by Lyfe to its patients at the Bay Area Clinic. Under the terms of the Lyfe Agreement, we will receive 40% of the net income received by the Bay Area Clinic for the performance of the Lab Services. As of December 31, 2021,2022, the Bay Area Clinic was not yet operational.
Competition
The fertility treatment regimens that the INVOcell and IVC procedure compete with when infertile people, in conjunction with their physician, are choosing the treatment method include drug-only stimulation, IUI, and conventional IVF. The fertility industry is highly competitive and characterized by long-standing well-entrenched procedures as well as technological improvements. Our INVOcell enables the first new advanced treatment alternative in over forty years. We face competition from all ART practitioners and device manufacturers. To date, most advancements in the ART market have been limited to incremental improvements to the various products designed to simply support conventional IVF.
Our principal ART medical device competitor for INVOcell is an intrauterine device called AneVivo™, developed by Anecova, a Swiss life sciences company. The principal difference between the INVOcell and AneVivo™ is its placement inside the woman’s uterus for early embryo development. We believe that placing the device in the uterus may be more invasive and thus may increase the risk to patients compared to the INVOcell, which is placed in the vaginal cavity. Currently, AneVivo™ has obtained a CE Mark, but has not received FDA approval.
For additional information about competition, see Risk Factors in Item 1A of this Annual Report on Form 10-K.
Government Regulation
In November 2015, FDA granted our petition for de novo classification of the INVOcell. The INVOcell is intended for use in preparing, holding, and transferring human gametes or embryos during IVC procedure with or without intra-cytoplasmic sperm injection fertilization (“ICSI”). The special controls include clinical and non-clinical performance testing, biocompatibility, sterility and shelf-life testing, and labeling. These special controls also apply to competing products that seek 510(k) clearance under the classification regulation for IVC systems, including our own 510(k) effort to expand the labeling on INVOcell from a 3-day incubation period to up to a 5-day incubation period.
We are subject to regulation in each of the foreign countries where our products are sold. Many of the regulations applicable to our products in such countries are similar to those of the FDA. The national health or regulatory organizations of certain countries require that our products be qualified before they can be marketed in those countries. Many of the countries we are targeting either do not have a formal approval process of their own or will rely on either FDA clearance or the European approval, the CE mark – although many of these countries do require specific registration processes in order to list the INVOcell and make it available for sale.
With our CE marking, we have the necessary regulatory authority to distribute our product, after registration, in the European Economic Area (i.e., Europe, Australia, and New Zealand). In addition, we will have the ability to market in various parts of the Middle East, Asia and South America. Every country has different regulatory and registration requirements, and we have begun or completed registrations in a number of countries. In general, we are registering the product based on the size of the market and our ability to service it given our resources as well as based on interest received from, and the execution of, agreements with distribution and joint venture partners.
We may be subject to healthcare fraud, waste, and abuse regulation and enforcement by the federal government and the governments in the states and foreign countries in which we might conduct our business. The federal laws and many state laws generally apply only to entities or individuals that provide items or services for which payment may be made under a government healthcare program. These include laws that prohibit:
● | the payment or receipt of anything of value in exchange for referrals of business (e.g. Anti-Kickback Statute (42 U.S.C. § 1320a-7b) (the “AKS”); Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a) (the “CMPL”); Ala. Code § 22-1-11(c)); |
● | the presenting of a false or fraudulent claim for payment by a government healthcare program, such as Medicare or Medicaid (e.g. False Claims Act (31 U.S.C. §§ 3729 – 3733); Georgia State False Medicaid Claims Act (Ga. Code Ann. §§ 49-4-168 – 49-4-168.6)); and |
● | the referral by certain ordering licensed healthcare providers of certain healthcare items and services that are payable by a government healthcare program to an entity in which the healthcare provider or his or her immediate family member has an investment or other financial relationship (e.g. Section 1877 of the Social Security Act (42 U.S.C. § 1395nn), commonly referred to as the “Stark Law”; Georgia Patient Self-Referral Act of 1993 (Ga. Code Ann. §§ 43-1B-1 – 43-1B-8)). |
These laws are subject to extensive and increasing enforcement by numerous federal, state, and local government agencies including the Office of Inspector General, the Department of Justice, the Centers for Medicare & Medicaid Services, and various state authorities. At present, the Company’s products and services are not reimbursable under any government healthcare program. If, however, that changes in the future and it were determined that the Company was not in compliance with these federal fraud, waste, and abuse laws, the Company would be subject to liability.
We are subject to the requirements of the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH Act”), and related implementing regulations (together, “HIPAA”). Under HIPAA, the Company must have in place administrative, physical, and technical standards to guard against the misuse of individually identifiable health information. In the ordinary course of our business as a Business Associate, and soon with INVO Centers, as a Covered Entity, we may use, collect, and store sensitive data, including protected health information (“PHI”). We face risks relative to protecting this critical information, including loss of access risk, inappropriate disclosure risk, inappropriate modification risk, and the risk of being unable to adequately monitor our controls. Our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance, or other disruptions. Failure to comply with HIPAA, including through a breach of PHI, could result in penalties and sanctions, and materially harm our business.
For additional information about government regulation applicable to our business, see Risk Factors in Item 1A.
Intellectual Property
We rely on a combination of patent, copyright, and trademark laws in the United States and other countries to obtain and maintain our intellectual property. We protect our intellectual property by, among other methods, filing patent applications with the U.S. Patent and Trademark Office and its foreign counterparts on inventions that are important to the development of our business.
Our product development process has resulted in the development of one (1) patent currently live and in good standing covering the INVOcell device, which is set to expire on July 14, 2024 (US Pat. No. 7,759,115). We completed a redesign of the INVOcell device as well as process improvements on the IVC procedure, which supported a new patent application that was filed on November 11, 2020 and is currently pending. We also filed a PCT (Patent Cooperation Treaty) application for the new U.S. application on January 18, 2021 to further expand patent protection in strategic locations across the globe.globe, and, in the Spring of 2022, subsequently filed individual applications in the European Union, China, Japan, India and Mexico, which are currently pending.
Our portfolio of U.S. registered trademarks includes:
● Registration Nos. 6146631 and 3757982 for INVOCELL
● Registration No. 4009827 for INVO
● Registration No. 4009828 for INVO BIOSCIENCE
We also have pending U.S. applications to register the trademarks INVO CENTER (App. No. 88564596), andtrademark Life Begins Within (App. No. 90803801).
For additional information about our intellectual property, see Risk Factors in Item 1A of this Annual Report on Form 10-K.
Available Information
We maintain an internet website at www.invobio.com. We make available, free of charge through our website, our annual report on Form 10-K, current reports on Form 8-K, quarterly reports on Form 10-Q and each amendment to these reports. Each such report is posted on our website as soon as reasonably practicable after such report is filed with the SEC via the EDGAR system.
The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered a part of this Annual Report. Our website address is included in this Annual Report as an inactive textual reference only.
Item 1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information in this report on Form 10-K, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report on Form 10-K occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
The following is a summary of certain important factors that may make an investment in our company speculative or risky. You should carefully consider the full risk factor disclosure set forth in Item 1A of this Annual Report, in addition to the other information herein, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.
● | Our financial situation creates doubt whether we will continue as a going concern. | |
● | We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate operations. | |
● | Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you. | |
● | Our potential acquisition of the Wisconsin Fertility Institute may not close. | |
● | We may not be able to successfully integrate the Wisconsin Fertility Institute into INVO Bioscience and achieve the benefits expected to result from the acquisition. | |
● | If we close our acquisition of the Wisconsin Fertility Institute and fail to make the required $7.5 million in additional payments, our business would be adversely affected. | |
● | We may incur debt financing to provide the cash proceeds necessary to acquire the Wisconsin Fertility Institute. If we were unable to service any such debt, our business would be adversely affected. | |
● | Our business has posted net operating losses, has a limited operating history, and needs additional capital to grow and finance its operations. | |
● | ||
Our existing INVO Centers were established as joint ventures with medical partners. Future INVO Centers may also be established as joint ventures. These joint ventures will be important to our business. If we are unable to maintain any of these joint ventures, or if they are not successful, our business could be adversely affected. | ||
● | Our business is subject to significant competition. | |
● | We are subject to risks associated with doing business globally. | |
● | We need to manage growth in operations, and we may not be successful in implementing our growth strategy. | |
● | Our products incorporate intellectual property rights developed by us that may be difficult to protect or may be found to infringe on the rights of others. | |
● | We may be forced to defend our intellectual property rights from infringement through expensive legal action. | |
● | We face potential liability as a provider of a medical device. These risks may be heightened in the area of artificial reproduction. | |
● | We may not be able to develop or continue our business if we fail to retain key personnel. | |
● | We are subject to significant domestic and international governmental regulations. | |
● | The FDA regulatory review process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products. | |
● | We are subject to continuing regulation by the FDA, and failure to comply may materially harm our business. | |
● | Our products are generally subject to regulatory requirements in foreign countries in which we sell those products. We will be required to expend significant resources to obtain regulatory approvals or clearances of our products, and there may be delays and uncertainty in obtaining those approvals or clearances. | |
● | If third-party payers do not provide adequate coverage and reimbursement for INVOcell and the IVC procedure, we may be unable to generate significant | |
● | We are subject to risks relating to federal and state healthcare fraud, waste, and abuse laws. | |
● | We are subject to requirements of the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH Act”), and related implementing regulations (together, “HIPAA”), and failure to comply, including through a breach of protected health information (“PHI”) could materially harm our business. | |
● | We have been notified by Nasdaq of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our common stock could be delisted from Nasdaq. Additionally, if Nasdaq does not grant us an extension or if a favorable decision is not be obtained from a hearings panel, or the Panel, after the hearing, our common stock would be delisted from Nasdaq. | |
● | The significant number of common shares registered for resale pursuant to the registration | |
● | Our shares of common stock are thinly traded, and the price may not reflect our value; there can be no assurance that there will be an active market for our shares now or in the future. | |
● | ||
We do not expect to pay any dividends to shareholders. | ||
● | Our | |
● | We may have difficulty raising the necessary capital to fund operations and the Wisconsin Fertility acquisition because of the thin market and market price volatility for our shares of common stock. | |
● | Shareholders may be diluted significantly through our efforts to obtain financing and from issuance of additional shares of our common stock, including such issuances of shares for services. | |
● | Failure to comply with internal control attestation requirements could lead to loss of public confidence in our consolidated financial statements and negatively impact our stock price. |
Risks Related to our Financial Condition and our Need For Additional Capital
Our financial situation creates doubt whether we will continue as a going concern.
From the inception of our consolidated subsidiary BioXcell Inc. on January 5, 2007, through December 31, 2022, we had an accumulated net loss of $49.4 million. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate operations.
We do not expect that our current cash position will be sufficient to fund our current operations for the next 12 months and we do not have sufficient funds to consummate our acquisition of the Wisconsin Fertility Institute. Our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding or a combination of these approaches. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute our existing stockholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.
The capital markets have been unpredictable in the past for unprofitable companies such as ours. In addition, it is generally difficult for development stage companies to raise capital under current market conditions. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued viability will be materially adversely affected.
Risks Related to the Proposed Acquisition of the Wisconsin Fertility Institute
Our potential acquisition of the Wisconsin Fertility Institute may not close.
On March 16, 2023, we signed definitive acquisition agreements to acquire Wisconsin Fertility. This transaction is subject to certain customary closing conditions, as well as an initial cash payment of approximately $2.5 million less certain assumed liabilities and a holdback. We have not currently secured sufficient funds to make the initial closing payment which may impact our ability to close the transaction. In the event that we are unable to consummate our acquisition of Wisconsin Fertility, it will have a material adverse effect on our business, financial condition and results of operation.
14 |
We may not be able to successfully integrate Wisconsin Fertility into INVO and achieve the benefits expected to result from the acquisition.
The proposed acquisition of Wisconsin Fertility may present challenges to management, including the integration of the operations, and personnel of INVO and Wisconsin Fertility and special risks, including possible unanticipated liabilities, unanticipated integration costs and diversion of management attention.
We cannot assure you that we will successfully integrate or profitably manage Wisconsin Fertility’s businesses. Even if we are able to integrate and profitably manage Wisconsin Fertility’s business, we cannot assure you that, following the transaction, our business will achieve sales levels, profitability, efficiencies or synergies that justify the acquisition or that the acquisition will result in increased earnings for us in any future period.
If we close our acquisition of Wisconsin Fertility and fail to make the required $7.5 million in additional payments, our business would be adversely affected.
Following closing of our pending acquisition of Wisconsin Fertility, if consummated, we would be required to make additional payments of approximately $7.5 million, which payments are secured the sellers having a lien on the assets purchased to acquire Wisconsin Fertility. If we default on our additional payment obligations to the sellers of Wisconsin Fertility, such sellers could exercise their rights and remedies under acquisition agreements, which could include seizing the assets sold to us to acquire Wisconsin Fertility. Any such action would have a material adverse effect on our business and prospects.
We may incur debt financing to provide the cash proceeds necessary to acquire Wisconsin Fertility. If we were unable to service any such debt, our business would be adversely affected.
In order to finance our proposed acquisition of Wisconsin Fertility, we may look to secure debt financing. Any such debt financing would likely require us to pledge all or substantially all of our assets as collateral. If we were unable to satisfy any such debt obligation or fail to pay such debt obligations in a timely fashion, we would be in default under such debt financing agreement and such lender could exercise its rights and remedies under such debt financing agreements, which could include seizing all of our assets. Any such action would have a material adverse effect on our business and prospects.
Risks Relating to Our Business
Our business has posted net operating losses, has a limited operating history, and needs additional capital to grow and finance its operations.
From the inception of our consolidated subsidiary BioXcell Inc. on January 5, 2007, through December 31, 2021,2022, we had an accumulated net loss of $38.9$49.4 million. We have a limited operating history and are essentially an early-stage operation. We will continue to be dependent on having access to additional new capital or generating positive operating cash flow primarily through increased device sales and the development of our INVO Centers in order to finance the growth of our operations. Continued net operating losses together with limited working capital make investing in our common stock a high-risk proposal. Our limited operating history may make it difficult for management to provide effective insight into future activities, marketing costs, and customer acquisition and retention. This could lead to INVO missing targets for the achievement of profitability, which could negatively affect the value of your investment.
We may require additional capital to continue as a going concern and to continue executing our business plan, which if not obtained could result in a need to curtail operations.
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As reflected in the accompanying financial statements for the year ended December 31, 2021, we continue to make progress toward commercialization of our INVOcell and the development of our INVO Centers, although revenue is not yet sufficient to cover our current operations. Longer term, based on our projected cash needs, we will be dependent on generating sufficient sales, entering into new distribution agreements, the profitability of our INVO Centers, and/or raising additional debt or equity capital to support our operations. No assurance can be given that we will be successful in raising capital in the amounts or at the rates required to continue operations, or that such capital, if available, will be available on terms acceptable to us. If we are not able to raise additional capital at the rate and in the amounts needed, our business may be significantly impacted, which could materially adversely affect the value of your investment.
Our existing INVO Centers were established as joint ventures with medical partners. Future INVO Centers may also be established as joint ventures. These joint ventures will be important to our business. If we are unable to maintain any of these joint ventures, or if they are not successful, our business could be adversely affected.
We have established, and plan to establish additional, entered into, and may enter into additional, joint ventures for the operation of our INVO Centers. Our existing and any future joint ventures may have a number of risks, including that our joint venture partners:
● | have significant discretion in determining the efforts and resources that they will apply; | |
● | may not perform their obligations as expected; | |
● | may dispute the amounts of payments owed; | |
● | may fail to comply with applicable legal and regulatory requirements regarding the distribution or marketing of our INVOcell product; | |
● | may not properly maintain or defend their or our relevant intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation and liability; | |
● | may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; | |
● | could become involved in a business combination or cessation that could cause them to deemphasize or terminate the development or commercialization of our INVOcell product; and | |
● | may seek to terminate our joint venture, which could require us to raise additional capital and to develop new joint venture relationships. |
Additionally, if one of our joint venture partners seeks to terminate its agreement with us, we may find it difficult to attract new joint venture partners and the perception of our INVO Centers in the business and financial communities could be adversely affected.
Our business is subject to significant competition.
The fertility industry is highly competitive and characterized by well entrenched and long-standing practices as well as technological improvements and advancements. New ART services, devices and techniques may be developed that may render the INVOcell obsolete. Competition in the areas of fertility and ART services is largely based on pregnancy rates and other patient outcomes. Accordingly, the ability of our business to compete is largely dependent on our ability to achieve adequate pregnancy rates and patient satisfaction levels. Our business operates in highly competitive areas that are subject to change. New health care providers and medical technology companies entering the market may reduce our and our INVO Centers’ market share, patient volume and growth rates, and could force us to alter our planned pricing and INVO Center service offerings. Additionally, increased competitive pressures may require us to commit more resources to our and our INVO Centers’ marketing efforts, thereby increasing our cost structure and affecting our ability to achieve, or the timing of achieving, profitability. There can be no assurance that we will not be able to compete effectively, nor can there be any assurance that additional competitors will not enter the market. Such competition may make it more difficult for us to enter into additional contracts with fertility clinics or open profitable INVO Centers.
We are subject to risks associated with doing business globally.
Our operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. Our operations outside the United States are subject to special risks and restrictions, including, without limitation: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the U.S. Foreign Corrupt Practices Act and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. Acts of terror or war may impair our ability to operate in particular countries or regions and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell at competitive prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net earnings, the book value of our assets outside the United States and our stockholders’ equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.
Failure to comply with the United States Foreign Corrupt Practices Act or similar laws could subject us to penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies, including their suppliers, distributors and other commercial partners, from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the countries in which we distribute products. We have adopted formal policies and procedures designed to facilitate compliance with these laws. If our employees or other agents, including our distributors or suppliers, are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
We need to manage growth in operations, and we may not be successful in implementing our growth strategy.
In order to maximize potential growth in our current and potential markets, we may need to expand the scope of our services in the medical device/bioscience industry. We continue to seek additional market strategies to increase the adoption of INVOcell, including the establishment of stand-alone INVO Centers, IVF clinic acquisitions and our efforts to bring the INVOCell and IVC procedure into the existing OB/GYN infrastructure. Such expansion will place a significant strain on our management, operational and sales systems. As a result, we plan to continue to improve our INVOcell technology, operating procedures and management information systems. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating revenues at the levels we expect.
Many factors including, but not limited to, increased competition from similar businesses, unexpected costs, costs associated with marketing efforts and maintaining a strong client base may interfere with our ability to expand successfully. Our inability to implement our internal strategy successfully may have a negative impact on our growth, future financial condition, results of operations and/or cash flows.
Our products incorporate intellectual property rights developed by us that may be difficult to protect or may be found to infringe on the rights of others.
While we currently own U.S. and international patents, these patents may be challenged, invalidated or circumvented, and will ultimately expire. In addition, the rights granted under these patents may not provide the competitive advantages we currently anticipate. Certain countries, including the United States and in Europe, could place restrictions on the patentability of various medical devices which may materially affect our business and competitive position. Additionally, the laws of some foreign countries, in particular China and India, do not protect our proprietary rights to the same extent or in the same manner as U.S. laws, and we may encounter significant problems in protecting and defending our proprietary rights in these countries. In addition to relying on patent, copyright and trademark laws, we also utilize a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements to protect our intellectual property rights. However, these measures may not be adequate to prevent or deter infringement or other misappropriation. Further, our intellectual property rights may be found to infringe on intellectual property rights of third parties. Moreover, we may not be able to detect unauthorized use or take appropriate and timely steps to establish and enforce our proprietary rights. Existing laws of some countries in which we conduct business offer only limited protection of our intellectual property rights, if at all. As the number of market entrants as well as the complexity of technology in the fertility marketplace increases, the possibility of functional overlap and inadvertent infringement of intellectual property rights also increases.
We may be forced to defend our intellectual property rights from infringement through expensive legal action.
Third parties may in the future assert claims against us alleging infringement on their intellectual property rights. Defending such claims may be expensive, time consuming and divert the efforts of our management and/or technical personnel. Because of litigation, we could be required to pay damages and other compensation, develop non-infringing products or enter into royalty and/or licensing agreements. However, we cannot be certain that any such licenses, will be made available to us on commercially reasonable terms.
We regard our trade secrets, patents and similar intellectual property as critical to our successful operations. To protect our proprietary rights, we rely on intellectual property and trade secret laws, as well as confidentiality and license agreements with certain employees, customers and third parties. No assurance can be given that our intellectual property will not be challenged, invalidated, infringed or circumvented. If necessary, we intend to defend our intellectual property rights from infringement through legal action, which could be very costly and could adversely affect our ability to achieve and maintain profitability. Our limited capital resources could put us at a disadvantage if we are required to take legal action to enforce our intellectual property rights.
We face potential liability as a provider of a medical device. These risks may be heightened in the area of artificial reproduction.
The provision of medical devices entails the substantial risk of potential tort injury claims. We do not engage in the practice of medicine or assume responsibility for compliance with regulatory requirements directly applicable to physicians. We currently utilize product liability insurance to provide coverage against potential tort injury claims, as well as customary insurance protection for our INVO Centers. However, there can be no assurance such coverage will provide adequate protection against any potential claims. Furthermore, any claim asserted against us could generate costly legal fees, consume management’s time and resources, and adversely affect our reputation and business, regardless of the merit or eventual outcome of such claim.
There are inherent risks specific to the provision of fertility and ART services. For example, the long-term effects on women of the administration of fertility medication, integral to most fertility and ART services, are of concern to certain physicians and others who fear the medication may prove to be carcinogenic or cause other medical problems. Additionally, any ban or other limitation imposed by the FDA or other foreign regulatory department on fertility medication and services could have a material adverse effect on our business. Any such action would likely adversely affect the value of your investment.
If we fail to maintain adequate quality standards for our products, our reputation and business may be adversely affected and harmed.
Our customers are expecting that our products will perform as marketed and in accordance with industrial standards. We rely on third-party manufacturing companies and their packaging processes in connection with the production of our products. A failure to maintain product quality standards in accordance with our customer’s expectations could result in the loss of demand for our products. Additionally, delays or quality lapses in our production lines could result in substantial economic losses to us. Although we believe that our current quality control procedures adequately address these risks, there can be no assurance that we will not experience occasional or systemic quality lapses in our manufacturing and service operations. Currently, we have limited manufacturing capabilities as we rely on a single manufacturing provider regarding our production process. In the event our manufacturer is unable to produce an adequate supply of products at appropriate quality levels, our growth could be limited, and our business may be harmed. If we experience significant or prolonged disturbance in our quality standards, our business and reputation may be harmed, which may result in the loss of customers, our inability to participate in future customer product opportunities and reduced revenue and earnings.
We heavily rely on third party package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our ability to import or export materials, increase our costs and negatively affect our ability to achieve and maintain profitability.
We ship a significant portion of our products to our customers through independent package delivery companies. If any of our key third party package delivery providers experience a significant disruption such that any of our products, components or raw materials cannot be delivered in a timely fashion or such that we incur additional shipping costs that we are unable to recoup, our costs may increase and our relationships with certain customers may be adversely affected. In particular, if our third-party package delivery providers increase prices and we are not able to find comparable alternatives or adjust our delivery network, our profitability could be adversely affected.
We may not be able to develop or continue our business if we fail to retain key personnel.
We substantially rely upon the efforts and abilities of our executive management and directors. The loss of any of our executive officers and/or directors services could potentially have a material adverse effect on our business, operations, revenues and/or prospects. If one or more of these persons were to become unable or unwilling to continue in their present positions, we may not be able to replace them readily or timely, if at all. We do not maintain key man life insurance on the lives of any of our executive management or directors.
We will need additional, qualified personnel in order to expand our business. Without additional personnel, we will not be able to expand our business.
Expanding our business requires increasing the number of persons engaged in activities for the sale, marketing, administration and delivery of our products as well as clinical training personnel for proper IVC procedure training .training. Our ability to attract and hire personnel to fulfil these efforts is dependent on our ability to attract and retain potential employees with the proper background and training matching the skills required for the positions. In addition, we may not be able to attract personnel who will be able to successfully implement our business operations and growth strategy in the manner that we currently anticipate.
