UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For
the fiscal year ended |
or
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the transition period from to |
(Exact name of registrant as specified in Charter)
| (State or other jurisdiction of incorporation or organization) | (Commission File No.) |
(IRS Employee Identification No.) |
(Address