Currency exchange rate fluctuations may affect the results of our operations.
We intend to distribute our INVOcell product internationally with all sales, domestic and international, in U.S. dollars. As a result, our operations could be impacted by fluctuations in currency exchange rates, although we attempt to mitigate such risk by invoicing only in U.S. dollars. In spite of this, our operations may still be negatively impacted by foreign currency exchange rates in the event the U.S. dollar strengthens and the local currency where the product is being sold weakens. In the event such international patients are unable to afford the associated increase costs, international doctors and clinics may not be able to offer the INVOcell and IVC procedure. As we expand our international footprint with joint ventures, these joint ventures will likely have a functional currency based on their location and as a result, if we are required to consolidate these financial results it may create currency fluctuations. Additionally, as an international business we may be susceptible to adverse foreign currency fluctuations unconnected to the U.S. dollar.
We are subject to risks in connection with changes in international, national and local economic and market conditions.
Our business is subject to risks in connection with changes in international, national and local economic and market conditions, including the effects of global financial crises, effects of terrorist acts, war and global pandemics. Such economic changes could negatively impact infertile people’s ability to pay for fertility treatment around the world.
We anticipate that eventually international sales will account for a meaningful part of our revenue. We will experience additional risks associated with international sales, including:
● | political and economic instability; |
● | export controls; |
● | changes in international legal and regulatory requirements; |
● | United States and foreign government policy changes affecting the product marketability; and |
● | changes in tax laws, duties and tariffs. |
Any of these factors could have a material adverse effect on our business, results of operations and financial condition. From 2011 through 2021,2022, we sold products in certain international markets mainly through independent distributors, and we anticipate maintaining a similar sales strategy along with our recent joint venture activity for the foreseeable future. In the event a distributor fails to meet annual sales goals, we may be required to obtain a replacement distributor, which may be costly and difficult to identify. Additionally, a change in our distributors may increase costs, and create a substantial disruption in our operations resulting loss of revenue.
We can no longer depend on minimum annual product purchases from Ferring.
On November 2, 2021, Ferring International Center S.A. (“Ferring”) notified us of their intent to terminate the U.S. Distribution Agreement (the “Ferring Agreement”), pursuant to which we granted Ferring certain rights to sell our products in the United States market. Ferring gave notice of termination for convenience under Section 14.2(b) of the Ferring Agreement which required 90-days prior written notice. Accordingly, the Ferring Agreement officially terminated on January 31, 2022. By its terms, our Supply Agreement with Ferring also terminated on such date. Under the terms of these agreements, Ferring was required to make certain minimum annual purchases to maintain U.S. exclusivity for the INVOcell. Such purchases are no longer available now that the Ferring Agreement has been terminated. Ferring’s termination of these agreements could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Industry
We are subject to significant domestic and international governmental regulation.
Our business is heavily regulated domestically in the United States and internationally. In the United States the FDA, and other federal, state and local authorities, implement various regulations that subject us to civil and criminal penalties, including cessation of operations and recall of products distributed, in the event we fail to comply. Any such actions could severely curtail our sales and business reputation. In addition, additional restrictive laws, regulations or interpretations could be adopted, making compliance with such regulations more difficult or expensive. While we devote substantial resources to ensure our compliance with laws and regulations, we cannot completely eliminate the risk that we may be found non-compliant with applicable legal and regulatory requirements.
We believe that the healthcare industry will continue to be subject to increased regulation as well as political and legal action, as future proposals to reform the health care system are considered by the U.S. Congress and state legislatures. We do not know of, nor do we have any control over, future changes to health care laws and regulations which may have a significant impact on our business.
The FDA regulatory review process for medical devices is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products.
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a premarket approval, or issuance of a de novo classification order. The FDA clearance, de novo classification, and approval processes for medical devices are expensive, uncertain and time-consuming.
Future modifications to the INVOcell that was classified through de novo may require a 510(k) clearance. We may make minor changes to the INVOcell without seeking clearance for the modifications if we determine such clearances are not necessary and document the basis for that conclusion. However, the FDA may disagree with our determination or may require additional information, including clinical data, to be submitted before a determination is made, in which case we may be required to delay the introduction and marketing of our modified products, redesign our products, conduct clinical trials to support any modifications, or we may be subject to enforcement actions. In addition, the FDA may not clear such modified INVOcell for the indications that are necessary or desirable for successful commercialization.
There is no assurance that we will be able to obtain the necessary clearances on a timely basis or at all. Further, the FDA may change its policies, adopt additional regulations or revise existing regulations, or take other actions which may impact our ability to modify the INVOcell on a timely basis, and may prevent or delay clearance of future products. Delays in receipt of, or failure to obtain clearances for any product modifications or future products we may develop would result in delayed or no realization of revenue from such products and the viability of our INVO Centers, and in substantial additional costs, which could decrease our profitability.
In addition, we are required to continue to comply with applicable FDA and other regulatory requirements following de novo classification or clearance. The failure to comply with existing or future regulatory requirements could have a material adverse effect on our business.
Improper marketing and promotion or off-label use of our product could lead to investigations and enforcement by governmental bodies including product recalls or market withdrawal, may harm our reputation and business, and could result in product liability suits.
If the FDA or any foreign regulatory entity determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. These enforcement actions could include, for example, a warning letter or untitled letter, injunction, seizure, civil fine or criminal penalties. We cannot, however, prevent a physician from using the INVOcell off-label, when in the physician’s independent professional medical judgement, he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use the INVOcell off-label, or the INVOcell may not be as effective, which could harm our reputation.
If we fail to comply with the FDA’s Quality System Regulation (“QSR”) or comparable EU requirements, the FDA or EU competent authorities could take various enforcement actions, including suspending our FDA clearance to market, withdrawal of our EU CE Certificate or halting our manufacturing operations, and our business would suffer.
In the United States, as a manufacturer of a medical device, we are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and distribution of medical devices. The FDA enforces the QSR through periodic inspections and unannounced “for cause” inspections. Outside the United States, our products and operations are also required to comply with national requirements where the product is sold and also standards set by industrial standards bodies, such as the International Organization for Standardization. Foreign regulatory bodies may evaluate our products or the testing that our products undergo against these standards. The specific standards, types of evaluation and scope of review differ among foreign regulatory bodies. Our failure to comply with FDA or foreign regulatory agency requirements, or failure to take satisfactory and prompt corrective action in response to an adverse inspection, could result in enforcement actions, including a warning letter, adverse publicity, a shutdown of or restrictions on our manufacturing operations, a recall or seizure of our products, fines, injunctions, civil or criminal penalties, or other sanctions, any of which could cause our business and operating results to suffer.
We are subject to continuing regulation by the FDA, and failure to comply may materially harm our business.
We are subject to Medical Device Reporting (“MDR”) regulations, which require us to report to the FDA if we become aware of information that reasonably suggests our product may have caused or contributed to a death or serious injury or has malfunctioned and the device or a similar device we market would likely cause or contribute to a death or serious injury if the malfunction were to recur. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event. If we fail to comply with our medical device reporting obligations, the FDA could issue warning letters or untitled letters, take administrative actions, commence criminal prosecution, impose civil monetary penalties, request or require a product recall, seize our products, or delay the clearance of our future products. We must report corrections and removals to the FDA where the correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug, and Cosmetic Act, or FDCA, caused by the device that may present a risk to health.
Our failure to comply with these or other applicable regulatory requirements could result in enforcement actions by the FDA which may include untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; customer notifications or repair, replacement or refunds; and criminal prosecution.
Our products are generally subject to regulatory requirements in foreign countries in which we sell those products. We will be required to expend significant resources to obtain regulatory approvals or clearances of our products, and there may be delays and uncertainty in obtaining those approvals or clearances.
In order to sell our products in foreign countries, generally we must obtain regulatory approvals and comply with the regulations of those countries. These regulations, including the requirements for approvals or clearances and the time required for regulatory review, vary from country-to-country.
The EU requires that manufacturers certify compliance of medical devices with Council Directive (93/42/EEC) (“MDD”), as amended, and affix the CE mark before selling such devices in member countries of the EU or European Economic Area (“EEA”). The CE mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the authorization to affix the CE mark to products, a manufacturer must certify that its product complies with the applicable directive, which may include a requirement to obtain certification that its processes and products meet certain European quality standards.
In May 2017, the EU adopted Regulation (EU) 2017/745 (“MDR”), which will repeal and replace the MDD with effect from May 26, 2021. Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2021, may continue to be placed on the market for the remaining validity of the certificate, until May 27, 2024, at the latest as long as there have been no significant changes made to the product. After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be placed on the market in the EU (or EEA). The MDR includes increasingly stringent requirements in multiple areas, such as pre-market clinical evidence (some of which are now in effect), review of high-risk devices, labeling and post-market surveillance. Under the MDR, pre-market clinical data will now be required to obtain CE Mark approval for high-risk, new and modified medical devices. We believe these new requirements have the potential to be expensive and time-consuming to implement and maintain.
Complying with and obtaining regulatory approval in foreign countries, including compliance with the MDR, have caused and will likely continue to cause us to experience more uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse impact on our net sales, market share and operating profits from our international operations.
Our planned additional clinical trial and 510(k) efforts may prove unsuccessful.
We intend to pursueare pursuing the expansion of our label, expansion effort and corresponding 510(k) submission utilizing real-market usage (retrospective) data.data, to expand the INVOcell incubation period from 3 days to 5 days. We may also conduct an additional prospective clinical trial related to the expansion of INVOcell’s indications to include 5-day incubation.such label expansion. While we anticipate a positive outcomeoutcomes of this effort,these efforts, an unsuccessful trial or insufficient retrospective data could adversely impact our ability to receive FDA clearance for the particular indication related to 5-day incubation and impact our ability to expand our marketing efforts.
Changes in the healthcare industry may require us to decrease the selling price for our products or could result in a reduction in the available market size.
Governmental and private sector initiatives in the U.S. and abroad involving trends toward managed healthcare and cost containment could place an emphasis on our ability to deliver more cost-effective medical therapies. The development of other cost-effective devices could eventually adversely affect the prices and/or sales of our products. Companies in the healthcare industry are subject to various existing and proposed laws and regulations, in both domestic and international markets, regulating healthcare pricing and profitability. Additionally, there have been third-party payer initiatives to challenge the prices associated with medical products, which if successful, could affect our ability to sell products on a competitive basis in the future.
In the United States, there has been a trend of consolidation among healthcare facilities and purchasers of medical devices, allowing such purchasers to limit the number of suppliers from whom they purchase medical products. As result, it is unknown whether such purchasers will decide to stop purchasing our products or demand discounts on our prices. Any pressure to reduce our product prices in response to these industry trends and the decrease in market size could adversely affect our anticipated revenue and profitability of our sales, creating a material adverse effect on our business.
If third-party payers do not provide adequate coverage and reimbursement for INVOcell and the IVC procedure, we may be unable to generate significant revenues.revenue.
Our success in marketing and commercializing INVOcell and the IVC procedure may depend in part on whether private health insurers and other payer organizations provide adequate coverage and reimbursement. If physicians or insurers do not find our clinical data compelling or wish to wait for additional studies, they may choose not to use or provide coverage and reimbursement for INVOcell and the IVC procedure. We cannot provide assurance that data we or others may generate in the future will be consistent with that observed in our existing clinical studies, or that our current or future published clinical evidence will be sufficient to obtain adequate coverage and reimbursement for our products. Moreover, if we cannot obtain adequate coverage for and reimbursement of the cost of our products, we cannot provide assurance that patients will be willing to incur the full cost of INVOcell and the IVC procedure.
Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for INVOcell and the procedure exists among third-party payers. Therefore, coverage and reimbursement for INVOcell and the IVC procedure may differ significantly from payer to payer. In addition, payers continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of INVOcell and the IVC procedure to each payer separately, with no assurance that coverage and adequate reimbursement will be obtained or maintained if obtained.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before it can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets, there are private insurance systems as well as government-managed systems. If sufficient and timely coverage and reimbursement is not available for our current or future products, in either the United States or internationally, the demand for our products and our revenues may be adversely affected.
We are subject to risks relating to federal and state healthcare fraud, waste, and abuse laws.
We may be subject to healthcare fraud, waste, and abuse regulation and enforcement by the federal government and the governments in the states and foreign countries in which we might conduct our business. Such federal laws generally apply only to entities or individuals that provide items or services for which payment may be made under a federal healthcare program. These laws are subject to extensive and increasing enforcement by numerous federal, state, and local government agencies including the Office of Inspector General, the Department of Justice, the Centers for Medicare & Medicaid Services, and various state authorities. The healthcare laws and regulations that may affect our ability to operate include the following:
● | The federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) (the “AKS”), a criminal statute, makes it illegal for any person or entity to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay any remuneration that is in exchange for or to induce the referral of business, including the purchase, order, lease of any good, facility, item, or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a) (the “CMPL”) also contains a provision that prohibits the payment of anything of value in return for referrals and provides for the imposition of civil penalties. | |
● | Federal false claims and false statement laws, including the federal civil False Claims Act (31 U.S.C. §§ 3729 – 3733), prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services that are false or fraudulent. | |
● | Section 1877 of the Social Security Act (42 U.S.C. § 1395nn), commonly referred to as the “Stark Law, prohibits referrals by ordering by a physician of “designated health services,” which include durable medical equipment and supplies as well as inpatient and outpatient hospital services, that are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions. Financial relationships that are implicated by the Stark Law can include arrangements ranging from marketing arrangements and consulting agreements to medical director agreements with physicians who order our products. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. Many federal healthcare reform proposals in the past few years have attempted to expand the Stark Law to cover all patients as well. If we violate the Stark Law, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs; | |
● | The federal Physician Payments Sunshine Act (42 U.S.C. § 1320a–7h) requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. |
At present, our products and services are not reimbursable under any federal healthcare program. If, however, that changes in the future and it were determined that we were not in compliance with these federal fraud, waste, and abuse laws, we would be subject to liability.
Also, as noted above, many states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. We may be subject to such laws in Alabama and Georgia due to our joint venture operations in those states. The Georgia State False Medicaid Claims Act (Ga. Code Ann. §§ 49-4-168 – 49-4-168.6), Georgia Medical Assistance Act false statements provision (Ga. Code Ann. §§ 49-4-140 – 49-4-157), and Alabama Medicaid false statements statute (Ala. Code § 22-1-11(a)) contain prohibitions that are analogous to the federal False Claims Act. Alabama law also includes an anti-kickback provision (Ala. Code § 22-1-11(c)) that is analogous to the federal AKS.
The Georgia Patient Self-Referral Act of 1993 (Ga. Code Ann. §§ 43-1B-1 – 43-1B-8) contains prohibitions on self-referral that are similar to those under the Stark Law, however, the Georgia law applies to additional classes of providers, including pharmacists, and is not limited to items or services reimbursable by a federal healthcare program. The Georgia law prohibits health care providers or entities regulated by the law from presenting any claim for payment to any individual, third-party payer, or other entity for a service furnished pursuant to a prohibited referral.
If we are found in violation of applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including:
● | suspension or termination of our participation in federal healthcare programs; | |
● | criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal False Claims Act, CMPL, and AKS; | |
● | repayment of amounts received in violation of law or applicable payment program requirements, and related monetary penalties; | |
● | mandated changes to our practices or procedures that materially increase operating expenses; | |
● | imposition of corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our business practices; | |
● | termination of various relationships or contracts related to our business; and | |
● | harm to our reputation which could negatively affect our business relationships, decrease our ability to attract or retain patients and physicians, decrease access to new business opportunities and impact our ability to obtain financing, among other things. |
Responding to lawsuits and other proceedings as well as defending ourselves in such matters would require management’s attention and cause us to incur significant legal expense. It is also possible that criminal proceedings may be initiated against us or individuals in our business in connection with investigations by the federal government.
Additionally, to the extent that our product is sold or our services are provided in a foreign country, we may be subject to similar foreign laws.
We are subject to the requirements of the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH Act”), and related implementing regulations (together, “HIPAA”), and failure to comply, including through a breach of protected health information (“PHI”) could materially harm our business.
HIPAA established comprehensive federal protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or “Covered Entities”: (1) health plans, (2) health care clearing houses, and (3) health care providers who conduct certain health care transactions electronically. The HIPAA standards also apply to Covered Entities’ “Business Associates.” Covered Entities and their Business Associates must have in place administrative, physical, and technical standards to guard against the misuse of individually identifiable health information. The HITECH Act promotes the adoption and meaningful use of health information technology. The HITECH Act addresses the privacy and security concerns associated with the electronic transmission of health information, in part, through several provisions that strengthen the civil and criminal enforcement of the HIPAA rules. These laws may impact our business in the future. INVO is currently a Business Associate of various Covered Entities. Failure to comply with these confidentiality requirements, including via a breach of PHI, may result in penalties and sanctions.
In the ordinary course of our business, we may use, collect, and store sensitive data, including PHI. We face risks relative to protecting this critical information, including loss of access risk, inappropriate disclosure risk, inappropriate modification risk, and the risk of being unable to adequately monitor our controls. Our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA, and regulatory penalties. There is no guarantee that we can continue to protect our systems from breach. Unauthorized access, loss, or dissemination could also disrupt our operations.
The U.S. Office of Civil Rights in the Department of Health and Human Services enforces the HIPAA privacy and security rules and may impose penalties for failure to comply with requirements of HIPAA. Penalties vary significantly depending on factors such as whether failure to comply was due to willful neglect. These penalties include civil monetary penalties of $100 to $50,000 per violation, up to an annual cap of $1,500,000 for identical violations. A person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty of up to $50,000 per violation and up to one-year imprisonment. The criminal penalties increase to $100,000 per violation and up to five-years imprisonment if the wrongful conduct involves false pretenses, and to $250,000 per violation and up to 10-years imprisonment if the wrongful conduct involves the intent to sell, transfer, or use identifiable health information for commercial advantage, personal gain, or malicious harm. The U.S. Department of Justice is responsible for criminal prosecutions under HIPAA. Furthermore, in the event of a breach as defined by HIPAA, there are reporting requirements to the Office of Civil Rights under the HIPAA regulations as well as to affected individuals, and there may also be additional reporting requirements to other state and federal regulators, including the Federal Trade Commission, and to the media. Issuing such notifications can be costly, time and resource intensive, and can generate significant negative publicity. Breaches of HIPAA may also constitute contractual violations, including violation of the Company’s Business Associate contracts with Covered Entities from which the Company receives PHI, that could lead to contractual damages or terminations.
If we are unable to effectively adapt to changes in the healthcare industry, our business may be harmed.
Federal, state, and local legislative bodies frequently pass legislation and promulgate regulations relating to healthcare reform or that affect the healthcare industry. As has been the trend in recent years, it is reasonable to assume that there will continue to be increased government oversight and regulation of the healthcare industry in the future. We cannot predict the ultimate content, timing, or effect of any new healthcare legislation or regulations, nor is it possible at this time to estimate the impact of potential new legislation or regulations on our business. It is possible that future legislation enacted by Congress or state legislatures, or regulations promulgated by regulatory authorities at the federal or state level, could adversely affect our business. It is also possible that the changes to federal healthcare program reimbursements to providers who purchase our products or use our services may serve as precedent to possible changes in other payors’ reimbursement policies in a manner adverse to us. Similarly, changes in private payor reimbursements could lead to adverse changes in federal healthcare programs, which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
There can be no assurance that we will be able to successfully address changes in the current regulatory environment. Some of the healthcare laws and regulations applicable to us are subject to limited or evolving interpretations, and a review of our business or operations by a court, law enforcement, or a regulatory authority might result in a determination that could have a material adverse effect on us. Furthermore, the healthcare laws and regulations applicable to us may be amended or interpreted in a manner that could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Recent economic trends could adversely affect our financial performance.
Economic downturns and declines in consumption in the healthcare market may affect the levels of both our sales and profitability. If a downturn in economic conditions occurs, or if there is deterioration in financial markets and major economies, our financial performance could be adversely affected. The tightening of credit in financial markets may adversely affect the ability of our customers and suppliers to obtain financing, which could result in a decrease in, or deferrals or cancellations of, the sale of our products and services. In addition, weakening economic conditions may result in a decline in spending for ART and fertility assistance that could adversely affect our business operations and liquidity. We are unable to predict the likely duration and severity of any disruption in the domestic and global financial markets.
Social media platforms present risks and challenges.
The unauthorized use of certain social media vehicles could result in the improper collection and/or dissemination of personally identifiable information causing brand damage and various legal implications. In addition, negative or inaccurate social media posts or comments about us on any social networking site could damage our brand, reputation, and goodwill.
Risks Related to Our Common Stock
We have been notified by Nasdaq of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our common stock could be delisted from Nasdaq. Additionally, if Nasdaq does not grant us an extension or if a favorable decision is not be obtained from a hearings panel, or the Panel, after the hearing, our common stock would be delisted from Nasdaq.
Our common stock is currently listed on Nasdaq. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
On November 23, 2022, we received notice (the “Stockholders’ Equity Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires companies listed on The Nasdaq Capital Market to maintain stockholders’ equity of at least $2,500,000 (the “Stockholders’ Equity Requirement). In our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, we reported stockholders’ equity of $1,287,224, which is below the Stockholders’ Equity Requirement for continued listing. Additionally, as of the date of the Notice, we did not meet either of the alternative Nasdaq continued listing standards under the Nasdaq Listing Rules, market value of listed securities of at least $35 million, or net income of $500,000 from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years.
The Notice has no immediate effect on the listing of our common stock and our common stock continues to trade on The Nasdaq Capital Market under the symbol “INVO” subject to our compliance with the other continued listing requirements.
Pursuant to the Stockholders’ Equity Notice, Nasdaq gave us 45 calendar days, or until January 7, 2023, to submit to Nasdaq a plan to regain compliance. If our plan is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the Notice to evidence compliance.
On January 18, 2023, we received a letter from Nasdaq under which it stated that based on our submission that Nasdaq has determined to grant us an extension of time to regain compliance with Nasdaq Listing Rule 5550(b) until May 22, 2023. We must furnish to the SEC and Nasdaq a publicly available report (e.g. a Form 8-K) which report, among other things, includes a description of the completed transaction or event that enabled us to satisfy the stockholders’ equity requirement for continued listing After filing the publicly available report described above, if we fail to evidence compliance upon filing its periodic report for the June 30, 2023, with the SEC and Nasdaq, the Company may be subject to delisting. In the event we do not satisfy these terms, Nasdaq will provide written notification that its securities will be delisted. At that time, the Company may appeal Nasdaq’s determination to a Hearings Panel.
In addition, on January 11, 2023, we received a letter from the staff (the “Staff”) of Nasdaq listing qualifications group indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing under Nasdaq Listing Rule 5550(a)(2).
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until July 10, 2023, to regain compliance with the minimum bid price requirement. If at any time before July 10, 2023, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance prior to July 10, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we (i) meets the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and (ii) notifies Nasdaq of its intent to cure the deficiency within such second 180 calendar day period, by effecting a reverse stock split, if necessary.
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We will continue to monitor the closing bid price of our common stock and will consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. If we do not regain compliance with the minimum bid price requirement within the allotted compliance periods, we will receive a written notification from Nasdaq that its securities are subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that we will regain compliance during either compliance period or maintain compliance with the other Nasdaq listing requirements.
In the event that our common stock is delisted from Nasdaq, as a result of our failure to comply with either the Stockholders’ Equity Requirement or the Minimum Bid Price Requirement, or as a result of Nasdaq not granting us an extension or the Panel not granting us a favorable decision, or due to our failure to continue to comply with any other requirement for continued listing on Nasdaq, and is not eligible for listing on another exchange, trading in the shares of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and it would likely be more difficult to obtain coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a national exchange.
Our common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
Under a SEC rule known as “Rule 144”, a person who has beneficially owned restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company or that has been at any time previously a shell company. The SEC defines a shell company as a company that has no or nominal operations and either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents, or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets. We are a former shell company.
The SEC has provided an exception to this unavailability if and for as long as the following conditions are met: (a) the issuer of the securities that was formerly a shell company has ceased to be a shell company; (b) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended; (c) the issuer of the securities has filed all Exchange Act reports and materials required to be filed, as applicable during the preceding 12 months, other than certain Current Reports on Form 8-K; and (d) at least one (1) year has elapsed form the time the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that it is not a shell company.
Because of our prior history as a shell company, stockholders who receive our restricted securities will only be able to sell them pursuant to Rule 144 without registration for only as long as we continue to meet the requirements set forth above. No assurance can be given that we will meet these requirements going forward. Furthermore, any non-registered securities we sell in the future or issue will have limited or no liquidity until and unless such securities are registered with the SEC and/or until we comply with the foregoing requirements.
As a result, it may be harder for us to raise funding through the sale of debt or equity securities unless we agree to register such securities with the SEC, which could require us to deploy additional resources. In addition, if we are unable to attract additional capital, it could have an adverse impact on our ability to implement our business plan and/or sustain our operations. Our status as a former “shell company” could prevent us from raising additional funds to develop additional technological advancements, which could cause the value of our securities to decline in value.
A portion of the ownership of our common stock is concentrated in a small number of investors, some of whom are affiliated with our board of directors and management.
Our management and board of directors own approximately 7.5%11% of our issued and outstanding shares of common stock. By virtue of such holdings, they have the ability to exercise influence over our business and affairs, including matters requiring approval by our stockholders including but not limited to the following actions:
● | the election of members of the board of directors; |
● | amending our articles of incorporation or bylaws; and |
● | approving a merger, sale of assets, or other corporate transaction. |
Our directors have the right to authorize the issuance of shares of our preferred stock and additional shares of our common stock.
Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our shareholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative conversion and voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. While we have no intention of issuing shares of preferred stock at the present time, we may seek to raise capital through the sale of our securities and may issue shares of preferred stock in connection with a particular investment. Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock.
Should we issue additional shares of our common stock, each investor’s ownership interest in our stock would be proportionally reduced.
The indemnification rights provided to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against its directors, officers and employees.
Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the costs of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage us from brining a lawsuit against out directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directs or officer even though such actions, if successful, might otherwise benefit us and our stockholders.
Our shares of common stock are thinly traded, and the price may not reflect our value; there can be no assurance that there will be an active market for our shares now or in the future.
We have a trading symbol for our common stock (“INVO”) and our common stock is currently listed on the Nasdaq Capital Market.
Our shares of common stock are thinly traded, and as such the price, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on, among other things, the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated or, if given, that it will be positive.
Consequently, investors may not be able to liquidate their investment or may be able to liquidate it only at a price that does not reflect the value of the business. If a more active market should develop, the price may be highly volatile. Due to the possibility of our common stock being priced lower than its actual value, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price.
Our failure to meet the continued listing requirements of the Nasdaq Stock Market could result in a delisting of our common stock.
We are required to satisfy the continued Nasdaq listing requirements. If we fail to satisfy the continued listing requirements of the Nasdaq Stock Market, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
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Our common stock may be subject to the “penny stock” rules of the SEC, which will make the shares of our common stock more difficult to sell.
Our shares of common stock are subject to the “penny stock” rules of the Exchange Act. The Exchange Act defines “penny stock” as any equity security that has a market price of less than $5.00 per share, subject to certain restrictions. We anticipate our common stock may continue to be considered a penny stock in the future.
The penny stock rules require broker-dealers to deliver to potential investors a standardized risk disclosure document prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the potential investor current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the investor’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the potential investor orally or in writing prior to completing the transaction and must be given to the potential investor in writing before or with the investor’s confirmation.
In addition, the penny stock rules require that prior to a transaction the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
The market for penny stocks has experienced numerous frauds and abuses, which could adversely affect investors in our stock.
We believe that the market for penny stocks has suffered from patterns of fraud and abuse. We believe that many of these abuses have occurred with respect to the promotion of low-price stock companies that lacked experienced management, adequate financial resources, an adequate business plan and/or marketable and successful business or product. Because our shares are penny stocks, the share price for our common stock may be adversely affected such frauds and abuses involving other penny stocks.
We do not expect to pay any dividends to shareholders.
To date, we have never declared or paid any dividends to our stockholders. Our board of directors does not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial conditions, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid to stockholders. In the event dividends are paid to stockholders, there is no assurance with respect to the amount of any such dividend.
Our revenue and operating results could fluctuate significantly from quarter to quarter, which may cause our stock price to decline.
Since our inception, we have not generated significant revenue. Our results from year-to-year and from quarter-to-quarter have, and are expected to continue to, vary significantly based on ordering cycles of distributors and partners. As a result, we expect period-to-period comparisons of our operating results may not be meaningful as an indication of our future performance for any future period.
We may have difficulty raising the necessary capital to fund operations and the Wisconsin Fertility acquisition because of the thin market and market price volatility for our shares of common stock.
Throughout 2021,2022, there has been a thin market for our shares, and the market price for our shares has been volatile. In recent years, the securities markets in the U.S. and around the world have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, we expect our shares of common stock may also be subject to volatility resulting from market forces over which we will have no control. The success of our products and services may be dependent upon our ability to obtain additional financing through debt and equity or other means. The thin market for our shares, and the volatility in the market price for our shares, may adversely affect our ability to raise needed additional capital.
General Risk Factors
Shareholders may be diluted significantly through our efforts to obtain financing and from issuance of additional shares of our common stock, including such issuances of shares for services.
To satisfy certain financial obligations, we have issued and may continue to issue shares of our common stock and we have incurred and may continue to incur debt, which may be convertible into shares of our common stock. We may attempt to raise capital by selling shares of our common stock, possibly with warrants, which may be issued or exercised at a discount to the market price for our common stock. These actions would result in dilution of the ownership interests of existing shareholders, and may further dilute the common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to control us as the shares may be issued to our officers, directors, new employees, or other related parties.
We are subject to the reporting requirements of U.S. federal securities laws, which can be expensive.
We are a public reporting company and accordingly subject to the information and reporting requirements of the Exchange Act, and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002. We are required to prepare and file annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports. Compliance with such reporting requirements is both time-consuming and costly for us. We may need to hire additional financial reporting, internal control, and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures.
In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules implemented by the SEC and the securities exchanges, require certain corporate governance practices for public companies. Our management and other personnel have devoted and expect to continue to devote a substantial amount of time to public reporting requirements and corporate governance. These rules and regulations have significantly increased our legal and financial compliance costs and made some activities more time-consuming and costly. If these costs are not offset by increased revenues and improved financial performance, our financial condition and results of operations may be materially adversely affected. These rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance in the future. Additionally, we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified personnel to serve on our board of directors or as executive officers.
Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial statements and negatively impact our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to conduct an annual management assessment of the effectiveness of our internal controls over financial reporting. If we fail to timely develop our internal controls, and management is unable to make this assessment, or, once required, if the independent registered public accounting firm cannot timely attest to this assessment, we could be subject to regulatory sanctions. As a result, a loss of public confidence in our financial controls and the reliability of our consolidated financial statements may develop ultimately negatively impacting our stock price and our ability to raise additional capital when and as needed.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties
We currently do not own any real property and operate from leased facilities. Our principal executive office is located at 5582 Broadcast Court Sarasota, Florida 34240. The lease is for one 5-year term, with an option to extend for one 3-year term. We lease approximately 1,223 square feet in the Sarasota facility, pursuant to a May 2019 lease with a 3% annual rent increase. We believe that our facilities are adequate to meet our needs.
Item 3. Legal Proceedings
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.
Item 4. Mine Safety Disclosures.
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Trading of our shares of our common stock is on the Nasdaq Capital Market under the symbol “INVO.” Prior to November 12, 2020, our common stock was traded on the OTC QB Venture Market tier of the over-the-counter (“OTC”) market.
As of December 31, 2021, and 2020,April 17, 2023, there were 11,929,147 and 9,639,26813,971,283 shares of our common stock outstanding, respectively.outstanding.
Information required with respect to Equity Compensation Plans in this Item 5 is included in Item 11 on page 3344 of this report on Form 10-K.
Stockholders
As of December 31, 2021, and 2020,April 17, 2023, there were approximately 180 and 172183 stockholders of record of our common stock, respectively.stock. However, we estimate that we have a significantly greater number of beneficial holders of our common stock because a number of shares are held of record by broker-dealers for their customers in street name.
Dividend Policy
We have never declared or paid a dividend on our common stock. We intend to retain future earnings (if any) to fund the development and growth of our business, rather than to pay them as dividends, for the foreseeable future.
Recent Sales of Unregistered Securities
During 2021, we issued 97,500 shares of our common stock to consultants and employees in consideration of services rendered. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. We did not receive any proceeds from this issuance.
None.
In November 2021, we issued 30,000 shares of our common stock in consideration for purchasing Effortless IVF with a fair value of $117,600. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. We did not receive any proceeds from this issuance.
In December 2021, we issued 78,125 shares of our common stock upon conversion of $250,000 of a convertible promissory note. We did not receive any proceeds upon conversion. We relied on the exemption from registration provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
In January 2022, the Company issued 94,623 shares of common stock to Paradigm Opportunities Fund, LP (“Paradigm”). The 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 received $315,000 in proceeds from this issuance.
In February 2022, we issued 3,000 shares of common stock to consultants in consideration of services rendered. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. We did not receive any cash proceeds from this issuance.
Purchase of Equity Securities
No repurchase of equity securities were made during the 20212022 fiscal year.
Item 6. Reserved
Item 7. Management sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This discussion includes certain forward-looking statements about our business and our expectations, including statements relating to revenues, international revenues, revenue growth rates, gross margin, operating expenses, amortization expense, earnings per share, available cash and operating cash flow. Any such statements are subject to risk that could cause the actual results to vary materially from expectations. For a further discussion of the various risks that may affect our business and expectations, see the section titled “Risk Factors” contained in Item 1A of Part I of this Annual Report on Form 10-K. The risks and uncertainties discussed therein do not reflect the potential future impact of any mergers, acquisitions or dispositions. In addition, any forward-looking statements represent our estimates only as of the day this Annual Report was filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.
Overview
We are a commercial-stage fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. Our primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. Our flagship product is INVOcell, a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. Our primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. 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 a more natural,connected and intimate andexperience at a more affordable experiencecost in comparison to in vitro fertilization (“IVF”), the other advanced ART treatments.treatment. The IVC procedure can deliver comparable results at a lower cost than traditional in vitro fertilization (“IVF”)to IVF and is a significantly more effective treatmenttreatment than intrauterine insemination (“IUI”). 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), and the acquisition of existing IVF clinics, in addition to continuing to sell our technology solution into existing fertility clinics.
Unlike conventional infertility treatments such as 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:
● | Eliminates expensive and time-consuming lab procedures, allowing 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 proven to have equivalent pregnancy success and live birth rates as IVF.IVF when comparing similar incubation periods.
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 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:
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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).
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, which is similar to most markets around the world.
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 practicingseveral 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 conventional 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.
Sales and Marketing
Our product commercialization efforts areapproach to market is focused on identifying distributors and partners within targeted geographic regions that we believe can best promote market and sell the INVOcell and 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 integrated the INVOcell. While we continue selling the INVOcell directly to U.S. fertilityIVF clinics and developing key international market partnershipsvia distributors and other partners around the world.
We anticipateworld, we have transitioned INVO from being a medical device company to one that we will experience quarterly fluctuations in our revenue as we expand the sales of the INVOcell to new markets in the U.S. and globally. We continue to seek partners that will contractually commit to meeting agreeable performance objectives that are consistent with our goals and objectives.is mostly focused on providing fertility services.
Ferring
On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Ferring Agreement”) with Ferring International Center S.A. (“Ferring”), which closedbecame effective on January 14, 2019. Pursuant to the Ferring Agreement, among other things, we granted Ferring an exclusive license in the United States to market, promote, distribute, and sell the INVOcell. Ferring was responsible, at its own cost, for all commercialization activities for in the United States. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to five INVO Centers in the United States, which as of March 2, 2021, was amended to seven centers. We retained all commercialization rights for the INVOcell outside of the United States.
On November 2, 2021, Ferring notified us of its intention to terminate the Ferring Agreement, which required 90-days prior written notice. Accordingly, the Ferring Agreement officially terminated on January 31, 2022. Pursuant to the terms of the Ferring Agreement, upon notice of termination, Ferring was required to use commercially reasonable efforts to transition any customers to us and otherwise facilitate the orderly transition of the distribution from Ferring to us. By its terms, our Supply Agreement with Ferring also terminated on January 31, 2022.
The Ferring license was deemed to be a functional license that provides the counterparty with a “right to access” to our intellectual property during the subscription period and accordingly, revenue is recognized over a period of time, which is generally the subscription period. During the years ended December 31, 2021, and 2020, we recognized $3.6 million and $0.7 million of revenue related to the Ferring license agreement, respectively.
As of December 31, 2021, we had no deferred revenue related to the Ferring Agreement as it was recognized in the fourth quarter of fiscal year 2021 in relation to the contract termination. The likelihood of Ferring exercising its rights became remote at the time notice of termination was received, therefore INVO recognized the full remaining amount of the deferred revenue.
revenue in the fourth quarter of fiscal year 2021. During the years ended December 31, 2022, and 2021, we recognized nil and $3.6 million of revenue related to the Ferring license agreement, respectively, and, as of December 31, 2022, we had no deferred revenue related to the Ferring Agreement.
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:
Registration | 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 | ||||||||||||||
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 | ||||||||||||||
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 | % | |||||
Ginekalix INVO Bioscience LLC Skopje | Republic of North Macedonia | 50 | % |
The following table sets forth a list of our current partnership arrangements:
Partner | Country | Partnership Split | Split | |||||
Lyfe Medical | United States | 40 | % |
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, and initial treatment cycles commenced in September 2021.
The Alabama JV is accounted for using the equity method in our consolidated financial statements. As of December 31, 20212022 we invested $1.7$1.6 million in the Alabama JV in the form of a note. For the yearyears ended December 31, 2022 and 2021, the Alabama JV recorded a net losslosses of $0.3 million and $0.6 million, respectively, of which we recognized a losslosses from equity method investmentinvestments of $0.2 million and $0.3 million.
million, respectively.
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.
The Georgia JV opened to patients on September 7, 2021, and commenced initial treatment cycles in November 2021.
The results of the Georgia JV are consolidated in our financial statements. As of December 31, 2021,2022, INVO invested $0.5$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 yearyears ended December 31, 2022 and 2021, the Georgia JV recorded a net losslosses of $0.6 million and $0.4 million.million, respectively. Noncontrolling interest in the Georgia JV was $0. See Note 3 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K 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, and commenced initial treatment cycles beginning in January 2022.2021.
The Mexico JV is accounted for using the equity method in our consolidated financial statements. As of December 31, 2021,2022, INVO invested $0.1 million in the Mexico JV. For the yearyears ended December 31, 2022 and 2021, the Mexico JV recorded a net losslosses of $0.1 million and $0.04 million, respectively, of which we recognized a losslosses from equity method investmentinvestments of $0.05 million and $0.01 million.
Malaysia JV Agreement
On November 23, 2020, we entered into a joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated in Malaysia, to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market technologies related to the INVOcell and IVC Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Centers in Malaysia. The joint venture is co-managed and owned 50% by each of INVO Bioscience and SNS Murni. As of December 31, 2021, no joint venture entity had been formed.million, respectively.
North Macedonia JV Agreement
On November 23, 2020, we entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote and market technologies related to the INVOcell and IVC procedure in the Republic of North Macedonia, and (ii) establish an INVO Center. The joint venture will be co-managed and owned 50% by each of INVO and Ginekaliks. As of December 31, 2021,2022, no joint venture entity had been formed.
India JV Agreement
On January 13, 2020, we entered into a joint venture agreement (the “Medesole Agreement”) with Medesole Healthcare and Trading Private Limited, India (“Medesole”), an Indian corporation that promotes and distributes healthcare technologies, medical equipment and allied services to hospitals, clinics and primary health care centers in India and the Middle East.
Pursuant to the Medesole Agreement, INVO and Medesole formed a joint venture entity incorporated and registered in India, which would operate under the name Medesole INVO Bioscience India Private Limited (the “India JV”). After formation, we would grant to the India JV all required licenses for promoting, marketing and selling our INVOcell® technology in India. INVO and Medesole intended for the India JV to open and operate INVO Centers only in India.
The India JV would be co-managed and owned 50% by each of INVO and Medesole, who would share equally in the expenditures, revenue and profits of the India JV. The Agreement has a term of three years and may be terminated by either party on 180 days’ prior written notice. As of December 31, 2021, no joint venture entity had been formed. On March 29, 2021, INVO terminated the Medesole Agreement pursuant to its terms after mutual agreement with Medesole that Medesole would not be able to fulfil its commitments under the Medesole Agreement in a timely fashion.
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Lyfe Medical Center I, LLC Partnership Agreement
On April 9, 2021, we entered into a partnership agreement (the “Lyfe Agreement”) with Lyfe Medical Center I, LLC (“Lyfe”) in connection with Lyfe’s intention to establish an INVO Center in the Bay Area of California (the “Bay Area Clinic”). Pursuant to the Lyfe Agreement, we will provide embryology laboratory services in connection with the IVC procedure and other fertility-related treatments (the “Lab Services”) to be provided by Lyfe to its patients at the Bay Area Clinic. Under the terms of the Lyfe Agreement, we will receive 40% of the net income received by the Bay Area Clinic for the performance of the Lab Services. As of December 31, 2021,2022, the Bay Area Clinic was not yet operational.
Recent Developments
January and March 2023 Convertible Note and Warrant Financings
In January and March 2023, we sold unsecured convertible notes of the Company in the aggregate original principal amount of $410,000 (the “Convertible Notes”) with a fixed conversion prices of $0.50 (for the $275,000 of January 2023 Notes) and $0.60 (for the $135,000 of March 2023 Notes) and (ii) 5-year warrants (the “Note Warrants”) to purchase 387,500 shares of the Company’s common stock at an exercise price of $1.00 (subject to adjustments) (the “Note and Warrant Private Placement”). The proceeds were used for working capital and general corporate purposes.
Interest on the Convertible 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 the Company’s common stock at the conversion price set forth in the Convertible Notes on December 31, 2023, unless converted earlier.
All amounts due under the Convertible 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 Company’s common stock at a fixed conversion price for the Notes as described above.
Upon any issuance by the Company of any of its equity securities in an underwritten offering, including Common Stock, for cash consideration, indebtedness or a combination thereof after the date hereof (a “Subsequent Equity Financing”), each holder shall have the option to convert the outstanding principal and accrued but unpaid interest of its Convertible Note into the number of fully paid and non-assessable shares of securities issued in the Subsequent Equity Financing equal to the product of unpaid principal, together with the balance of unpaid and accrued interest and other amounts payable hereunder, divided by the price per share paid by the investors in the Subsequent Equity Financing multiplied by 80%, provided however, that any conversion shall only be allowed if the Subsequent Equity Financing conversion price is equal to or greater than the Minimum Price (as defined in the Convertible Notes) including an appropriate allocation any warrants offered.
A Convertible Note may not be converted and shares of common stock may not be issued under the Convertible Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding ordinary shares.
The Company may prepay the Convertible Notes at any time in whole or in part by paying a s sum of money equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest.
The Company entered into a registration rights agreement with the holders of and of even date with the Convertible Notes (the “Note RRA”). Pursuant to the terms of Note RRA, if the Company determines to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans on Form S-8 (or any successor form) or (ii) a registration relating solely to a Commission Rule 145 transaction on Form S-4 (or any successor form), the Company will include in such registration, and in any underwriting involved therein, the shares underlying the Convertible Notes and Note Warrants delivered pursuant to the Note and Warrant Purchase Agreements, subject to, in the case of an underwritten registration, the discretion of the managing underwriter to reduce any or all piggyback registration shares if in its good faith judgment such inclusion would affect the successful marketing of the underwritten offering.
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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 Warrant”) to purchase 250,000 shares (the “February Warrant Shares”) of the Company’s common stock par value $0.0001 per share (“Common Stock”) at an exercise price of $0.75 per share, and (iii) 83,333 shares of Common Stock (the “February Commitment Shares”) issued as an inducement for issuing the Debentures. The proceeds, net of placement agent and legal fees, are being used for working capital and general corporate purposes.
Pursuant to the February Debentures, interest on the February Debentures accrues at a rate of eight percent (8%) per annum and is payable at maturity, one year from the date of the February Debentures.
All amounts due under the February Debentures are 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 $0.52 per share. This conversion price is subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments and is subject to a floor price.
The Company may 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 remains outstanding, if the Company receives 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 shall have 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.
The Company entered into a Registration Rights Agreement (the “February RRA”) with the February Investor that signed its purchase agreement on February 3, 2023 (the “Feb 3 Investor”). Pursuant to the terms of February RRA, the Company has agreed to file with the SEC an initial registration statement on Form S-3 (or Form S-1 if S-3 is not available) covering the resale of all of the securities acquired by the Feb 3 Investor under its February Purchase Agreement. The filing of such initial registration statement is to occur within 90 days of February 3, 2023.
On March 31, 2023, having received notice from the February Investor that signed its purchase agreement on February 17, 2023 (the “Feb 17 Investor”) requesting repayment of its February Debenture, the Company paid the Feb 17 Investor $170,000, including interest and the prepayment premium. After such payment, the principal due the Feb 17 Investor under its debenture was reduced from $200,000 to $39,849.
On April 3, 2023, having received notice from the Feb 3 requesting repayment of its February Debenture, the Company paid the Feb 3 Investor $213,879, including interest and the prepayment premium. After such payment, the principal due the Feb 3 Investor under its debenture was reduced from $300,000 to $100,000.
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 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 150,000 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”).
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During the Commitment Period, 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.
Execution of Definitive Agreements to Acquire the Wisconsin Fertility Institute
On March 16, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Wood Violet”) and wholly owned subsidiary of INVO Centers LLC, a Delaware company (“INVO CTR”) wholly-owned by INVO, entered into binding purchase agreements to acquire Wisconsin Fertility Institute ( “Wisconsin Fertility”) for a combined purchase price of $10 million.
The purchase price is payable in four installments of $2.5 million each (which payments may be offset by assumption of certain Wisconsin Fertility liabilities, payable at closing and on each of 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 $6.25, $9.09, and $14.29, for the second, third, and final installments, respectively.
Wisconsin Fertility 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 the Clinic’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.
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, 1,380,000 shares (the “March Shares”) of Common Stock, and pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 2,300,000 shares of Common Stock, at an exercise price of $0.01 per share, and (ii) in a concurrent private placement, common stock purchase warrants (the “March Warrants”), exercisable for an aggregate of up to 5,520,000 shares of Common Stock, at an exercise price of $0.63 per share. The securities to be issued in the registered direct 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) (the “Shelf Registration Statement”), initially filed by the Company with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), on April 7, 2021 and declared effective on April 16, 2021. The Pre-Funded Warrants are exercisable upon issuance and will remain exercisable until all of the Pre-Funded Warrants are exercised in full.
The March Warrants (and the shares of Common Stock issuable upon the exercise of the Private 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 March Warrants are 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 offering, raising gross proceeds of approximately $3 million before deducting placement agent fees and other offering expenses payable by the Company. In the event that all March Warrants are exercised for cash, the Company would receive additional gross proceeds of approximately $3.5 million. Under the March Purchase Agreement, the Company may use a portion of the net proceeds of the offering to (a) repay February Debentures, and (b) to pay the down payment for Wisconsin Fertility acquisition. The remainder of the net proceeds will be used for working capital, capital expenditures, and other general corporate purposes.
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Under the March Purchase Agreement, the Company is required within 30 days of the closing date of the offering to file a registration statement on Form S-1 (the “Resale Registration Statement”) registering the resale of the shares of Common Stock issuable upon the exercise of the March Warrants. The Company is required to use commercially reasonable efforts to cause such registration to become effective within 75 days of the closing date of the offering (or 120 days if the registration statement is subject to a full review by the SEC), and to keep such registration statement effective at all times until no March Warrants remain outstanding.
In addition, pursuant to certain “lock-up” agreements, our officers and directors have agreed, for a period of 180 days from the date of the offering, not to engage in any of the following, whether directly or indirectly, without the consent of the March Purchase Agreement investor: offer to sell, sell, contract to sell pledge, grant, lend, or otherwise transfer or dispose of our common stock or any securities convertible into or exercisable or exchangeable for Common Stock (the “Lock-Up Securities”); enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities; make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Lock-Up Securities; enter into any transaction, swap, hedge, or other arrangement relating to any Lock-Up Securities subject to customary exceptions; or publicly disclose the intention to do any of the foregoing.
Notices from Nasdaq of Failure to Satisfy Continued Listing Rules.
Notice Regarding Non-Compliance with Minimum Stockholders’ Equity
On November 23, 2022, we received notice (the “Stockholders’ Equity Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires companies listed on The Nasdaq Capital Market to maintain stockholders’ equity of at least $2,500,000 (the “Stockholders’ Equity Requirement). In our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, we reported stockholders’ equity of $1,287,224, which is below the Stockholders’ Equity Requirement for continued listing. Additionally, as of the date of the Notice, we did not meet either of the alternative Nasdaq continued listing standards under the Nasdaq Listing Rules, market value of listed securities of at least $35 million, or net income of $500,000 from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years.
The Notice has no immediate effect on the listing of our common stock and our common stock continues to trade on The Nasdaq Capital Market under the symbol “INVO” subject to our compliance with the other continued listing requirements.
Pursuant to the Notice, Nasdaq gave us 45 calendar days, or until January 7, 2023, to submit to Nasdaq a plan to regain compliance. If our plan is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the Notice to evidence compliance.
On January 18, 2023, we received a letter from Nasdaq under which it stated that based on our submission that Nasdaq has determined to grant us an extension of time to regain compliance with Nasdaq Listing Rule 5550(b) until May 22, 2023. We must furnish to the SEC and Nasdaq a publicly available report (e.g. a Form 8-K) which report, among other things, includes a description of the completed transaction or event that enabled us to satisfy the stockholders’ equity requirement for continued listing After filing the publicly available report described above, if we fail to evidence compliance upon filing its periodic report for the June 30, 2023, with the SEC and Nasdaq, we may be subject to delisting. In the event we do not satisfy these terms, Nasdaq will provide written notification that its securities will be delisted. At that time, we may appeal Nasdaq’s determination to a Hearings Panel.
Notice Regarding Failure to Maintain Minimum Bid Price
On January 11, 2023, we received a letter from the staff (the “Staff”) of Nasdaq listing qualifications group indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing under Nasdaq Listing Rule 5550(a)(2).
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The notice has no immediate effect on the listing of our common stock, and our common stock will continue to trade on The Nasdaq Capital Market under the symbol “INVO.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until July 10, 2023, to regain compliance with the minimum bid price requirement. If at any time before July 10, 2023, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance prior to July 10, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we (i) meets the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and (ii) notifies Nasdaq of its intent to cure the deficiency within such second 180 calendar day period, by effecting a reverse stock split, if necessary.
We will continue to monitor the closing bid price of our common stock and will consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. If we do not regain compliance with the minimum bid price requirement within the allotted compliance periods, we will receive a written notification from Nasdaq that its securities are subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that we will regain compliance during either compliance period or maintain compliance with the other Nasdaq listing requirements.
Results of Operations
During 2021Fiscal year 2022 was an important year of advancement for the Company. Our initial three INVO Centers made steady progress in their first full year of operations, we believetook significant steps in the development of additional INVO Centers, and we made substantial progress toward our commercialization goals. As oneadded an acquisition strategy targeting existing, smaller IVF clinics in the U.S. to accelerate INVO’s growth. We also continued the fine-tuning of our key objectivesmarketing approach to build awareness for the year, we set out to develop an entirely new commercial pathway for our solutions: opening jointly owned fertility centers focused on offering INVOcell and the IVC procedure, and to patients. increase patient flow for our INVO Centers and IVF clinic partners alike.
We successfully accomplished this major milestone withare especially excited by the openingrecent signing of three new centersdefinitive documents for our first acquisition of an existing IVF clinic. We expect to close the transaction in the latter partsecond quarter of the year, with the first starting2023 and, in Birmingham, Alabama, followed by Atlanta, Georgia,doing so we would be adding a substantial operation in terms of revenue and finally in Monterrey, Mexico. All three centers are now fully operational and treating patients. We also made key personnel additionsprofit to our operating team to support our key objectives. Our recently added marketing resources are working to enhance our branding and messaging to support both the new INVO Centers as well as our distribution partners around the world. Our dedicated team is looking to aggressively drive awareness of the INVOcell and IVC procedure to help accelerate adoption of and expand fertility care through the utilization of our technology. Going forward,overall business. Looking ahead, we anticipate opening additional INVO Centers in key domestic, and select international, markets.markets, as well as pursuing additional acquisition candidates. We believe we have initially identified more thanselected an initial list or about 20 markets in the U.S. alone asthat we believe are excellent potential locations for an INVO Center.Center, and we believe the universe of suitable acquisition targets for INVO exceeds 80 clinics in the U.S.. We also continue to work toward expanding ouron the expansion of INVOcell distribution efforts to promote and sell into existing fertility clinics. Beginning inIn early 2022, we re-assumed control of the U.S. market distribution efforts with the termination of the Ferring Agreement. We haveAgreement and elected to sell directly ourselves (rather than through a distributor) to the existing, established fertility clinicsclinics. Through these efforts we have experienced both growing interest in our INVOcell solution and in the U.S. market and we believe we have added the necessary resources to do so effectively.
potential by these clinics of being acquired by INVO.
From a market strategy perspective, our commercialization efforts continue to focus on the substantial, underserved patient population and on expanding access to advanced fertility treatments. We believe our solutions can help address the key challenges of affordability and capacity to provide care to the vast number of patients that go untreated every year. This represents the major opportunity for INVOcell and the IVC procedure it enables. While the ongoing pandemic may have delayed our progress in some markets, theThe fertility industry has and continues to expand, even during the global pandemic, and we believe our growing volume of partners (both distributors and JVs) and our acquisition strategy affords us a strong forward-looking outlook. We believe our INVO Center approach adds much needed capacity and affordability, and alignswe expect our acquisition strategy to allow for ART cycle volume increases at existing clinics. These efforts align with our key mission to open access to care to the underserved.
The ART market also continues to benefit from a number of industry tailwinds, including 1) the large under-served potential patient population, 2) increasing infertility rates around the world 3) growing awareness and education of fertility treatment options, 4) a growing acceptance of fertility treatment, 5) improvements in procedure techniques and hence improvements in pregnancy success rates and 6) generally improving insurance (private and public) reimbursement trends.
38 |
Comparison of the years ended December 31, 20212022 and 20202021
Revenues
Revenue for the years ended December 31, 2022 and 2021 and 2020 were $4.2was $0.8 million and $1.0$4.2 million, respectively, representing an increasea decrease of $3.2approximately $3.4 million, or 301%80% in the year ended December 31, 2021.2022. The increasedecrease was due to recognizingthe termination of our agreement with Ferring, which resulted in the full recognition, in 2021, of the remaining $3.0$3.6 million ofin deferred revenue related to the termination of the Ferring Agreement.agreement and was partially offset by an increase in 2022 clinic revenue. Excluding Ferring, revenue was $0.6 million last year compared to $0.8 million this year.
Gross Profit
Gross profit for the years ended December 31, 2022 and 2021 and 2020 was $4.0$0.5 million and $0.9$4.0 million, respectively. Gross margin was 97%60% and 91%97% for the years ended December 31, 2022 and 2021, respectively. The decrease in gross margin was attributable to the change in revenue mix as we no longer have license revenue in 2022, as well as increase in clinic revenue which has lower percentage margins, but much higher revenue on a per procedure basis and 2020, respectively.the potential for higher margins on an absolute dollar basis.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 and 2020 were $9.0$10.6 million and $6.0$9.0 million, respectively, of which $2.7$2.2 million and $1.8$2.7 million, respectively, was for non-cash, stock-based compensation expense. The increase of approximately $2.9$1.6 million or 49%17% was primarily the result of approximately $0.9 million in increased non-cash, stock-based compensation, approximately $0.7$1.0 million in increased personnel expense, approximately $0.5$0.7 million in increased expenses related to the full-year operations of the consolidated Georgia JV, andapproximately $0.4 million in increased marketing spend and was partially offset by an approximate $0.3 million decrease in legal and startup costs related to new and potential INVO Centers.
Centers and an approximate $0.6 million decrease in professional fees.
Research and Development Expenses
We began to fund additional research and development (“R&D”) efforts in 2020 as part of our 5-day label expansion efforts. R&D expenses were $0.2$0.5 million and $0.4$0.2 million, for the years ended December 31, 2022 and 2021, and 2020, respectively.
The increase of approximately $0.3 million was primarily related to our FDA response efforts on the 5-day label expansion.
Loss from equity investment
Loss from equity investments for the years ended December 31, 2022 and 2021, and 2020, were $0.3was $0.2 million and $0,$0.3, respectively. The increasedecrease in loss is due to the investment in Alabama JV becomingand Mexico JV being in start-up mode and operational in the third quarterfor only a portion of 2021. The clinic was only open for part of the period and was still in the early ramp-up phase.
Other Income
Other income for the years ended December 31, 2022 and 2021, was nil and 2020, were $0.2 million, and $0, respectively. The increasedecrease of $0.2 million was the result of the extinguishment of our Paycheck Protection Program note and related interest being forgiven.forgiven in 2021.
Interest Expense and Financing Fees
Interest expense and financing fees were for the years ended December 31, 2022 and 2021 and 2020 were $1.3$0.1 million and $2.8$1.3 million, respectively. The decrease of approximately $1.5$1.2 million, or approximately 55%96%, was primarily due to ana decrease in non-cash amortization of discount, debt issuance cost and interest on the 2020 Convertible Notes (see Note 10 of the Notes to Consolidated Financial Statements) and was a non-cash related expenseconvertible notes.
Income Taxes
As of December 31, 2021,2022, we had unused federal net operating loss carryforwards (“NOLs”) of $25.8$32.8 million. These losses expire in various amounts at varying times beginning in 2027 with a portion carrying on indefinitely. Unless expiration occurs, these NOLs may be used to offset future taxable income and thereby reduce our income taxes otherwise payable.
taxes.
We recorded a valuation allowance against our deferred tax assets at December 31, 2022 and 2021 totaling $9.3 million and 2020 totaling $6.8 and $6.4 million, respectively.
Liquidity and Capital Resources
For the years ending December 31, 2021,2022, and 2020,2021, we had net losses of approximately $6.7$10.9 million and $8.3$6.7 million, respectively. The increase in net loss primarily was due to increasedthe increase in operating expensesloss resulting from the absence of license revenue in 2022 and interest expense, partially offset by an increase in product revenue.operating expenses. Approximately $4.2$3.0 million of the net loss was related to non-cash expenses for the year ended December 31, 2021,2022, compared to $4.4$4.2 million for the year ended December 31, 2020. The Company2021. We had negative working capital of approximately $2.8 million as of December 31, 2022, compared to positive working capital of approximately $5.1 million as of December 31, 2021,2021. As of December 31, 2022, we had negative stockholder’s equity of approximately $1.0 million compared to positive stockholder’s equity of approximately $8.3$7.3 million as of December 31, 2020. As2021. Cash used in operations for the year of December 31, 2021, the Company’s stockholder’s equity2022 was approximately $7.3$6.6 million, compared to approximately $5.7 million as of December 31, 2020. Cash used in operation for the year of 2021 was approximately $6.0 million, compared to approximately $4.8 million for the year of 2020.2021.
During 2020, we raised approximately $13.8 million inWe have been dependent on raising capital through debt and equity financings.financings to secure the cash required to fund our operating expenses and investing activities. During 2021, we received proceeds of approximately $3.7 million forfrom the sale of common stock, we converted approximately $1.5 million of outstanding debt to equity and received approximately $0.4 million of proceeds from unit purchase option and warrant exercises. Our currentDuring 2022, we received proceeds of $0.8 million from demand notes and net proceeds of approximately $0.3 million for the sale of our common stock. Over the next 12 months, our plan includes opening additional INVO Centers, overcompleting the next 12 months.acquisition of Wisconsin Fertility Institute and pursuing additional IVF clinic acquisitions. Until we can generate a sufficient amount of cash from operations, andwe will need to the extentraise additional funds are necessaryfunding to meet our longer-term liquidity needs and to execute our business strategy, we may need to raise additional funding, as we have donestrategy. As in the past, by way ofwe will seek debt and/or equity financings. Such additional fundingfinancing, which may not be available on reasonable terms, if at all.
IfAlthough our audited consolidated financial statements for the year ended December 31, 2022 were prepared under the assumption that we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly scale back ourwould continue operations or delay, scale back or discontinue developmentas a going concern, the report of our products. If we raise additional funds throughindependent registered public accounting firm that accompanies our consolidated financial statements for the issuance of additional debt or equity securities, it could resultyear ended December 31, 2022 contains a going concern qualification in dilution to our existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations,which such as limitations onfirm expressed substantial doubt about our ability to continue as a going concern, based on the consolidated financial statements at that time. Specifically, as noted above, we have incurred significant operating losses and we expect to continue to incur additional debt, limitationssignificant expenses and operating losses as we continue to ramp up the development of new INVO Centers and the commercialization of our INVOcell solution Prior losses and expected future losses have had, and will continue to have, an adverse effect on our ability to acquire, sellfinancial condition. If we cannot continue as a going concern, our stockholders would likely lose most or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Anyall of these events could significantly harm our business, financial condition and prospects.their investment in us.
Cash Flows
The following table shows a summary of our cash flows for the year ended December 31:
2021 | 2020 | |||||||
Cash (used in) provided by: | ||||||||
Operating activities | (6,029,914 | ) | (4,775,148 | ) | ||||
Investing activities | (2,153,512 | ) | (187,254 | ) | ||||
Financing activities | 3,770,537 | 13,821,577 |
2022 | 2021 | |||||||
Cash (used in) provided by: | ||||||||
Operating activities | (6,603,319 | ) | (6,029,914 | ) | ||||
Investing activities | (81,217 | ) | (2,153,512 | ) | ||||
Financing activities | 1,089,800 | 3,770,537 |
As of December 30, 2021,31, 2022, we had approximately $5.7$0.09 million in cash compared to approximately $10.1$5.7 million as of December 31, 2020.2021. Net cash used in operating activities in 2021,2022, was approximately $6.0$6.6 million, compared to approximately $4.8$6.0 million for the same period in 2020.2021. The increase in net cash used in operations was primarily due to the increase in operating expenses.
During the year ended December 31, 2022, cash used in investing activities of approximately $0.1 million was primarily related to investments in support of our INVO Center joint ventures. During the year ended December 31, 2021, cash used in investing activities of approximately $2.2 million was primarily related to payments to acquire equipment for and to investments for the necessary investments instart-up and initial operation of our INVO Center joint ventures.
During the year ended December 31, 2020,2022, cash used in investingprovided by financing activities of approximately $0.2$1.1 million was related to new moldsproceeds from demand notes and trademarks.
from the sale of common stock. During the year ended December 31, 2021, cash provided by financing activities of approximately $3.8 million was primarily related to proceeds from the sale of common stock and the exercise of unit purchase options and warrants. During
Financing Activities
From October through December 2022, we received $0.45 million through the year endedissuance of demand notes from a related party, JAG Multi Investments LLC (“JAG”). Our CFO is a beneficiary of JAG but does not have any control over JAG’s investment decisions with respect to INVO. If paid prior to January 31, 2023, the demand notes are interest free until December 31, 2020, cash provided by financing activities of approximately $13.8 million related to the proceeds2022. For any amount that remains outstanding past January 31, 2023, 10% annual interest would accrue from the 2020 Convertible Notesdate of issuance. At maturity, we agreed to pay outstanding principal, a 10% financing fee and accrued interest, if any. The demand notes are callable with 10 days prior written notice, beginning on or after March 31, 2023.
In addition, in the fourth quarter of 2022, we received $0.3 million through the issuance of demand promissory notes of which (1) $0.1 million was received from our underwritten public offering.Chief Executive Officer, Steven Shum, (2) $0.1 million was received from an entity controlled by our Chief Financial Officer, Andrea Goren and (3) $0.1 million was received from nonrelated parties.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition presented in this section is based upon our audited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. During the preparation of the financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, our results, which allows us to form a basis for making judgments on the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates based on variance with our assumptions and conditions. A summary of significant accounting policies is included below. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our consolidated financial statements.
Stock Based Compensation
We account for stock-based compensation under the provisions of ASC 718-10 Share-Based Payment. This statement requires us 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 performance goals in exchange for the award, which is usually immediate but sometimes over a vesting period. Warrants granted to non-employees are recorded as an expense over the requisite service period based on the grant date and the estimated fair value of the grant, which is determined using the Black-Scholes option pricing model.
Revenue Recognition
We recognize revenue on arrangements in accordance with ASC 606, Revenue from Contracts with Customers. 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. |
Variable Interest Entities
Our consolidated financial statements include the accounts of INVO Bioscience, Inc., its wholly owned subsidiaries, and variable interest entities (“VIE”), where we are 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. We reconsider 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.
Equity Method Investments
Investments in unconsolidated affiliates in which we exert significant influence but do 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. Our share of the profits and losses from these investments is reported in loss from equity method investment in the accompanying consolidated statements of operations. Management 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.
Recent Accounting Pronouncements
None.
Item 7A. Quantitative and Qualitative Disclosure about Market Risks
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
We will be exposed to risk from changes in foreign currency exchange rates related to our foreign joint ventures. Our principal exchange rate exposure relates to the Mexican Peso.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of INVO Bioscience, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of INVO Bioscience, Inc. (the Company) as of December 31, 20212022 and 2020,2021, and the related consolidated statements of operations, stockholders’ equity (deficiency)(deficit), and cash flows for each of the years in the two-year period ended December 31, 2021,2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021,2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition
As discussed in Note 1 to the financial statements, the Company previously recorded deferred revenues related to a U.S. Distribution Agreement with Ferring International Center, S.A (“Ferring”). The note discloses that the Company received a 90-day notice from Ferring on November 2, 2021, at which time the Company recognized the remaining balance included in deferred revenue, related to the distribution agreement.
Auditing management’s evaluation of the distribution agreement and termination notice with Ferring involves significant judgment, given the fact that the agreements require management’s evaluation of the recognition of revenues over-time or at a point in time.
To evaluate the appropriateness and accuracy of the assessment by management, we evaluated management’s assessment in relationship to the relevant agreements and their application of the guidance outlined in ASC 606-10-25.
Investments/Variable Interest Entities
As discussed in Note 1 & 3 to the financial statements, the Company has material investments in consolidated and unconsolidated entities. The Company evaluated the need to consolidate as a VIE or equity investment under the provisions of ASC 810 and ASC 323, respectively.
Auditing management’s evaluation of the need to consolidate the entities associated with the investments involves significant judgment, given the fact that the agreements require management’s evaluation ownership percentages, influence, control and whether or not the Company is the primary beneficiary.
To evaluate the appropriateness and accuracy of the assessment by management, we evaluated management’s assessment in relationship to their application of the guidance outlined in ASC 810 and ASC 323.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2019.
Houston, TX
March 31, 2022April 17, 2023
F-1 |
INVO BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
2022 | 2021 | |||||||
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 90,135 | $ | 5,684,871 | ||||
Accounts receivable | 77,149 | 50,470 | ||||||
Inventory | 263,602 | 287,773 | ||||||
Prepaid expenses and other current assets | 190,201 | 282,751 | ||||||
Total current assets | 621,087 | 6,305,865 | ||||||
Property and equipment, net | 436,729 | 501,436 | ||||||
Intangible assets, net | - | 132,093 | ||||||
Lease right of use | 1,808,034 | 2,037,052 | ||||||
Investment in joint ventures | 1,237,865 | 1,489,934 | ||||||
Total assets | $ | 4,103,715 | $ | 10,466,380 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 1,349,038 | $ | 443,422 | ||||
Accrued compensation | 946,262 | 581,689 | ||||||
Notes payable, net | 100,000 | - | ||||||
Notes payable - related party, net | 662,644 | - | ||||||
Deferred revenue | 119,876 | 5,900 | ||||||
Lease liability, current portion | 231,604 | 221,993 | ||||||
Total current liabilities | 3,409,424 | 1,253,004 | ||||||
Lease liability, net of current portion | 1,669,954 | 1,901,557 | ||||||
Deferred tax liability | 1,949 | 1,139 | ||||||
Total liabilities | 5,081,327 | 3,155,700 | ||||||
Stockholders’ equity (deficit) | ||||||||
Common Stock, $ | par value; shares authorized; and issued and outstanding as of December 31, 2022, and 2021, respectively1,217 | 1,193 | ||||||
Additional paid-in capital | 48,804,704 | 46,200,509 | ||||||
Accumulated deficit | (49,783,533 | ) | (38,891,022 | ) | ||||
Total stockholders’ equity (deficit) | (977,612 | ) | 7,310,680 | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 4,103,715 | $ | 10,466,380 |
The accompanying notes are an integral part of these consolidated financial statements.
F-2 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
2022 | 2021 | |||||||
For the Years | ||||||||
Ended December 31, | ||||||||
2022 | 2021 | |||||||
Revenue: | ||||||||
Product revenue | $ | 207,342 | 544,942 | |||||
Clinic revenue | 614,854 | 43,745 | ||||||
License revenue | - | 3,571,429 | ||||||
Total revenue | 822,196 | 4,160,116 | ||||||
Cost of revenue: | ||||||||
Cost of revenue | 286,923 | 126,326 | ||||||
Depreciation | 44,600 | 18,726 | ||||||
Total cost of revenue | 331,523 | 145,052 | ||||||
Gross profit | 490,673 | 4,015,064 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | 10,573,111 | 9,015,158 | ||||||
Research and development expenses | 544,043 | 216,430 | ||||||
Total operating expenses | 11,117,154 | 9,231,588 | ||||||
Loss from operations | (10,626,481 | ) | (5,216,524 | ) | ||||
Other income (expense): | ||||||||
Loss from equity method joint ventures | (200,558 | ) | (327,542 | ) | ||||
Gain on extinguishment of debt | - | 159,126 | ||||||
Interest income | 308 | 3,657 | ||||||
Interest expense | (59,445 | ) | (1,265,359 | ) | ||||
Foreign currency exchange loss | (3,463 | ) | (3,534 | ) | ||||
Total other expenses | (263,158 | ) | (1,433,652 | ) | ||||
Net loss before income taxes | (10,889,639 | ) | (6,650,176 | ) | ||||
Income taxes | 2,872 | 4,764 | ||||||
Net loss | $ | (10,892,511 | ) | $ | (6,654,940 | ) | ||
Net loss per common share: | ||||||||
Basic | (0.90 | ) | (0.63 | ) | ||||
Diluted | (0.90 | ) | (0.63 | ) | ||||
Weighted average number of common shares outstanding: | ||||||||
Basic | 12,122,606 | 10,632,413 | ||||||
Diluted | 12,122,606 | 10,632,413 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, December 31, 2020 | 9,639,268 | $ | 964 | $ | 37,978,224 | $ | (32,236,082 | ) | $ | 5,743,106 | ||||||||||
Common stock issued to directors and employees | 49,806 | 5 | 360,148 | - | 360,153 | |||||||||||||||
Common stock issued for services | 237,750 | 24 | 804,100 | - | 804,124 | |||||||||||||||
Conversion of notes payable and accrued interest | 466,809 | 47 | 1,493,741 | - | 1,493,788 | |||||||||||||||
Proceeds from the sale of common stock, net of offering costs | 1,240,737 | 124 | - | - | - | |||||||||||||||
Proceeds from warrant exercise | 39,095 | 4 | 123,558 | - | 123,562 | |||||||||||||||
Proceeds from unit purchase option exercise | 77,444 | 8 | 246,270 | - | 246,278 | |||||||||||||||
Cashless warrant exercise | 91,709 | 9 | (9 | ) | - | - | ||||||||||||||
Cashless unit purchase option exercise | 86,529 | 8 | (8 | ) | - | - | ||||||||||||||
Stock options issued to directors and employees as compensation | - | - | 1,543,912 | - | 1,543,912 | |||||||||||||||
Net Loss | - | - | - | (6,654,940 | ) | (6,654,940 | ) | |||||||||||||
Balances, December 31, 2021 | 11,929,147 | $ | 1,193 | $ | 46,200,509 | $ | (38,891,022 | ) | $ | 7,310,680 | ||||||||||
Balances, value | 11,929,147 | $ | 1,193 | $ | 46,200,509 | $ | (38,891,022 | ) | $ | 7,310,680 | ) | |||||||||
Common stock issued to directors and employees | 87,194 | 9 | 484,798 | - | 484,807 | |||||||||||||||
Common stock issued for services | 61,250 | 6 | 123,205 | - | 123,211 | |||||||||||||||
Proceeds from the sale of common stock, net of fees and expenses | 94,623 | 9 | 289,791 | - | 289,800 | |||||||||||||||
Stock options issued to directors and employees as compensation | - | - | 1,616,401 | - | 1,616,401 | |||||||||||||||
Warrants issued with notes payable | - | - | 90,000 | - | 90,000 | |||||||||||||||
Net loss | - | - | - | (10,892,511 | ) | (10,892,511 | ) | |||||||||||||
Balances, December 31, 2022 | 12,172,214 | 1,217 | 48,804,704 | (49,783,533 | ) | (977,612 | ) | |||||||||||||
Balances, value | 12,172,214 | 1,217 | 48,804,704 | (49,783,533 | ) | (977,612 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-4 |
INVO BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 5,684,871 | $ | 10,097,760 | ||||
Accounts receivable | 50,470 | 21,699 | ||||||
Inventory | 287,773 | 265,372 | ||||||
Prepaid expenses and other current assets | 282,751 | 157,700 | ||||||
Total current assets | 6,305,865 | 10,542,531 | ||||||
Property and equipment, net | 501,436 | 132,206 | ||||||
Intangible assets, net | 132,093 | 94,963 | ||||||
Lease right of use | 2,037,052 | 79,319 | ||||||
Other assets | - | 240 | ||||||
Investment in joint ventures | 1,489,934 | 98,084 | ||||||
Total assets | $ | 10,466,380 | $ | 10,947,343 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 443,422 | $ | 328,927 | ||||
Accrued compensation | 581,689 | 527,326 | ||||||
Deferred revenue, current portion | 5,900 | 714,286 | ||||||
Lease liability, current portion | 221,993 | 22,707 | ||||||
Notes payable – Payroll Protection Program | - | 157,620 | ||||||
Convertible notes, net | - | 536,063 | ||||||
Income taxes payable | - | 1,062 | ||||||
Total current liabilities | 1,253,004 | 2,287,991 | ||||||
Lease liability, net of current portion | 1,901,557 | 58,634 | ||||||
Deferred revenue, net of current portion | - | 2,857,143 | ||||||
Deferred tax liability | 1,139 | 469 | ||||||
Total liabilities | 3,155,700 | 5,204,237 | ||||||
Stockholders’ equity | ||||||||
Common Stock, $ par value; shares authorized; and issued and outstanding as of December 31, 2021, and 2020, respectively | 1,193 | 964 | ||||||
Additional paid-in capital | 46,200,509 | 37,978,224 | ||||||
Accumulated deficit | (38,891,022 | ) | (32,236,082 | ) | ||||
Total stockholders’ equity | 7,310,680 | 5,743,106 | ||||||
Total liabilities and stockholders’ equity | $ | 10,466,380 | $ | 10,947,343 |
See accompanying notes to consolidated financial statements.
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
2021 | 2020 | |||||||
For the Years Ended | ||||||||
Ended December 31, | ||||||||
2021 | 2020 | |||||||
Revenue: | ||||||||
Product revenue | $ | 544,942 | 323,000 | |||||
Clinic revenue | 43,745 | - | ||||||
License revenue | 3,571,429 | 714,286 | ||||||
Total revenue | 4,160,116 | 1,037,286 | ||||||
Cost of goods sold: | ||||||||
Production costs | 126,326 | 79,035 | ||||||
Depreciation | 18,726 | 9,725 | ||||||
Total cost of goods sold | 145,052 | 88,760 | ||||||
Gross profit | 4,015,064 | 948,526 | ||||||
Operating expenses | ||||||||
Selling, general and administrative expenses | 9,015,158 | 6,065,066 | ||||||
Research and development expenses | 216,430 | 398,426 | ||||||
Total operating expenses | 9,231,588 | 6,463,492 | ||||||
Loss from operations | (5,216,524 | ) | (5,514,966 | ) | ||||
Other income (expense): | ||||||||
Loss from equity method joint ventures | (327,542 | ) | - | |||||
Gain on extinguishment of debt | 159,126 | - | ||||||
Interest income | 3,657 | 4,190 | ||||||
Interest expense | (1,265,359 | ) | (2,836,504 | ) | ||||
Foreign currency exchange loss | (3,534 | ) | - | |||||
Total other expenses | (1,433,652 | ) | (2,832,314 | ) | ||||
Net loss before income taxes | (6,650,176 | ) | (8,347,280 | ) | ||||
Income taxes | 4,764 | 36 | ||||||
Net loss | $ | (6,654,940 | ) | $ | (8,347,316 | ) | ||
Net loss per common share: | ||||||||
Basic | (0.63 | ) | (1.52 | ) | ||||
Diluted | (0.63 | ) | (1.52 | ) | ||||
Weighted average number of common shares outstanding: | ||||||||
Basic | 10,632,413 | 5,489,738 | ||||||
Diluted | 10,632,413 | 5,489,738 |
See accompanying notes to consolidated financial statements.
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, December 31, 2019 | 4,884,879 | $ | 489 | $ | 20,174,682 | $ | (23,888,766 | ) | $ | (3,713,595 | ) | |||||||||
Proceeds from the sale of common stock, net of offering costs | 4,153,750 | 416 | 11,474,636 | 11,475,052 | ||||||||||||||||
Common stock issued to directors and employees | 112,056 | 11 | 465,129 | - | 465,140 | |||||||||||||||
Common stock issued for services | ||||||||||||||||||||
Common stock issued for services, shares | ||||||||||||||||||||
Common stock issued to service providers | 34,751 | 3 | 150,859 | - | 150,862 | |||||||||||||||
Conversion of notes payable and accrued interest | 453,699 | 45 | 1,451,779 | - | 1,451,824 | |||||||||||||||
Stock issued for cash | ||||||||||||||||||||
Stock issued for cash, shares | ||||||||||||||||||||
Proceeds from warrant exercise | ||||||||||||||||||||
Proceeds from warrant exercise, shares | ||||||||||||||||||||
Proceeds from unit purchase option exercise | ||||||||||||||||||||
Proceeds from unit purchase option exercise, shares | ||||||||||||||||||||
Cashless warrant exercise | ||||||||||||||||||||
Cashless warrant exercise, shares | ||||||||||||||||||||
Cashless unit purchase option exercise | ||||||||||||||||||||
Cashless unit purchase option exercise, shares | ||||||||||||||||||||
Discount on convertible notes payables | - | - | 3,120,150 | - | 3,120,150 | |||||||||||||||
Stock options issued to directors and employees | - | - | 1,140,989 | - | 1,140,989 | |||||||||||||||
Rounding shares as a result of stock split | 133 | - | - | - | - | |||||||||||||||
Net loss | - | - | - | (8,347,316 | ) | (8,347,316 | ) | |||||||||||||
Balances, December 31, 2020 | 9,639,268 | $ | 964 | $ | 37,978,224 | $ | (32,236,082 | ) | $ | 5,743,106 | ||||||||||
Balances | 9,639,268 | $ | 964 | $ | 37,978,224 | $ | (32,236,082 | ) | $ | 5,743,106 | ) | |||||||||
Common stock issued to directors and employees | 49,806 | 5 | 360,148 | - | 360,153 | |||||||||||||||
Common stock issued for services | 237,750 | 24 | 804,100 | - | 804,124 | |||||||||||||||
Conversion of notes payable and accrued interest | 466,809 | 47 | 1,493,741 | - | 1,493,788 | |||||||||||||||
Proceeds from the sale of common stock, net of offering costs | 1,240,737 | 124 | 3,650,573 | - | 3,650,697 | |||||||||||||||
Proceeds from warrant exercise | 39,095 | 4 | 123,558 | - | 123,562 | |||||||||||||||
Proceeds from unit purchase option exercise | 77,444 | 8 | 246,270 | - | 246,278 | |||||||||||||||
Cashless warrant exercise | 91,709 | 9 | (9 | ) | - | - | ||||||||||||||
Cashless unit purchase option exercise | 86,529 | 8 | (8 | ) | - | - | ||||||||||||||
Stock options issued to directors and employees as compensation | - | - | 1,543,912 | - | 1,543,912 | |||||||||||||||
Net loss | - | - | - | (6,654,940 | ) | (6,654,940 | ) | |||||||||||||
Net income (loss) | - | - | - | (6,654,940 | ) | (6,654,940 | ) | |||||||||||||
Balances, December 30, 2021 | 11,929,147 | $ | 1,193 | $ | 46,200,509 | $ | (38,891,022 | ) | $ | 7,310,680 | ||||||||||
Balances | 11,929,147 | $ | 1,193 | $ | 46,200,509 | $ | (38,891,022 | ) | $ | 7,310,680 |
See accompanying notes to consolidated financial statements.
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2021 | 2020 | 2022 | 2021 | |||||||||||||
For the Twelve Months | For the Years | |||||||||||||||
Ended December 31, | Ended December 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (6,654,940 | ) | $ | (8,347,316 | ) | $ | (10,892,511 | ) | $ | (6,654,940 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Non-cash stock compensation issued for services | 804,124 | 150,862 | 123,211 | 804,124 | ||||||||||||
Non-cash stock compensation issued to directors and employees | 360,153 | 465,140 | 484,807 | 360,153 | ||||||||||||
Fair value of stock options issued to employees | 1,543,912 | 1,140,989 | 1,616,401 | 1,543,912 | ||||||||||||
Non-cash compensation for services | 120,000 | - | ||||||||||||||
Amortization of discount on notes payable | 1,188,310 | 2,494,236 | 52,644 | 1,188,310 | ||||||||||||
Debt conversion expense | - | 131,984 | ||||||||||||||
Amortization of leasehold right of use asset | 138,322 | 22,564 | 229,018 | 138,322 | ||||||||||||
Gain on extinguishment of debt | (159,126 | ) | - | - | (159,126 | ) | ||||||||||
Loss on impairment of intangible assets | 132,227 | - | ||||||||||||||
Loss from equity method investment | 327,542 | - | 200,558 | 327,542 | ||||||||||||
Depreciation and amortization | 27,760 | 11,917 | 77,301 | 27,760 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (28,771 | ) | (14,141 | ) | (26,679 | ) | (28,771 | ) | ||||||||
Inventory | (22,401 | ) | (163,985 | ) | 24,171 | (22,401 | ) | |||||||||
Prepaid expenses and other current assets | (124,811 | ) | 38,210 | 92,550 | (124,811 | ) | ||||||||||
Accounts payable and accrued expenses | 114,495 | (42,603 | ) | 904,060 | 114,495 | |||||||||||
Accrued compensation | 54,363 | 134,309 | 364,573 | 54,363 | ||||||||||||
Deferred revenue | (3,565,529 | ) | (714,286 | ) | 113,976 | (3,565,529 | ) | |||||||||
Leasehold liability | (53,846 | ) | (21,518 | ) | (221,992 | ) | (53,846 | ) | ||||||||
Accrued interest | 20,921 | (61,696 | ) | 1,556 | 20,921 | |||||||||||
Income taxes payable | (392 | ) | 150 | - | (392 | ) | ||||||||||
Deferred tax liabilities | - | 36 | 810 | - | ||||||||||||
Net cash used in operating activities | (6,029,914 | ) | (4,775,148 | ) | (6,603,319 | ) | (6,029,914 | ) | ||||||||
Cash from investing activities: | ||||||||||||||||
Payments to acquire property, plant, and equipment | (415,710 | ) | (49,261 | ) | (10,785 | ) | (415,710 | ) | ||||||||
Payments to acquire intangible assets | (38,939 | ) | (39,669 | ) | (1,943 | ) | (38,939 | ) | ||||||||
Other assets | - | (240) | ||||||||||||||
Investment in joint ventures | (1,698,863 | ) | (98,084 | ) | (68,489 | ) | (1,698,863 | ) | ||||||||
Net cash used in investing activities | (2,153,512 | ) | (187,254 | ) | (81,217 | ) | (2,153,512 | ) | ||||||||
Cash from financing activities: | ||||||||||||||||
Proceeds from the sale of notes payable | - | 2,998,905 | ||||||||||||||
Proceeds from notes payable | 100,000 | - | ||||||||||||||
Proceeds from notes payable – related parties | 700,000 | - | ||||||||||||||
Proceeds from the sale of common stock, net of offering costs | 3,650,697 | 11,475,052 | 289,800 | 3,650,697 | ||||||||||||
Proceeds from notes payable | - | 157,620 | ||||||||||||||
Proceeds from warrant exercise | 123,562 | - | - | 123,562 | ||||||||||||
Proceeds from unit purchase option exercise | 246,278 | - | - | 246,278 | ||||||||||||
Principal payment on notes payable – related parties | - | (40,000 | ) | |||||||||||||
Principal payment on notes payable | (250,000 | ) | (770,000 | ) | - | (250,000 | ) | |||||||||
Net cash provided by financing activities | 3,770,537 | 13,821,577 | 1,089,800 | 3,770,537 | ||||||||||||
(Decrease) increase in cash and cash equivalents | (4,412,889 | ) | 8,859,175 | |||||||||||||
Increase in cash and cash equivalents | (5,594,736 | ) | (4,412,889 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 10,097,760 | 1,238,585 | 5,684,871 | 10,097,760 | ||||||||||||
Cash and cash equivalents at end of period | $ | 5,684,871 | $ | 10,097,760 | $ | 90,135 | $ | 5,684,871 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 52,603 | $ | 253,392 | $ | - | $ | 52,603 | ||||||||
Taxes | $ | 3,307 | $ | 1,062 | $ | 800 | $ | 3,307 | ||||||||
Noncash activities: | ||||||||||||||||
Fair value of warrants issued with debt | $ | 90,000 | $ | - | ||||||||||||
Common stock issued upon note payable and accrued interest conversion | $ | 1,493,788 | $ | 1,451,824 | $ | - | $ | 1,493,788 | ||||||||
Cashless exercise of warrants | $ | 9 | $ | - | $ | - | $ | 9 | ||||||||
Cashless exercise of unit purchase options | $ | 8 | $ | - | $ | - | $ | 8 | ||||||||
Initial ROU asset and lease liability | $ | 2,096,055 | $ | - | $ | - | $ | 2,096,055 | ||||||||
Fair value of options issued for debt | $ | - | $ | 524,452 | ||||||||||||
Fair value of warrants issued with debt | $ | - | $ | 524,452 | ||||||||||||
Fair value of warrants issued related to service providers | $ | - | $ | 8,660 | ||||||||||||
Beneficial conversion feature on convertible notes | $ | - | $ | 2,062,586 | ||||||||||||
Fixed assets transferred to investment in joint venture | $ | 20,529 | $ | - | $ | - | $ | 20,529 |
SeeThe accompanying notes toare an integral part of these consolidated financial statements.
F-5 |
INVO BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 and 20202022
Note 1 – Summary of Significant Accounting Policies
Description of Business
INVO Bioscience, Inc. (“INVO” or the “Company”) is a commercial-stage 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 primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. The Company’s flagship product is INVOcell, a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. The Company’s primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. 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 a more natural and intimate experience in comparison to other ART treatments. The IVC procedure can deliver comparable results at a lower cost than traditional in vitro fertilization (“IVF”) and is a significantly more effective treatment than intrauterine insemination (“IUI”). The Company’s commercialization strategy involves the opening of dedicated “INVO Centers” focused on offering the INVOcell and IVC procedure (with three centers in North America now operational), and the acquisition of existing IVF clinics, as well as selling its technology solution into existing fertility clinics.
The Company formed on January 5, 2007, under the laws of the Commonwealth of Massachusetts under the name Bio X Cell, Inc. to acquire the assets of Medelle Corporation (“Medelle”). Dr. Claude Ranoux purchased all of the assets of Medelle, and then he contributed those assets, including four patents relating to the INVOcell technology, to Bio X Cell, Inc. upon its formation in January 2007.
On December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and each of the shareholders of INVO Bioscience entered into a share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation (“Emy’s”). Upon the closing of the share exchange on December 5, 2008, the INVO Bioscience shareholders transferred all of their shares of common stock in INVO Bioscience to Emy’s. In connection with the share exchange, Emy’s changed its name to INVO Bioscience, Inc. and Bio X Cell, Inc. became a wholly owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.).
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 December 31, 2021,2022, but prior to the filing of the consolidated financial statements with the SEC in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K.
Business Segments
The Company operates in 1one segment and therefore segment information is not presented.
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.
F-6 |
Equity Method Investments
Investments in unconsolidated affiliates, in 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 consolidated 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. 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.
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 the fair value and an impairment loss recognized. There was an impairment of $0132,227 impairment recorded during the yearsyear ended December 31, 2021,2022, and 2020.no
impairment in the year ended December 31, 2021.
F-7 |
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.
Business Segments
The Company operates in one segment and therefore segment information is not presented.
Concentration of Credit Risk
Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (“FDIC”) limits. As of December 31, 2021,2022, the Company haddid not have 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. |
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.
On November 12, 2018, the Company entered into a U.S. Distribution Agreement (the “Ferring Agreement”) with Ferring International Center S.A. (“Ferring”), pursuant to which it granted Ferring an exclusive license in the United States market only, with rights to sublicense under patents related to our proprietary intravaginal culture device (INVOcell), together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including fertility treatment) in humans.
On November 2, 2021, Ferring notified the Company of its intention to terminate the Ferring Agreement, which requires 90-days prior written notice. Accordingly, the Ferring Agreement officially terminated on January 31, 2022.
The Ferring license was deemed to be a functional license that provides a customer with a “right to access” to the Company’s intellectual property during the subscription period and accordingly, under ASC 606-10-55-60 revenue is recognized over a period of time, which is generally the subscription period. The initial upfront payment of $5,000,000 which was received upon the signing of the agreement was being recognized as income over the 7-year term.
As of December 31, 2021,2022, the Company had no deferred revenue related to the Ferring Agreement as it was recognized in the fourth quarter of fiscal year 2021 in relation to the contract termination. Per ASC 606-10-55-48 the likelihood of Ferring exercising its rights became remote at the time notice of termination was received so INVO recognized the full remaining amount of the deferred revenue.
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.
Basic loss per share calculations are computed by dividing net loss attributable to the Company’s common shareholders 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 years ended December 31, 2021,2022, and 2020,2021, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
2021 | 2020 | |||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Net loss (numerator) | $ | (6,654,940 | ) | $ | (8,347,316 | ) | $ | (10,892,511 | ) | $ | (6,654,940 | ) | ||||
Basic and diluted weighted-average number of common shares outstanding (denominator) | 10,632,413 | 5,489,738 | 12,122,606 | 10,632,413 | ||||||||||||
Basic and diluted net loss per common share | (0.63 | ) | (1.52 | ) | (0.90 | ) | (0.63 | ) |
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
2021 | 2020 | 2022 | 2021 | |||||||||||||
As of December 31, | As of December 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Options | 1,055,894 | 594,114 | 1,297,006 | 1,055,894 | ||||||||||||
Convertible notes and interest | - | 536,302 | ||||||||||||||
Unit purchase options and warrants | 260,165 | 613,996 | 610,165 | 260,165 | ||||||||||||
Total | 1,316,059 | 1,744,412 | 1,907,171 | 1,316,059 |
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 through operating cash flow, equity financings, and convertible notes.notes payable. For the years ended December 31, 20212022 and 2020,2021, the Company incurred a net loss of approximately $6.7 10.9million and $8.3 6.7million, respectively, and has an accumulated deficit of approximately $38.949.8 million as of December 31, 2021.2022. Approximately $4.2 3.0million of the net loss was related to non-cash expenses for the year ended December 31, 2021,2022, compared to $4.4 4.2million for the year ended December 31, 2020.2021
The Company has been dependent on raising capital fromthrough debt and equity financings to meet its needs for cash flow used in operating and investing activities. During 2020, the Company raised approximately $13.8 million in debt and equity financings. During 2021, the Company received proceeds of approximately $3.7million forfrom the sale of stock, converted approximately $1.5million of outstanding debt to equity and received approximately $0.4million of proceeds from unit purchase option and warrant exercises. TheDuring 2022, the Company received proceeds of $0.8 million from demand notes and net proceeds of approximately $0.3million for the sale of its common stock. Over the next 12 months, the Company’s current plan includes opening additional INVO Centers, overcompleting the next 12 months.acquisition of Wisconsin Fertility Institute and pursuing additional IVF clinic acquisitions. Until the Company can generate a sufficient amount of cash from operations, andit will need to the extentraise additional funds are necessaryfunding to meet our longer-termits liquidity needs and to execute ourits business strategy, it may need to raise additional funding, as it has donestrategy. As in the past, by way ofthe Company will seek debt and/or equity financings. Such additional fundingfinancing, which may not be available on reasonable terms, if at all.
Although the Company’s audited consolidated financial statements for the year ended December 31, 20212022 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 consolidated financial statements for the year ended December 31, 20212022 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 consolidated 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 ramp up the commercialization of INVOcell and 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 – Variable Interest Entities
Consolidated VIEs
Bloom INVO, LLC
On June 28, 2021, INVO CTRCenters LLC, a Delaware limited liability company (“INVO CTR”) entered into a limited liability company operating 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.
F-10 |
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 (the “Hurdle Amount”) 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 December 31, 2021,2022, 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, and commenced initial treatment cycles in November 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 December 31, 2021,2022, the Company invested $0.5 0.9million in the Georgia JV in the form of capital contributions as well as $0.5million in the form of a note. For the yearyears ended December 31, 2022 and 2021, the Georgia JV recorded a net losslosses of $0.6 million and $0.4million. 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, and initial treatment cycles commenced in September 2021.
The Company determined the Alabama JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Alabama JV. As of December 31, 2021,2022, the Company invested $1.71.6 million in the Alabama JV in the form of a note. For the yearyears ended December 31, 2022 and 2021, the Alabama JV recorded a net losslosses of $0.3 million and $0.6million, respectively, of which the Company recognized a losslosses from equity method investmentinvestments of $0.2 million and $0.3million. million, respectively.
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, and commenced initial treatment cycles beginning in January 2022.2021.
The Company determined the Mexico JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Mexico JV. As of December 31, 2021,2022, the Company invested $0.1 million in the Mexico JV. For the yearyears ended December 31, 2022 and 2021, the Mexico JV recorded a net losslosses of $0.1 million and $0.04million, respectively, of which the Company recognized a loss from equity method investmentinvestments of $0.05 million and $0.01million. million, respectively.
F-11 |
The following table summarizes our investments in unconsolidated VIEs:
Schedule of Investments in Unconsolidated Variable Interest Entities
Carrying Value as of | ||||||||||||||
Location | Percentage Ownership | December 31, 2021 | December 31, 2020 | |||||||||||
HRCFG INVO, LLC | Alabama, United States | 50 | % | $ | 1,387,495 | - | ||||||||
Positib Fertility, S.A. de C.V. | Mexico | 33 | % | 102,439 | - | |||||||||
Total investment in unconsolidated VIEs | $ | 1,489,934 | - |
Carrying Value as of | ||||||||||||||
Location | Percentage Ownership | December 31, 2022 | December 31, 2021 | |||||||||||
HRCFG INVO, LLC | Alabama, United States | 50 | % | $ | 1,106,905 | 1,387,495 | ||||||||
Positib Fertility, S.A. de C.V. | Mexico | 33 | % | 130,960 | 102,439 | |||||||||
Total investment in unconsolidated VIEs | $ | 1,237,865 | 1,489,934 |
Earnings from investments in unconsolidated VIEs were as follows:
Schedule of Earnings from Investments in Unconsolidated Variable Interest Entities
2021 | 2020 | |||||||
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
HRCFG INVO, LLC | $ | (313,033 | ) | - | ||||
Positib Fertility, S.A. de C.V. | (14,509 | ) | - | |||||
Total earnings from unconsolidated VIEs | $ | (327,542 | ) | - |
2022 | 2021 | |||||||
Year Ended December 31, | ||||||||
2022 | 2021 | |||||||
HRCFG INVO, LLC | $ | (154,954 | ) | (313,033 | ) | |||
Positib Fertility, S.A. de C.V. | (45,604 | ) | (14,509 | ) | ||||
Total earnings from unconsolidated VIEs | $ | (200,558 | ) | (327,542 | ) |
The following tables summarize the combined unaudited financial information of our investments in unconsolidated VIEs:
Schedule of Financial Information of Investments in Unconsolidated Variable Interest Entities
2021 | 2020 | 2022 | 2021 | |||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Statements of operations: | ||||||||||||||||
Operating revenue | $ | 151,672 | - | $ | 822,490 | 151,672 | ||||||||||
Operating expenses | (821,705 | ) | - | (1,316,199 | ) | (821,705 | ) | |||||||||
Net loss | $ | (670,033 | ) | - | $ | (493,709 | ) | (670,033 | ) |
December 31, 2021 | December 31, 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
Balance sheets: | ||||||||||||||||
Current assets | $ | 456,967 | - | $ | 261,477 | 456,967 | ||||||||||
Long-term assets | 1,302,067 | - | 1,094,490 | 1,302,067 | ||||||||||||
Current liabilities | (404,155 | ) | - | (396,619 | ) | (404,155 | ) | |||||||||
Long-term liabilities | (142,321 | ) | - | (107,374 | ) | (142,321 | ) | |||||||||
Net assets | $ | 1,212,558 | - | $ | 851,974 | 1,212,558 |
Note 4 – 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:
Summary of Transaction with Variable Interest Entities
\ | 2021 | 2020 | ||||||||||||||
2022 | 2021 | |||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Bloom Invo, LLC | ||||||||||||||||
INVOcell revenue | $ | 21,600 | - | $ | 13,500 | 21,600 | ||||||||||
Unconsolidated VIEs | ||||||||||||||||
INVOcell revenue | $ | 16,310 | - | $ | 30,000 | 16,310 |
The Company had balances with VIEs as follows:
Summary of Balances with Variable Interest Entities
December 31,2021 | December 31, 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
Bloom Invo, LLC | ||||||||||||||||
Accounts receivable | $ | 21,600 | - | $ | 13,500 | 21,600 | ||||||||||
Notes payable | 453,406 | - | 468,031 | 453,406 | ||||||||||||
Unconsolidated VIEs | ||||||||||||||||
Accounts receivable | $ | 16,310 | - | $ | 46,310 | 16,310 |
Note 5 – Inventory
Components of inventory are:
Schedule of Inventory
December 31, 2021 | December 31, 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
Raw materials | $ | 67,605 | $ | 72,022 | $ | 68,723 | $ | 67,605 | ||||||||
Work in process | - | 29,645 | ||||||||||||||
Finished goods | 220,168 | 163,705 | 194,879 | 220,168 | ||||||||||||
Total inventory | $ | 287,773 | $ | 265,372 | $ | 263,602 | $ | 287,773 |
Note 6 – Property and Equipment
The estimated useful lives and accumulated depreciation for equipment are as follows as of December 31, 2021,2022, and December 31, 2020:2021:
Schedule of EsimatedEstimated Useful Lives of Property and Equipment
Estimated Useful Life | ||
Manufacturing equipment | 6 to 10 years | |
Medical equipment | 10 years | |
Office equipment | 3 to 7 years |
Schedule of Property and Equipment
December 31, 2021 | December 31, 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
Manufacturing equipment | $ | 132,513 | $ | 132,513 | $ | 132,513 | $ | 132,513 | ||||||||
Medical equipment | 275,423 | 49,261 | 283,065 | 275,423 | ||||||||||||
Office equipment | 74,891 | 2,689 | 77,601 | 74,891 | ||||||||||||
Leasehold improvements | 96,817 | - | 96,817 | 96,817 | ||||||||||||
Less: accumulated depreciation | (78,208 | ) | (52,257 | ) | (153,267 | ) | (78,208 | ) | ||||||||
Total equipment, net | $ | 501,436 | $ | 132,206 | $ | 436,729 | $ | 501,436 |
During each of the years ended December 31, 2021,2022, and 2020,2021, the Company recorded depreciation expense of $25,95275,492 and $10,11025,952, respectively.
Note 7 – Intangible Assets
Components of intangible assets are as follows:
Schedule of Finite-Lived Intangible Assets
December 31, 2021 | December 31, 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
Trademarks | $ | 110,842 | $ | 89,536 | $ | - | $ | 110,842 | ||||||||
Patents | 95,355 | 77,722 | - | 95,355 | ||||||||||||
Accumulated amortization | (74,104 | ) | (72,295 | ) | - | (74,104 | ) | |||||||||
Total patent costs, net | $ | 132,093 | $ | 94,963 | $ | - | $ | 132,093 |
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.
During the years ended December 31, 2021,2022, and 2020,2021, the Company recorded amortization expenses related to patents of $1,809 and $1,8071,809, 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 trademark assets were created in 2019,
As of December 31, 2022 the Company recorded an impairment loss of $132,227 related to trademarks and no material adverse changes have occurred since their creation.patents.
Note 98 – 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 201-02, 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 December 31, 2021,2022, the Company’s lease components included in the consolidated balance sheet were as follows:
Schedule of Lease Components
Lease component | Balance sheet classification | December 31, 2021 | Balance sheet classification | December 31, 2022 | ||||||||
Assets | ||||||||||||
ROU assets - operating lease | Other assets | $ | 2,037,052 | Other assets | $ | 1,808,034 | ||||||
Total ROU assets | $ | 2,037,052 | $ | 1,808,034 | ||||||||
Liabilities | ||||||||||||
Current operating lease liability | Current liabilities | $ | 221,993 | Current liabilities | $ | 231,604 | ||||||
Long-term operating lease liability | Other liabilities | 1,901,557 | Other liabilities | 1,669,954 | ||||||||
Total lease liabilities | $ | 2,123,550 | $ | 1,901,558 |
Future minimum lease payments as of December 31, 20212022 were as follows:
Schedule of Future Minimum Lease Payments
2022 | $ | 258,406 | ||||||
2023 | 264,108 | 264,108 | ||||||
2024 | 251,671 | 251,671 | ||||||
2025 | 247,960 | 247,960 | ||||||
2026 and beyond | 1,316,245 | |||||||
2026 | 253,235 | |||||||
2027 and beyond | 1,063,010 | |||||||
Total future minimum lease payments | $ | 2,338,390 | $ | 2,079,984 | ||||
Less: Interest | (214,840 | ) | (178,426 | ) | ||||
Total operating lease liabilities | $ | 2,123,550 | $ | 1,901,558 |
F-14 |
Note 109 – Notes Payable
2020 Convertible
Notes payables consisted of the following:
Schedule of Notes Payable
December 31, 2022 | December 31, 2021 | |||||||
Related party demand notes with a 10% financing fee. 10% annual interest starting January 31, 2023. Notes are callable starting March 31, 2023 | 770,000 | - | ||||||
Demand notes. 10% annual interest. | 100,000 | - | ||||||
Less debt discount | (107,356 | ) | - | |||||
Total, net of discount | 762,644 | - |
Paycheck Protection Program
From May 15, 2020, throughOn July 1, 2020, the Company entered into agreements with accredited investors for their purchase of secured convertible notes issued by the Companyreceived a loan in the aggregate original principal amount of $3,494,840 157,620( pursuant to the “2020 Convertible Notes”). See Note 14 – Unit Purchase OptionsU.S. Small Business Administration’s Paycheck Protection Program. The loan matured 18 months from the date of funding, was payable over 18 equal monthly installments, and Warrants for additional informationhad an interest of 1% per annum.Up to 100% of the principal balance of the loan was forgivable based upon satisfaction of certain criteria under the Paycheck Protection Program. On June 16, 2021, the principal of the loan as well as $1,506 of accrued interest was forgiven and the note was extinguished. The Company recognized a gain of $159,126 on related securities.extinguishment of debt during the year ended December 31, 2021.
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. If paid prior to December 31, 2022 for the initial 3 notes and January 31, 2023 for the last two months, the JAG Notes are interest free. For any amount that remains outstanding past such dates, 10% annual interest accrues from the date of issuance. The notes currently are callable with 10 days prior written notice, which may be delivered to the Company starting on March 31, 2023. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest, if any. The financing fees were recorded as a debt discount and as of December 31, 2022 the Company had amortized $40,333 of the discount.
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 350,000 shares of Company common stock. The warrant may be exercised for a period of five (5) years from issuance at a price of $ per share. The financing fees and the fair value of the warrants issued were capped at the total proceeds. The relative fair value of the warrants were recorded as a debt discount and as of December 31, 2022 the Company had amortized $2,903 of the discount.
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). If paid prior to January 31, 2023, these notes are interest free until January 31, 2023. For any amount that remains outstanding past January 31, 2023, 10% annual interest accrues from the date of issuance. These notes are callable with 10 days prior written notice, which may be delivered to the Company starting 30 days from issuance. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest, if any.
The financing fees were recorded as a debt discount and as of December 31, 2022 the Company had amortized $9,419 of the discount.
Demand Notes
In the fourth quarter of 2022, the Company received $100,000 through the issuance of two demand notes. On January 4th, 2023 these notes were reissued as convertible notes with a fixed conversion prices of $0.50 and (ii) 5-year warrants to purchase shares of the Company’s common stock at an exercise price of $ (subject to adjustments).
Interest on the 2020 Convertible Notes accruednotes accrues at a rate of ten percent (10%) per annum and wasis payable at the holder’s option either in cash or in shares of the Company’s common stock at the conversion price set forth in the notes on the maturity dates of November 15, 2021, December 22, 2021, and December 30, 202131, 2023., unless converted earlier.
All amounts of principal and interest due under the 2020 Convertible Notes werenotes 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 Company’s common stock at a fixed conversion price of $3.20, subject to adjustments.
As of December 31, 2021, all 2020 Convertible Notes had either converted or been repaid by the Company.
Principal balances of the 2020 Convertible Notes were as follows:
Schedule of Convertible Notes
December 31, 2021 | December 31, 2020 | |||||||
2020 Convertible Notes | - | 1,700,000 | ||||||
Accrued interest | - | 24,373 | ||||||
Less beneficial conversion feature discount | - | (604,897 | ) | |||||
Less options discount | - | (224,051 | ) | |||||
Less warrants discount | - | (229,954 | ) | |||||
Less issuance cost | - | (129,408 | ) | |||||
Total, net of discount | $ | - | $ | 536,063 |
Interest expense on the 2020 Convertible Notes was $72,018 and $194,631for the years ended December 31, 2021, and 2020, respectively.
Amortization of options discount on the 2020 Convertible Notes was $224,051 and $300,365 for the years ended December 31, 2021, and 2020, respectively.
Amortization of warrant discount on the 2020 Convertible Notes was $229,954 and $301,228 for the years ended December 31, 2021, and 2020, respectively.
Amortization of beneficial conversion feature on the 2020 Convertible Notes was $604,897 and $1,670,135 for the years ended December 31, 2021, and 2020, respectively.
Amortization of issuance costs on the 2020 Convertible Notes was $129,408 and $222,508 for the years ended December 31, 2021, and 2020, respectively.
Paycheck Protection Program
On July 1, 2020, the Company received a loan in the principal amount of $157,620 pursuant to the U.S. Small Business Administration’s Paycheck Protection Program. The loan matured 18 months from the date of funding, was payable over 18 equal monthly installments, and had an interest of 1% per annum. Up to 100% of the principal balance of the loan was forgivable based upon satisfaction of certain criteria under the Paycheck Protection Program. On June 16, 2021, the principal of the loannotes as well as $1,506 of accrued interest was forgiven and the note was extinguished. The Company recognized a gain of $159,126 on extinguishment of debt during the year ended December 31, 2021.described above.
Note 1110 – Related Party Transactions
In November 2020, Paulson Investment Company served as a co-managing underwriter for the Company’s underwritten public offering and received fees and commissions for such role in the amount of $271,440. Trent Davis, one of the Company’s directors, is President of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and commissions received by Paulson.
In October 2021, Paulson Investment Company served as a placement agent for the Company’s registered direct offering and received fees and commissions for such role in the amount of $323,584. Trent Davis, one of the Company’s directors, is President of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and commissions received by Paulson. Steve Shum and Andrea Goren, the CEO and CFO of the Company, respectively, each purchased shares in the registered direct offering for gross proceeds of $199,994.
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. 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 December 31, 2022 the Company owed accounts payable to related parties totaling $76,948, primarily related to unpaid employee expense reimbursements and unpaid board fees.
F-15 |
Note 1211 – Stockholders’ Equity
Reverse Stock Splits
On December 16, 2019, the Company’s stockholders approved a reverse stock split at a ratio of between 1-for-5 and 1-for-25, with discretion for the exact ratio to be approved by the Company’s board of directors. On February 19, 2020, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 1-for-20. On May 21, 2020, the Company filed a certificate of change (with an effective date of May 26, 2020) 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. The reverse split took effect at the open of business on May 26, 2020.
On October 22, 2020, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 5-for-8 and also approved a proportionate decrease in the Company’s authorized common stock to shares from . On November 5, 2020, the Company filed a certificate of change (with an effective date of November 9, 2020) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 5-for-8 reverse stock split of its outstanding common stock. As a result of the reverse stock split, shares were issued in lieu of fractional shares. On November 6, 2020, the Company received notice from FINRA/OTC Corporate Actions that the reverse split would take effect at the open of business on November 9, 2020, and the reverse stock split took effect on that date.
The consolidated financial statements presented reflect the reverse splits.
Public offerings
On November 12, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters (the “Underwriters”), in connection with the Company’s public offering (the “Offering”) of shares of common stock, at a public offering price of $ per share. The initial closing of the Offering for shares of common stock took place on November 17, 2020. On November 18, 2020, the Underwriters exercised their option pursuant to the Underwriting Agreement to purchase an additional shares of common stock (the “Option Shares”). The closing for the Option Shares took place on November 20, 2020, for which the Company received approximately $1.5 million in net proceeds after deducting underwriting discounts and commissions. With the exercise of the option to purchase the Option Shares, the total amount of shares of common stock sold in the Offering was shares with aggregate net proceeds received by the Company of approximately $11.8 million after deducting underwriting discounts and commissions and offering expenses.
On October 1, 2021, the Company and certain institutional and accredited investors and members of the Company’s management team (the “Investors”) entered into a securities purchase agreement pursuant to which the Company agreed to issue and sell to the Investors 4,044,803. The purchase price for each share in the Direct Offering was $ . The net proceeds to the Company from the Direct Offering, after deducting placement agent fees and the Company’s estimated offering expenses, were approximately $3.65 million. Paulson Investment Company served as a placement agent for the Direct Offering and received a fee for its role in the amount of $323,584, as well as warrants to purchase 37,222 shares of the Company’s common stock at an exercise price of $3.912 per share. shares of its common stock, in a registered direct offering (the “Direct Offering”) for aggregate gross proceeds of $
During the years ended December 31, 2021, and 2020, the Company incurred approximately $0.4 million and $1.8 million, respectively of offering costs related to the issuance of common stock.
Year Ended December 30, 202131, 2022
During 2021,2022, the Company issued shares of common stock with a fair value of $1,493,788 as a result of the conversion of the 2020 Convertible Notes and accrued interest thereon. No gain or loss was recorded on conversion, as the issuance of common stock was pursuant to the terms of a prior agreement.
In March 2021, the Company issued shares of common stock for proceeds of $246,278 as a result of the exercise of unit purchase options.
In March 2021, the Company issued shares of common stock for proceeds of $123,562 as a result of the exercise of warrants.
In March 2021, the Company issued shares of common stock as a result of cashless exercises of unit purchase options.
In March 2021, the Company issued shares of common stock as a result of cashless exercises of warrants.
During 2021, the Company issued shares of common stock to employees and directors and shares of common stock to consultants with a fair value of $360,153 218,196and $382,64595,851, respectively. The shares were issued under the Company’s 2019 Stock Incentive Plan (the “2019 Plan”).
During 2021,2022, the Company granted restricted stock units to employees that vest % at six months from grant date and % at twelve months from grant date. The shares were granted under the 2019 Plan. During 2022, the Company had issued vested shares and recognized stock-based compensation expense of $ associated with the equity grants.
During 2022, the Company issued shares of its common stock to consultants in consideration of services rendered with a fair value of $303,87927,360. 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 November 2021,January 2022, the Company issued shares of its common in considerationstock for purchasing Effortless IVF with a fair valuenet proceeds of $117,600289,800. 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.
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 both incentive and non-qualified stock options to purchase common stock, as well as restricted stock awards to its employees, directors, and consultants. The 2019 Plan initially provided for the issuance of 2020,2022, the number of available shares was increased to 793,093 shares. In January . In January 2021, the number of available shares issuable increased by shares and on October 12, 2022 shareholders approved an amendment to the plan to add an additional shares bringing the total shares available under the 2019 Plan to a total of shares..
Options granted under the 2019 Plan generally have a life of to 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 -year period.
Schedule of Stock Options Activity
Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||||||||
Outstanding as of December 31, 2020 | 939,114 | $ | 5.73 | $ | 17,250 | |||||||||||||||||||
Outstanding as of December 31, 2021 | 1,055,894 | $ | 5.09 | $ | 17,250 | |||||||||||||||||||
Granted | 179,797 | 3.14 | - | 453,711 | 3.59 | - | ||||||||||||||||||
Exercised | - | - | - | - | - | - | ||||||||||||||||||
Canceled | (63,017 | ) | 9.10 | - | 212,599 | 7.96 | - | |||||||||||||||||
Balance as of December 31, 2021 | 1,055,894 | $ | 5.09 | $ | 133,022 | |||||||||||||||||||
Exercisable as of December 31, 2021 | 650,161 | $ | 5.71 | $ | 54,266 | |||||||||||||||||||
Balance as of December 31, 2022 | 1,297,006 | 3.40 | - | |||||||||||||||||||||
Exercisable as of December 31, 2022 | 818,559 | $ | 4.39 | $ | - |
Schedule of Share-basedShare-Based Payment Award, Stock Options, Valuation Assumptions
Years ended December 31, | Years ended December 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Risk-free interest rate range | % to | % | to | % | to | % | % to | % | ||||||||
Expected life of option-years | to | to | to | to | ||||||||||||
Expected stock price volatility | % to | % | to | % | to | % | % to | % | ||||||||
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 Company’s 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.
Total Intrinsic Value of Options Exercised | Total Fair Value of Options Vested | Total Intrinsic Value of Options Exercised | Total Fair Value of Options Vested | |||||||||||||
Year ended December 31, 2020 | $ | - | $ | 1,495,744 | ||||||||||||
Year ended December 31, 2021 | $ | - | $ | 1,543,912 | $ | - | $ | 1,543,912 | ||||||||
Year ended December 31, 2022 | $ | - | $ | 1,616,401 |
For the year ended December 31, 2021,2022, the weighted average grant date fair value of options granted was $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 December 31, 2021,2022, the weighted average remaining service period is years.
Restricted Stock and Restricted Stock Units
In the year ended December 31, 2021,2022, the Company issuedgranted shares ofin restricted stock units 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 from the date of grant.grant.
Schedule of Aggregate Restricted Stock Awards and Restricted Stock Unit Activity
Number of Unvested Shares | Weighted Average Grant Date | Aggregate Value of Shares | Number of Unvested Shares | Weighted Average Grant Date | Aggregate Value of Shares | |||||||||||||||||||
Balance as of December 31, 2020 | 16,698 | $ | 4.67 | $ | 77,927 | |||||||||||||||||||
Balance as of December 31, 2021 | 9,730 | $ | 3.72 | $ | 36,148 | |||||||||||||||||||
Granted | 198,063 | 3.29 | 652,098 | 204,111 | 2.92 | 595,846 | ||||||||||||||||||
Vested | (205,031 | ) | 3.27 | (693,877 | ) | (143,174 | ) | 3.07 | (423,077 | ) | ||||||||||||||
Forfeitures | - | - | - | - | - | - | ||||||||||||||||||
Balance as of December 31, 2021 | 9,730 | $ | 3.72 | $ | 36,148 | |||||||||||||||||||
Balance as of December 31, 2022 | 70,667 | 0.42 | 29,949 |
Note 1413 – Unit Purchase Options and Warrants
In connection with the issuance of the 2020 Convertible Notes, the Company also issued unit purchase options to purchase 303,623 units at an exercise price of $ per unit, with each unit consisting of 1 share of common stock and a warrant to purchase one share of common stock at an exercise price of $3.20 per share. The units and warrants vested immediately, are exercisable for a period of five years from the date of issuance and are subject to downward adjustment if the Company issues securities at a lower price. Warrant holders have a right to require the Company to pay cash in the event of a fundamental transaction. In accordance with ASC 815, the unit purchase options and warrants issued in this period were determined to require equity treatment.
In connection with the issuance of the 2020 Convertible Notes, the Company agreed to issue the placement agent and the selling agent five-year warrants to purchase 6,750 shares of the Company’s common stock at an exercise price of $3.20.
A Monte Carlo model was used because the investor unit purchase options and warrants contain fundamental transaction payouts and reset events that cannot be modeled with a Black Scholes model.
The fair value of the unit purchase options and warrants issued to the convertible debt holders is estimated as of the issue date using a Monte Carlo model with the following assumptions:
Schedule of Fair Value Measurement Inputs and Valuation Techniques
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 unit purchase options and warrants. Expected volatility is based upon the historical volatility of the Company’s common stock over the period commensurate with the expected term of the related instrument. The unit purchase options and warrants are valued assuming projected reset events adjusting the exercise price and a forced exercise upon a projected fundamental transaction by management. The unit purchase options and warrants early exercise are modeled assuming registration after 180 days. The Company does not currently pay dividends on its common stock, nor does it expect to in the foreseeable future.
The following table sets forth the activity of unit purchase options:
Schedule of Unit Purchase Stock Options Activity
Number of Unit Purchase Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Unit Purchase Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||||||||
Outstanding as of December 31, 2020 | 303,623 | $ | 3.20 | $ | - | |||||||||||||||||||
Outstanding as of December 31, 2021 | 92,893 | $ | 3.20 | $ | 5,647 | |||||||||||||||||||
Granted | - | - | - | - | - | - | ||||||||||||||||||
Exercised | (210,730 | ) | 3.20 | 457,839 | - | - | - | |||||||||||||||||
Canceled | - | - | - | - | - | - | ||||||||||||||||||
Balance as of December 31, 2021 | 92,893 | $ | 3.20 | $ | 5,647 | |||||||||||||||||||
Balance as of December 31, 2022 | 92,893 | 3.20 | - |
The following table sets forth the activity of warrants:
Schedule of Warrants Activity
Number of Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||||||||
Outstanding as of December 31, 2020 | 310,373 | $ | 3.48 | $ | - | |||||||||||||||||||
Outstanding as of December 31, 2021 | 167,272 | $ | 3.62 | $ | 16,029 | |||||||||||||||||||
Granted | 37,222 | 3.91 | - | 350,000 | 0.50 | - | ||||||||||||||||||
Exercised | (180,323 | ) | 3.20 | 457,839 | - | - | - | |||||||||||||||||
Canceled | - | - | - | - | - | - | ||||||||||||||||||
Balance as of December 31, 2021 | 167,272 | $ | 3.62 | $ | 16,029 | |||||||||||||||||||
Balance as of December 31, 2022 | 517,272 | $ | 1.51 | $ | - |
Note 1514 – Income Taxes
The provision for income taxes consists of the following for the year ended December 31, 2021,2022, and 2020:2021:
Schedule of Components of Income Tax Expense (Benefit)
2021 | 2020 | |||||||||||||||
December 31 | December 31 | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Federal income taxes: | ||||||||||||||||
Current | - | - | $ | - | $ | - | ||||||||||
Deferred | 280 | (84 | ) | 315 | (280 | ) | ||||||||||
Total federal income taxes | 280 | (84 | ) | 315 | (280 | ) | ||||||||||
State income taxes: | ||||||||||||||||
Current | 4,094 | 1,212 | 2,062 | 4,094 | ||||||||||||
Deferred | 390 | 120 | 496 | 390 | ||||||||||||
Total state income taxes | 4,484 | 1,332 | 2,558 | 4,484 | ||||||||||||
Total income taxes | $ | 4,764 | $ | 1,248 | $ | 2,872 | $ | 4,764 |
The effective income tax rate is lower than the U.S. federal and state statutory rates primarily because of the valuation allowance and, to a lesser extent, permanent items. A reconciliation of the 20212022 and 20202021 federal statutory rate as compared to the effective income tax rate is as follows:
Schedule of Effective Income Tax Rate Reconciliation
December 31 | ||||||||||||||||
2021 | 2020 | |||||||||||||||
Pre-Tax Book Income at Statutory Rate | $ | (1,363,829 | ) | 21.00 | % | $ | (1,688,606 | ) | 21.00 | % | ||||||
State Tax Expense, net | 3,624 | -0.06 | % | 1,078 | -0.01 | % | ||||||||||
Permanent Items | 425,318 | -6.55 | % | 37,441 | -0.47 | % | ||||||||||
True-Ups | 713,398 | -10.98 | % | 6,790 | -0.09 | % | ||||||||||
Change in Federal Valuation Allowance | 226,255 | -3.48 | % | 1,644,545 | -20.45 | % | ||||||||||
Total Expense | $ | 4,764 | -0.07 | % | $ | 1,248 | -0.02 | % |
December 31 | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Pre-Tax Book Income at Statutory Rate | $ | (2,202,718 | ) | 21.00 | % | $ | (1,363,829 | ) | 21.00 | % | ||||||
State Tax Expense, net | 1,629 | -0.02 | % | 3,624 | -0.06 | % | ||||||||||
Permanent Items | 348,768 | -3.33 | % | 425,318 | -6.55 | % | ||||||||||
Hanging Credit | 811 | -0.01 | % | - | - | |||||||||||
True-Ups | (36,554 | ) | 0.35 | % | 713,398 | -10.98 | % | |||||||||
Change in Federal Valuation Allowance | 1,890,936 | -18.03 | % | 226,255 | -3.48 | % | ||||||||||
Total Expense | $ | 2,872 | -0.03 | % | $ | 4,764 | -0.07 | % |
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax. Significant components of the deferred tax assets and liabilities as of December 31, 20212022 and 2020,2021, are as follows:
Schedule of Deferred Tax Assets and Liabilities
December 31 | ||||||||
2022 | 2021 | |||||||
Deferred tax assets: | ||||||||
Accrued Compensation | $ | 243,056 | $ | 150,952 | ||||
Lease (ASC 842) | 342,254 | 365,602 | ||||||
Charitable Contributions | 2,771 | 136 | ||||||
Stock Option Expense | 117,099 | 75,590 | ||||||
Restricted Stock Unit | 62,090 | 12,929 | ||||||
Net Operating Losses | 8,395,160 | 6,406,223 | ||||||
Org Costs | 81,255 | 72,455 | ||||||
-IRC Sec. 174 Expense | 275,519 | - | ||||||
Investment in HRCFG INVO, LLC | 123,217 | 81,234 | ||||||
Equity in earnings - Positib | 19,950 | 3,765 | ||||||
Gross deferred tax assets | 9,662,371 | 7,168,886 | ||||||
Deferred tax liabilities: | ||||||||
Fixed Assets | (21,560 | ) | (26,907 | ) | ||||
ROU Lease (ASC 842) | (5,858 | ) | (353,551 | ) | ||||
Trademark Amortization | (327,946 | ) | (4,309 | ) | ||||
Deferred Revenue | (47 | ) | - | |||||
Tax Amortization of Org Cost | (7,222 | ) | - | |||||
Gain/Loss on sale of assets | (2,561 | ) | - | |||||
Gross deferred tax liability | (365,194 | ) | (384,767 | ) | ||||
Less: valuation allowance | (9,299,126 | ) | (6,785,258 | ) | ||||
Net deferred tax liability | $ | (1,949 | ) | $ | (1,139 | ) |
2021 | 2020 | |||||||
December 31 | ||||||||
2021 | 2020 | |||||||
Deferred tax assets: | ||||||||
Accrued Compensation | $ | 150,952 | $ | 127,829 | ||||
Amortization of Discount Notes Payable | - | 93,017 | ||||||
Lease (ASC 842) | 365,602 | 19,718 | ||||||
Charitable Contributions | 136 | 127 | ||||||
Stock Option Expense | 75,590 | 28,212 | ||||||
Restricted Stock Unit | 12,929 | 10,665 | ||||||
Deferred Revenue | - | 865,747 | ||||||
Net Operating Losses | 6,406,223 | 5,361,500 | ||||||
Org Costs | 72,455 | - | ||||||
Investment in HRCFG INVO, LLC | 81,234 | - | ||||||
Equity in earnings - Positib | 3,765 | - | ||||||
Gross deferred tax assets | 7,168,886 | 6,506,815 | ||||||
Deferred tax liabilities: | ||||||||
Fixed Assets | (26,907 | ) | (32,159 | ) | ||||
ROU Lease (ASC 842) | (353,551 | ) | (19,228 | ) | ||||
Trademark Amortization | (4,309 | ) | (1,529 | ) | ||||
Convertible Note Interest Expense | - | (42,111 | ) | |||||
Note Issuance Cost | - | (3,855 | ) | |||||
Gross deferred tax liability | (384,767 | ) | (98,882 | ) | ||||
Less: valuation allowance | (6,785,258 | ) | (6,408,401 | ) | ||||
Net deferred tax liability | $ | (1,139 | ) | $ | (468 | ) |
F-20 |
The Company recorded a full valuation allowance against its net deferred tax asset at December 31, 20212022 and 20202021 totaling $6.89.3 millionand $6.46.8 million,, respectively. A naked credit resulting from indefinite lived intangibles was valued at December 31, 2022, and 2021 totaling $(1,949)and 2020 totaling ($($1,139) and ($468), respectively.
As of December 31, 2021,2022, the Company has federal net operating loss carryforwards of approximately $25.832.8 million. Of that amount, $10.8 million will expire, if not utilized, in various years beginning in 2028 and which are also subject to the limitations of IRC §382. The remaining carryforward amount of $15.0 million, has no expiration period and can be applied to 80% of taxable income per year in future periods. State net operating loss carryforwards total $23.58.9 million. Of that amount, $3.5 million will begin to expire in 2033 and are subject to the limitations of IRC §382. The remaining $20.0 million of state net operating loss carryforwards are similar to the federal net operating loss in that it has no expiration period and can be applied to 100% of state taxable income per year.
Note 1615 – 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.
Note 1716 – Subsequent Events
January and March 2023 Convertible Note and Warrant Financings
In January 2022,and March 2023, we sold unsecured convertible notes of the Company in the aggregate original principal amount of $410,000 (the “Convertible Notes”) with a fixed conversion prices of $0.50 (for the $275,000 of January 2023 Notes) and $0.60 (for the $135,000 of March 2023 Notes) and (ii) 5-year warrants (the “Note Warrants”) to purchase 387,500 shares of the Company’s common stock at an exercise price of $1.00 (subject to adjustments) (the “Note and Warrant Private Placement”). The proceeds were used for working capital and general corporate purposes.
Interest on the Convertible 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 the Company’s common stock at the conversion price set forth in the Convertible Notes on December 31, 2023, unless converted earlier.
All amounts due under the Convertible 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 Company’s common stock at a fixed conversion price for the Notes as described above.
Upon any issuance by the Company of any of its equity securities in an underwritten offering, including Common Stock, for cash consideration, indebtedness or a combination thereof after the date hereof (a “Subsequent Equity Financing”), each holder shall have the option to convert the outstanding principal and accrued but unpaid interest of its Convertible Note into the number of fully paid and non-assessable shares of securities issued in the Subsequent Equity Financing equal to the product of unpaid principal, together with the balance of unpaid and accrued interest and other amounts payable hereunder, divided by the price per share paid by the investors in the Subsequent Equity Financing multiplied by 80%, provided however, that any conversion shall only be allowed if the Subsequent Equity Financing conversion price is equal to or greater than the Minimum Price (as defined in the Convertible Notes) including an appropriate allocation any warrants offered.
62,528
A Convertible Note may not be converted and shares of common stock to consultants and directorsmay not be issued under the 2019 Stock Incentive Plan.Convertible Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of % of the Company’s outstanding ordinary shares.
The Company may prepay the Convertible Notes at any time in whole or in part by paying a s sum of money equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest.
The Company entered into a registration rights agreement with the holders of and of even date with the Convertible Notes (the “Note RRA”). Pursuant to the terms of Note RRA, if the Company determines to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans on Form S-8 (or any successor form) or (ii) a registration relating solely to a Commission Rule 145 transaction on Form S-4 (or any successor form), the Company will include in such registration, and in any underwriting involved therein, the shares underlying the Convertible Notes and Note Warrants delivered pursuant to the Note and Warrant Purchase Agreements, subject to, in the case of an underwritten registration, the discretion of the managing underwriter to reduce any or all piggyback registration shares if in its good faith judgment such inclusion would affect the successful marketing of the underwritten offering.
F-21 |
In February 2022,2023 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 $ , (ii) warrants (the “February Warrant”) to purchase 250,000 shares (the “February Warrant Shares”) of the Company’s common stock par value $ per share (“Common Stock”) at an exercise price of $0.75 per share, and (iii) shares of Common Stock (the “February Commitment Shares”) issued as an inducement for issuing the Debentures. The proceeds, net of placement agent and legal fees, are being used for working capital and general corporate purposes.
Pursuant to the February Debentures, interest on the February Debentures accrues at a rate of eight percent (8%) per annum and is payable at maturity, one year from the date of the February Debentures.
All amounts due under the February Debentures are 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 $ per share. This conversion price is subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments and is subject to a floor price.
The Company may 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 remains outstanding, if the Company receives 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 shall have 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.
The Company entered into a Registration Rights Agreement (the “February RRA”) with the February Investor that signed its purchase agreement on February 3, 2023 (the “Feb 3 Investor”). Pursuant to the terms of February RRA, the Company has agreed to file with the SEC an initial registration statement on Form S-3 (or Form S-1 if S-3 is not available) covering the resale of all of the securities acquired by the Feb 3 Investor under its February Purchase Agreement. The filing of such initial registration statement is to occur within 90 days of February 3, 2023.
On March 31, 2023, having received notice from the February Investor that signed its purchase agreement on February 17, 2023 (the “Feb 17 Investor”) requesting repayment of its February Debenture, the Company paid the Feb 17 Investor $170,000, including interest and the prepayment premium. After such payment, the principal due the Feb 17 Investor under its debenture was reduced from $200,000 to $39,849.
On April 3, 2023, having received notice from the Feb 3 requesting repayment of its February Debenture, the Company paid the Feb 3 Investor $213,879, including interest and the prepayment premium. After such payment, the principal due the Feb 3 Investor under its debenture was reduced from $300,000 to $100,000.
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 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 150,000 shares of Common Stock for its commitment to enter into the ELOC.
3,000
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, 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.
F-22 |
Wisconsin Fertility Institute Acquisition
On March 16, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Wood Violet”) and wholly owned subsidiary of INVO Centers LLC, a Delaware company wholly-owned by INVO, entered into binding purchase agreements to acquire Wisconsin Fertility Institute (“Wisconsin Fertility”) for a combined purchase price of $10 million.
The purchase price is payable in four installments of $2.5 million each (which payments may be offset by assumption of certain Wisconsin Fertility liabilities, payable at closing and on each of 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 $6.25, $9.09, and $14.29, for the second, third, and final installments, respectively.
Wisconsin Fertility 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 the Clinic’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.
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, 2,300,000 shares of Common Stock, at an exercise price of $0.01 per share, and (ii) in a concurrent private placement, common stock purchase warrants (the “March Warrants”), exercisable for an aggregate of up to consultants shares of Common Stock, at an exercise price of $ per share. The securities to be issued in consideration of services rendered. These sharesthe registered direct offering (priced at the marked under Nasdaq rules) were issuedoffered pursuant to the Company’s shelf registration statement on Form S-3 (File 333-255096) (the “Shelf Registration Statement”), initially filed by the Company with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), on April 7, 2021 and declared effective on April 16, 2021. The Pre-Funded Warrants are exercisable upon issuance and will remain exercisable until all of the Pre-Funded Warrants are exercised in full. shares (the “March Shares”) of Common Stock, and pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to
The March Warrants (and the shares of Common Stock issuable upon the exercise of the Private Warrants) were not registered under the Securities Act and were offered pursuant to an exemption from the registration requirements of the Securities Act provided byin Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrants are immediately exercisable upon issuance, will expire eight years from the date of 1933, as amended. The Company did not receive any cash proceeds from this issuance.
In January 2022, the Company issued shares of common stock to Paradigm Opportunities Fund, LP (“Paradigm”). The 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 received $315,000issuance, and in proceeds from this issuance. Pursuant to its terms,certain circumstances may be exercised on March 30, 2022, the Company terminated the stock purchase agreement with Paradigm, under which Paradigm had committed to purchase 600,703 shares of the Company’s common stock for an aggregate purchase price of $1,999,740.29. The Company issued its termination notice when it became clear that Paradigm would not be able to fulfil its commitment in a timely fashion.cashless basis.
On March 29, 2022, the joint venture agreement between27, 2023, the Company closed the offering, raising gross proceeds of approximately $3 million before deducting placement agent fees and Medesole Healthcare and Trading Private Limited, India was terminatedother offering expenses payable by the Company. In the event that all March Warrants are exercised for cash, the Company would receive additional gross proceeds of approximately $3.5 million. Under the March Purchase Agreement, the Company may use a portion of the net proceeds of the offering to (a) repay February Debentures, and (b) to pay the down payment for Wisconsin Fertility acquisition. The remainder of the net proceeds will be used for working capital, capital expenditures, and other general corporate purposes.
Under the March Purchase Agreement, the Company is required within 30 days of the closing date of the offering to file a registration statement on Form S-1 (the “Resale Registration Statement”) registering the resale of the shares of Common Stock issuable upon the exercise of the March Warrants. The Company is required to use commercially reasonable efforts to cause such registration to become effective within 75 days of the closing date of the offering (or 120 days if the registration statement is subject to a full-review by the SEC), and to keep such registration statement effective at all times until no March Warrants remain outstanding.
In addition, pursuant to certain “lock-up” agreements, our officers and directors have agreed, for a period of 180 days from the termsdate of the joint venture agreement after mutual agreementoffering, not to engage in any of the following, whether directly or indirectly, without the consent of the March Purchase Agreement investor: offer to sell, sell, contract to sell pledge, grant, lend, or otherwise transfer or dispose of our common stock or any securities convertible into or exercisable or exchangeable for Common Stock (the “Lock-Up Securities”); enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities; make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with Medesole that Medesole would not be ablerespect to fulfil its commitments in a timely fashion.the registration of any Lock-Up Securities; enter into any transaction, swap, hedge, or other arrangement relating to any Lock-Up Securities subject to customary exceptions; or publicly disclose the intention to do any of the foregoing.
Stock Incentive Plan Issuances
During the first quarter of 2023, the Company issued
, shares of common stock to employes and consultants under the 2019 Stock Incentive Plan.F-23 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2021.2022.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation of our internal control over financial reporting, management has concluded that, as of December 31, 2022, our internal control over financial reporting was effective.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the SEC.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
43 |
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation of our internal control over financial reporting, management has concluded that, as of December 31, 2021, our internal control over financial reporting was effective.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the SEC.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth information with respectrequired by this Item 10 is incorporated by reference to each of our directors and executive officers including their positions and age as of the date of this Annual Report.
Steven M. Shum. Mr. Shum is our Chief Executive Officer, a position he has held since October 10, 2019 and is also a director, a position he has held since October 11, 2017. Previously, Mr. Shum was Interim Chief Executive Officer (from May 2019 to October 7, 2019) and Chief Financial Officer of Eastside Distilling (Nasdaq: ESDI) (from October 2015 to August 2019). Prior to joining Eastside, Mr. Shum served as an Officer and Director of XZERES Corp, a publicly traded global renewable energy company, from October 2008 until April 2015 in various officer roles, including Chief Operating Officer from September 2014 until April 2015, Chief Financial Officer, Principal Accounting Officer and Secretary from April 2010 until September 2014 (under former name, Cascade Wind Corp) and Chief Executive Officer and President from October 2008 to August 2010. Mr. Shum also serves as the managing principal of Core Fund Management, LP and the Fund Manager of Core Fund, LP. He was a founder of Revere Data LLC (now part of Factset Research Systems, Inc.) and served as its Executive Vice President for four years, heading up the product development efforts and contributing to operations, business development, and sales. He spent six years as an investment research analyst and portfolio manager of D.N.B. Capital Management, Inc. His previous employers include Red Chip Review and Laughlin Group of Companies. He earned a B.S. in Finance and a B.S. in General Management from Portland State University in 1992.
Andrea Goren. Mr. Goren is our CFO, a position he has held since June 14, 2021, and, before that, was advisor to the CEO of the Company from July 2020. Mr. Goren has over 25 years’ experience in private equity, investment banking and corporate finance working with management teams in growing and restructuring businesses. Mr. Goren currently serves as director and corporate secretary of iSign Solutions Inc. (ticker: ISGN), an electronic signature software company, and also held the position of CFO from December 2010 to June 2021. Mr. Goren also serves as director and treasurer of Americans for Ben Gurion University, a U.S. non-profit organization focused primarily on securing funds from U.S. donors to benefit one of Israel’s leading universities. Previously, Mr. Goren served as managing director and CFO of Phoenix Group, a private equity firm, and in that role served as director of Xplore Technologies Corp., a leader in rugged PCs sold to Zebra Technologies (ticker: ZBRA), and director of The Fairchild Corporation, a holding company with aerospace and retail assets, among others. Prior to Phoenix, Mr. Goren served as vice president of Shamrock International, Ltd, an arm of Roy Disney’s holding company focused on private equity and venture capital investments in Europe and Israel. Mr. Goren earned a BA from Connecticut College in 1989 and an MBA from Columbia University’s Graduate School of Business in 1994.
Michael J. Campbell. Mr. Campbell is our Chief Operating Officer and Vice President of Business Development, positions he has held since February 2019 and was a director, from October 2017 to November 2020. Mr. Campbell was previously the Vice President of IVF Americas Business Unit for Cooper Surgical, Inc., a wholly owned subsidiary of The Cooper Companies (NYSE: COO). Mr. Campbell has substantial medical device sales, marketing and business development leadership experience within Global Fortune 500 and startup company environments. During his over 11-year career at Cooper Surgical, Mike has been responsible for IVF product portfolio sales globally including the U.S., Canada, Latin America, Europe, Middle East, Africa, and Asia Pacific regions. In addition to Mr. Campbell’s position as Vice President of IVF Americas Business Unit, he served in various leadership roles including Vice President of International Business Unit from 2013-2014 and as Vice President of IVF Business Unit from 2006 to 2012. Prior to joining Cooper Surgical, Mike was Vice President of Sales, Marketing and Business Development at Retroactive Bioscience from 1997 to 2006 and Vice President of Sales and Marketing for Gabriel Medical from 1994 to 1997. Mr. Campbell also served in various senior management positions across marketing, sales and product management at Boston Scientific Corporation beginning in 1984 through 1994.
Matthew Szot. Mr. Szot is one of our directors, a position he has held since September 13, 2020, and Chairman of the Audit Committee and Compensation Committee, positions he has held since September 14, 2020. From March 2010 to November 2021, Mr. Szot served as the Executive Vice President and Chief Financial Officer of S&W Seed Company (Nasdaq: SANW), an agricultural biotechnology company. Mr. Szot is also currently a director and serves as Vice Chairman of the board, Chairman of the Audit Committee and a member of both the Compensation Committee and Nominating and Governance Committees of SenesTech (Nasdaq: SNES), a publicly traded life science company with next generation technologies for managing animal pest populations through fertility control. From June 2018 to August 2019, Mr. Szot served on the board of directors and as Chairman of the Audit Committee of Eastside Distilling, Inc. (Nasdaq; EAST), a publicly traded company in the craft spirits industry. From February 2007 until October 2011, Mr. Szot served as the Chief Financial Officer for Cardiff Partners, LLC, a strategic consulting company that provided executive financial services to various publicly traded and privately held companies. Prior thereto, from 2003 to December 2006, Mr. Szot served as Chief Financial Officer and Secretary of Rip Curl, Inc., a market leader in wetsuit and action sports apparel products. From 1996 to 2003, Mr. Szot was a Certified Public Accountant with KPMG in the San Diego and Chicago offices and served as an Audit Manager for various publicly traded companies. Mr. Szot graduated with High Honors from the University of Illinois, Champaign-Urbana with a Bachelor of Science degree in Agricultural Economics/Accountancy. Mr. Szot is a Certified Public Accountant in the State of California.
Kevin Doody, M.D. Dr. Doody serves as Medical Director for INVO Bioscience, a position he has held since April 2017 and is also a member of the Board of Directors, a position he has held since April 7, 2017. Dr. Doody is a renowned fertility specialist who is the founder and Medical Directordefinitive Proxy Statement for the Center for Assisted Reproduction (CARE Fertility) and Effortless IVF located in Bedford Texas. The Center for Assisted Reproduction, established in 1989, has been a pioneer2023 Annual Meeting of assisted reproductive technologies in the north Texas region with several firsts including the first ICSI pregnancy and the firstStockholders to successfully implement a blastocyst culture system. CARE Fertility had the first pregnancy in the region with a pregnancy following embryo biopsy and pre-implantation genetic testing for cystic fibrosis. CARE Fertility/ Effortless IVF also was the first to adopt the INVOcell™ Intravaginal Culture System since the INVOcell first obtained FDA clearance. Dr. Doody is President of the Society for Assisted Reproductive Technology (SART), on the Board of Directors of the American Society for Reproductive Medicine (ASRM) and a member of the RESOLVE Physician Council. As INVO Bioscience’s Medical Director, Dr. Doody provides medical and clinical guidance, INVO education and training, and oversight of risk management and post-market surveillance activities as well as support current and new product development.
Trent Davis. Mr. Davis is one of our directors since his appointment in December 2019. Mr. Davis also serves as the Chairman of our Nominating and Corporate Governance Committee, a position he has held since November 2020. In addition, Mr. Davis is currently CEO of Paulson Investment Company, LLC, a boutique investment firm that specializes in private equity offerings of small and mid-cap companies. From December 2014 to December 2018, Mr. Davis was President and Chief Operating Officer of Whitestone Investment Network, Inc., which provides executive advisory services and also restructures, recapitalizes and makes strategic investments in small to midsize companies. Since March 2018, Mr. Davis served as a director of Senmiao Technology Limited (Nasdaq: AIHS), an online lending platform in China. From August 2016 to August 2019, Mr. Davis served as director of Eastside Distilling, Inc. (Nasdaq: EAST), and from July 2015 to April 2017, he served as director of Dataram Corporation (Nasdaq: DRAM). Mr. Davis helped to successfully complete the reverse merger between Dataram and U.S. Gold Corp (Nasdaq: USAU), a gold exploration and development company. From December 2014 to July 2015, Mr. Davis served as Chairman of the Board of Majesco Entertainment Company (Nasdaq: COOL). Mr. Davis also served as director and President of Paulson Capital Corp. (Nasdaq: PLCC) from November 2013 to July 2014, when Paulson Capital Corp. completed a reverse merger with VBI Vaccine (Nasdaq: VBIV). Mr. Davis continued to serve on the board and the audit committee of VBI until May 2016. Prior to serving on the board of Paulson Capital Corp., Mr. Davis served as the Chief Executive Officer of its subsidiary, Paulson Investment Company, LLC, where he oversaw he syndication of approximately $600 million of investment in over 50 client companies in both public and private transactions. In 2003, Mr. Davis served as Chairman of the Board of the National Investment Banking Association. Mr. Davis holds a B.S. in Business and Economics from Linfield College and an M.B.A. from the University of Portland. Mr. Davis is qualified to serve on the Board because of his deep knowledge of finance and public company issues, capital market, advisory and entrepreneurial experiences, and extensive expertise in operational and executive management.
Barbara Ryan. Ms. Ryan is one of our directors, a position she has held since September 2020. Ms. Ryan founded Barbara Ryan Advisors, a capital markets and communications firm, in 2012 following a more than 30-year career on Wall Street as a sell-side research analyst covering the US Large Cap Pharmaceutical Industry. Ms. Ryan has deep experience in equity and debt financings, M&A, valuation, SEC reporting, financial analysis and corporate strategy across a broad range of life sciences companies. Barbara worked on several of the industry’s largest M&A transactions; Shire’s defense versus a hostile takeover attempt by Abbvie, Shire’s takeover of Baxalta, Allergan’s defense against Valeant and Perrigo’s defense versus Mylan. Barbara served as an executive team member and on the disclosure committee for Radius Health from January 2014 to December 2017 and played a critical role in the Company’s IPO and subsequent follow on offerings which raised over $1 billion. Previously, Ms. Ryan was a Managing Director at Deutsche Bank/Alex Brown and Head of the company’s Pharmaceutical Research Team for 19 years and began her research career covering the pharmaceutical industry at Bear Stearns in 1982. Ms. Ryan also covered the drug wholesalers and PBMs and was the lead analyst on many high-profile IPO’s including Express Scripts, PSSI, and Henry Schein. Ms. Ryan currently serves as a director on the Board of MiNK Therapeutics where she Chairs the Audit Committee, Safecor Heatlh, OcuTerra Therapeutics, and The Red Door Community (formerly Gilda’s Club NYC), a non-profit organization. Barbara is the Founder of Fabulous Pharma Females, a non-profit whose mission is to advance women in the biopharma industry, is a member of the Editorial Advisory Board of Pharmaceutical Executive Magazine, a Faculty member of the GLG Institute and a member of the Prix Galien Executive Advisory Board.
Jeffrey J. Segal, M.D. Dr. Segal is one of our directors, a position he has held since November 2020. Dr. Segal founded Medical Justice Services Inc., an organization focused on protecting physicians from frivolous lawsuits in 2004, and currently serves as CEO. In 2010, Dr. Segal also launched the eMerit platform for Medical Justice Services, Inc. to enable hospitals and doctors to maximize their online presence and provide patients an ability to locate doctors online. In December 2019, Dr. Segal joined the Byrd Adatto Law Firm as a partner. From 2000-2004, Dr. Segal co-founded and served as CEO of DarPharma, Inc., a clinic focused on therapies for schizophrenia, Parkinson’s disease and other targeted CNS disorders. From 1999 through 2002, Dr. Segal co-founded and served as CEO of On-Call Solutions, Inc., a company focused on web-based design of physician call schedules. Dr. Segal is also a board certified neurosurgeon and operated a private neurosurgery practice from 1991-2000. Dr. Segal received his B.A. from the University of Texas, his medical degree from Baylor College of Medicine and his juris doctor from Concord Law School.
Rebecca Messina Ms. Messina is one of our directors, a position she has held since April 2021. Ms. Messina also serves as the Chairman of our Marketing Committee, a position she has held since May 2021. Ms. Messina is currently a senior advisor at McKinsey & Company, a position she has held since 2019. From 2018-2019, Ms. Messina served as Global Chief Marketing Officer for Uber and from 2016-2018, Ms. Messina served as Senior Vice President, Global Chief Marketing Officer for Beam Suntory. Prior to that, Ms. Messina spent 22 years with The Coca-Cola Company in various roles of increasing responsibility, serving as Senior Vice President, Marketing & Innovation, Ventures & emerging Brands from 2014-2016. Ms. Messina is currently a director for each of Vive Organics, Archer Boose, Make-A-Wish Foundation Bartesian, Outdoor Voices and Mobile Marketing Association, all private companies. Ms. Messina received her Bachelor of Arts from Miami University of Ohio in 1994.
Independence of the Board of Directors
The listing rules of Nasdaq require us to maintain a Board comprised of a majority of independent directors, as determined affirmatively by our Board. In addition, the Nasdaq listing rules require that, subject to specified exceptions, each member of our Audit, Compensation and Nominating and Corporate Governance Committees must be independent. Audit Committee members and Compensation Committee members must also satisfy the independence criteria set forth in Rule 10A-3 and Rule 10C-1, respectively, under the Exchange Act. Under Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of our Board, the director does not have a relationship that would interferefiled with the exerciseSEC within 120 days of independent judgment in carrying out his or her responsibilities.December 31, 2022.
Our Board has undertaken a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities, and determined that Trent Davis, Matthew Szot, Barbara Ryan and Jeffrey Segal, M.D., representing four of our six directors, are independent under Nasdaq listing rules. Mr. Shum is not considered independent due to his position as our Chief Executive Officer. Mr. Doody is not considered independent due to the level of compensation received by him from the Company in 2018.
In making these determinations, our Board considered the relationships that each nonemployee director has with us and all other facts and circumstances our Board deemed relevant in determining their independence, including consulting relationships, family relationships and the beneficial ownership of our capital stock by each non-employee director.
Code of Ethics
We have adopted a Code of Conduct that applies to all employees including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The text of our Code of Conduct is posted in the “Investor Information—Corporate Governance” section of our website, www.invobio.com.
We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K
Marketing Committee
Our Marketing Committee currently consists of Ms. Messina (Chair), Dr. Doody and Dr. Segal.
In May 2021, the board elected to form a special Marketing Committee in order to support the addition of our internal marketing resources and overall plan to expand our marketing efforts to support our INVO Centers and distribution activities. The Marketing Committee helps to review, support, oversee, and provide input on our marketing activities in support of our marketing team.
Compensation Committee
Our Compensation Committee currently consists of Mr. Szot (Chair), Mr. Davis and Ms. Ryan.
The Compensation Committee oversees our compensation policies, plans and programs, and to review and determine the compensation to be paid to our executive officers and directors. In addition, the Compensation Committee has the authority to act on behalf of the Board in fulfilling the Board’s responsibilities with respect to compensation-based and related disclosures in filings as required by the Securities and Exchange Commission.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Mr. Szot, Mr. Davis (Chair) and Ms. Ryan.
The Nominating and Corporate Governance Committee (i) oversees our corporate governance functions on behalf of the Board; (ii) makes recommendations to the Board regarding corporate governance issues; (iii) identify and evaluate candidates to serve as our directors consistent with the criteria approved by the Board and reviews and evaluates the performance of the Board; (iv) serves as a focal point for communication between director candidates, non-committee directors and management; (v) selects or recommends to the Board for selection candidates to the Board, or, to the extent required below, to serve as nominees for director for the annual meeting of shareholders; and (vi) makes other recommendations to the Board regarding affairs relating to our directors.
Audit Committee Related Function
Our Audit Committee members currently consist of Mr. Szot (Chair), Dr. Segal and Ms. Ryan. Each of the members of our Audit Committee is an independent director under the Nasdaq listing rules, satisfies the additional independence criteria for Audit Committee members and satisfies the requirements for financial literacy under the Nasdaq listing rules and Rule 10A-3 of the Securities Exchange Act of 1934, as applicable.
Our board has also determined that Mr. Szot qualifies as an Audit Committee financial expert within the meaning of the applicable rules and regulations of the SEC and satisfies the financial sophistication requirements of the Nasdaq listing rules.
Our Audit Committee oversees our corporate accounting and financial reporting process and assists our Board in monitoring our financial systems and our legal and regulatory compliance. Our Audit Committee also:
Our Audit Committee operates under a written charter approved by our Board and that satisfies the applicable rules and regulations of the SEC and the listing requirements of Nasdaq. The charter is available on the corporate governance section of our website, which is located at www.invobio.com.
Item 11. Executive and Director Compensation
Summary Compensation Table
The following Summary Compensation Table sets forth,information required by this Item 11 is incorporated by reference to our definitive Proxy Statement for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by2023 Annual Meeting of Stockholders to be filed with the Company’s “named executive officers” for SEC reporting purposes.
SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Award ($) | All other Compensation ($) | Total ($) | |||||||||||||||||||||
Steven Shum | 2021 | 260,000 | 37,500 | - | (9) | - | (9) | - | 297,500 | |||||||||||||||||||
Chief Executive Officer (1) | 2020 | 260,000 | 75,000 | 67,093 | (2) | - | - | 402,093 | ||||||||||||||||||||
Andrea Goren | 2021 | 171,458 | (3) | 76,275 | (4) | 36,875 | (5)(11) | (11) | 269,608 | |||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||
Michael Campbell | 2021 | 220,000 | 110,000 | - | (10) | - | (10) | - | 330,000 | |||||||||||||||||||
Chief Operating Officer | 2020 | 218,125 | 87,500 | 221,400 | (6) | 742,542 | (7) | - | 1,269,567 | |||||||||||||||||||
Vice President, Business Development | ||||||||||||||||||||||||||||
Debra Hoopes | 2020 | - | - | - | - | 106,544 | (8) | 106,544 | ||||||||||||||||||||
Acting Chief Financial Officer |
OUTSTANDING EQUITY AWARDS AT END OF 2021
The following table provides information about outstanding stock options issued by the Company held by each of our NEOs aswithin 120 days of December 31, 2021. None of our NEOs held any other equity awards from the Company as of December 31, 2021.2022.
Option Awards | Stock Awards | |||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Stock That Has Not Yet Vested | Market Value of Stock that has not Yet Vested | ||||||||||||||||
Steve Shum | 209,419 | 176,278 | 3.06-8.16 | 10/16/22-12/31/30 | - | - | ||||||||||||||||
Andrea Goren | 76,736 | 158,264 | 5.21-5.76 | 06/27/31-08/10/30 | 2,500 | 8,325 | ||||||||||||||||
Michael Campbell | 177,888 | 115,210 | 3.06-8.07 | 01/17/30-12/31/30 | - | - |
Employment Agreements
Steven Shum
On October 16, 2019, the Company entered into an employment agreement with Steven Shum (the “Shum Employment Agreement”), pursuant to which Mr. Shum serves as Chief Executive Officer on an at-will basis at an annual base salary of $260,000. The Shum Employment Agreement provided for a performance bonus of $75,000 upon a successful up-listing to the Nasdaq Stock Market, with all other bonuses to be determined by the board in its sole discretion. In addition to his base salary and performance bonus, we granted Mr. Shum: (i) 12,500 shares of our common stock and (ii) a three-year option to purchase 202,599 shares of our common stock at an exercise price of $8.1600 per share. These options vest monthly over a 3-year period. Pursuant to the Shum Employment Agreement, Mr. Shum is also entitled to customary benefits, including health insurance and participation in employee benefit plans. The Shum Employment Agreement provides that if Mr. Shum is terminated without cause (as defined in the Shum Employment Agreement) or he resigns his employment due to a constructive termination (as defined in the Shum Employment Agreement) then he will be entitled to receive, as severance, (a) 12 month’s base salary continuation, (b) 6 months reimbursement of payments for continuing health coverage, pursuant to COBRA, assuming you elect COBRA continuation, and (c) continued vesting of his shares for a period of 6 months following such employment termination.
Andrea Goren
On June 14, 2021, the Company entered into an employment agreement with Andrea Goren (the “Goren Employment Agreement”), pursuant to which Mr. Goren was hired as the Company’s chief financial officer. The Goren Employment Agreement provides for an annual base salary of $215,000 and a target annual incentive bonus of up to 50% of base salary if the Company achieves goals and objectives determined by the board of directors. In connection with the Goren Employment Agreement, on June 14, 2021 the Company granted Mr. Goren a stock option under the 2019 Plan to purchase 72,500 shares of Company common stock (the “Goren Option”). The Goren option vests in equal monthly installments over a 3-year period, has a term of 10 years and can be exercised at a price of $5.205 per share. Also, in connection with the Goren Employment Agreement, as of July 1, 2021, Mr. Goren was granted a restricted stock award for 5,000 share of Company common stock (the “Goren RSA”). The Goren RSA vests in equal monthly installments over a 12-month period. Mr. Goren is also entitled to customary benefits, including health insurance and participation in employee benefit plans. The Goren Employment Agreement provides that if Mr. Goren terminates the Goren Employment Agreement for “cause” (as defined in the Goren Employment Agreement) or the Company terminates the Goren Employment Agreement without “cause,” then he will continue to receive his base salary for three months after termination and certain insurance benefits for twelve months after termination. The Company may terminate the Goren Employment Agreement without “cause” on 30 days’ notice.
Michael Campbell
On January 15, 2020, the Company entered into an employment agreement (the “Campbell Employment Agreement”) with Michael Campbell to continue serving as the Company’s Chief Operating Officer and Vice President of Business Development. The Campbell Employment Agreement provides for an annual base salary of $220,000, and a target annual incentive bonus of up to 50% of base salary if the Company achieves goals and objectives determined by the board of directors. In connection with the Campbell Employment Agreement, on January 17, 2020, the Company granted Mr. Campbell 31,250 shares of Company common stock, and an option to purchase 125,000 shares of Company common stock (the “Option”) at an exercise price of $6.84096 per share. One quarter of the Option vested upon grant, and the remainder vests in monthly increments over a period of two years from the date of grant. Mr. Campbell is also entitled to customary benefits, including health insurance and participation in employee benefit plans. The Campbell Employment Agreement provides that if Mr. Campbell terminates the Campbell Employment Agreement for “cause” (as defined in the Campbell Employment Agreement) or the Company terminates the Campbell Employment Agreement without “cause,” then he will continue to receive his base salary and certain insurance benefits for three months after termination. The Company may terminate the Campbell Employment Agreement without “cause” on 60 days’ notice.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
If Mr. Shum is involuntarily terminated without cause or constructively terminated (in each case, as defined in the Shum Employment Agreement), then he is entitled to 12 months’ severance and continued vesting of his shares for a period of 6-months following termination.
If (i) Mr. Goren terminates his employment agreement for cause, (ii) the Company provides notice not to renew his employment agreement on any anniversary date, or (iii) the Company terminates his employment agreement without cause, then he is entitled to three months’ severance and insurance benefits.
If (i) Mr. Campbell terminates his employment agreement for cause, (ii) the Company provides notice not to renew his employment agreement on any anniversary date, or (iii) the Company terminates his employment agreement without cause, then he is entitled to three months’ severance and insurance benefits.
The following table sets forth quantitative information with respect to potential payments to be made to either Mr. Shum, Mr. Goren and Mr. Campbell upon termination in various circumstances. The potential payments are based on the terms of each of the employment agreements discussed above. For a more detailed description of the employment agreements, see the “Employment Agreements” section above.
Name | Potential Payment Upon Termination | |||||||
($) | Option Awards (#) | |||||||
Steven Shum | $ | 260,000 | (1) | 176,278 | (2) | |||
Andrea Goren | $ | 53,750 | (3) | 85,764 | (4) | |||
Michael Campbell | $ | 55,000 | (5) | 113,906 | (6) |
Compensation of Directors
DIRECTOR COMPENSATION TABLE
Name | Year | Non-employee Compensation ($) | Stock Award ($) | Option Award ($) | All other Compensation ($) | Total ($) | ||||||||||||||||||
Trent Davis | 2021 | 42,500 | 32,000 | 32,000 | - | 106,000 | ||||||||||||||||||
2020 | 25,000 | 25,000 | 19,613 | - | 69,613 | |||||||||||||||||||
Kevin Doody | 2021 | 25,000 | 25,002 | 25,000 | - | 75,002 | ||||||||||||||||||
2020 | 25,000 | 25,000 | 19,613 | - | 69,613 | |||||||||||||||||||
Michael Campbell | 2021 | - | - | - | - | - | ||||||||||||||||||
Former Director | 2020 | - | - | 19,613 | - | 19,613 | ||||||||||||||||||
Kathleen Karloff | 2021 | - | - | - | - | - | ||||||||||||||||||
Former Director | 2020 | - | - | 19,613 | - | 19,613 | ||||||||||||||||||
Steven Shum | 2021 | - | - | - | - | - | ||||||||||||||||||
2020 | - | - | 19,613 | - | 19,613 | |||||||||||||||||||
Barbara Ryan | 2021 | 40,000 | 31,002 | 31,000 | - | 102,002 | ||||||||||||||||||
2020 | 7,397 | 7,397 | 7,326 | - | 22,120 | |||||||||||||||||||
Jeffrey Segal | 2021 | 30,000 | 27,000 | 27,001 | - | 84,001 | ||||||||||||||||||
2020 | 3,630 | 3,630 | 3,595 | - | 10,855 | |||||||||||||||||||
Matthew Szot | 2021 | 55,000 | 37,002 | 37,002 | - | 129,004 | ||||||||||||||||||
2020 | 7,466 | 7,467 | 7,396 | - | 22,329 | |||||||||||||||||||
Rebecca Messina | 2021 | 22,417 | 20,666 | 22,897 | - | 65,980 |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table shows information regarding our equity compensation plans as of December 31, 2021.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (c) | |||||||||
Equity compensation plans approved by security holders (1) | 592,772 | (2) | $ | 5.09 | 9,002 | |||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total | 592,772 | $ | 5.09 | 9,002 |
(1) 2019 Stock Incentive Plan. On October 3, 2019, our Board adopted the 2019 Stock Incentive Plan (the “Plan”). The purpose of our Plan is to advance the best interests of the company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 1,371,449 shares, subject to adjustment.
(2) We granted 225,402 shares subject to restricted stock grants under the Plan in the year ended December 31, 2021.
Our Board administers our plan and has full power to grant stock options and common stock, construe and interpret the plan, establish rules and regulations and perform all other acts, including the delegation of administrative responsibilities, it believes reasonable and proper. Any decision made, or action taken, by our Board arising out of or in connection with the interpretation and administration of the plan is final and conclusive.
The Board, in its absolute discretion, may award common stock to employees of, consultants to, and directors of the company, and such other persons as the Board or compensation committee may select, and permit holders of common stock options to exercise such options prior to full vesting therein and hold the common stock issued upon exercise of the option as common stock. Stock options may also be granted by our Board or compensation committee to non-employee directors of the company or other persons who are performing or who have been engaged to perform services of special importance to the management, operation or development of the company.
In the event that our outstanding common stock is changed into or exchanged for a different number or kind of shares or other securities of the company by reason of merger, consolidation, other reorganization, recapitalization, combination of shares, stock split-up or stock dividend, prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to stock options which may be granted under the plan.
Our Board may at any time, and from time to time, suspend or terminate the plan in whole or in part or amend it from time to time in such respects as our Board may deem appropriate and in our best interest.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table and notes set forth the beneficial ownership of the common stock of the Company as of March 31, 2022,information required by each person who was knownthis Item 12 is incorporated by the Company to beneficially own more than 5% of the common stock, by each director and named executive officer, and by all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or dispositive power with respect to the securities. Unless otherwise indicated below,reference to our knowledge, all persons listed below have sole voting and dispositive power with respectdefinitive Proxy Statement for the 2023 Annual Meeting of Stockholders to their shares of our common stock, except to the extent authority is shared by spouses under applicable law. Unless otherwise noted, the address of all of the individuals and entities named below is care of INVO Bioscience, Inc., 5582 Broadcast Court Sarasota, Florida, 34240.
The following table sets forth the beneficial ownership of our common shares as of March 31, 2022 for:
The percentage ownership information is based upon 12,089,298 common shares outstanding as of March 31, 2022. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. The address for persons listed in the table is c/o INVO Bioscience, Inc., 5582 Broadcast Court, Sarasota, FL 34240.
Name and Address of Beneficial Owner (1) | Number of Shares | Percentage of Common Stock | ||||||
5% Stockholders: | ||||||||
AWM Investment Company, Inc. (2) | 1,159,075 | 9.59 | % | |||||
Claude Ranoux (3) | 766,189 | 6.34 | % | |||||
Officers and Directors | ||||||||
Steven Shum | 325,818 | (4) | 2.40 | % | ||||
Michael Campbell | 261,301 | (5) | 2.03 | % | ||||
Andrea Goren | 213,673 | (6) | 1.17 | % | ||||
Kevin Doody | 194,380 | (7) | 0.30 | % | ||||
Trent Davis | 43,138 | (8) | 0.36 | % | ||||
Barbara Ryan | 40,422 | (9) | 0.33 | % | ||||
Matthew Szot | 47,393 | (10) | 0.39 | % | ||||
Jeffrey Segal | 34,223 | (11) | 0.28 | % | ||||
Rebecca Messina | 22,722 | (12) | 0.19 | % | ||||
All directors and executive officers as a group (9 persons) | 1,183,071 | 7.45 | % |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors to filebe filed with the SEC reportswithin 120 days of ownership on Form 3 and changes in ownership on Form 4 and Form 5. Officers and directors are required by Commission regulations to furnish to us copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, to our knowledge all Section 16(a) filing requirements applicable to our officers and directors were timely filed during the fiscal year ended December 31, 2021.2022.
Changes in Control
There are no present arrangements, including pledges of the Company’s securities, known to the Company, the operation of which may result at a subsequent date in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
Related Party Transactions Policy and Procedures
We have adopted a written policy with respectThe information required by this Item 13 is incorporated by reference to the review, approval, and ratification of related party transactions. Under the policy, any transactions where the amount involved exceeds the lesser of $120,000 or one percent (1%) of the average of our total assets at year-enddefinitive Proxy Statement for the last two completed fiscal years and in which any related person has or will have a direct or indirect material interest, other than equity and other compensation, termination and other arrangements which are described under2023 Annual Meeting of Stockholders to be filed with the headings “CompensationSEC within 120 days of Directors” and “Executive and Director Compensation,” is defined as a related party transaction. Any such related party transactions are reviewed and must be approved by the Company’s board of directors.December 31, 2022.
Certain Related Party Transactions
In November 2020, Paulson Investment Company served as a co-managing underwriter for the Company’s underwritten public offering and received fee and commissions for such role in the amount of $271,440. Trent Davis, one of our directors is President of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and commissions received by Paulson.
In October 2021, Paulson Investment Company served as a placement agent for the Company’s registered direct offering and received fees and commissions for such role in the amount of $323,584. Trent Davis, one of the Company’s directors, is President of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and commissions received by Paulson. Steve Shum and Andrea Goren, the CEO and CFO of the Company, respectively, each purchased 30,674 shares in the registered direct offering for gross proceeds of $199,994.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 is incorporated by reference to our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022.
The following table summarizes the approximate aggregate fees billed to the Company or expected to be billed to the Company by its independent registered accounting firm:
Fiscal Year Ended December 31,2021 | Fiscal Year Ended December 31, 2020 | |||||||
Audit Fees (a) | $ | 63,875 | $ | 45,450 | ||||
Audit Related fees (b) | $ | - | $ | 12,096 |
The Company’s Board of Directors has adopted a procedure for pre-approval of all fees charged by the Company’s independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of the Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit fees paid to the auditors with respect to fiscal year 2021 and 2020 were pre-approved by the entire Board of Directors.
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The following are filed as a part of this report:
1. Financial Statements
2. Financial Statement Schedules
Information required by Schedule II is shown in the Notes to Consolidated Financial Statements. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) Exhibits
EXHIBIT INDEX
* Filed herewith
** Furnished herewith
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this reportAnnual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on March 31, 2022.April 17, 2023.
INVO Bioscience, Inc. | ||
Date: | By: | /s/ Steven Shum |
Steven Shum | ||
Chief Executive Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 31, 2022.April 17, 2023.
Signature | ||
/s/ Steven Shum | Chief Executive Officer and director | |
Steven Shum |
(Principal Executive Officer) | |
/s/ Andrea Goren | Chief Financial Officer | |
Andrea Goren |
(Principal Financial and Accounting Officer) | |
/s/ Matthew Szot | ||
Matthew Szot | ||
Director | ||
/s/ Trent Davis | ||
Trent Davis | Director | |
/s/ Barbara Ryan | ||
Barbara Ryan | Director | |
/s/ | ||
Rebecca Messina | Director |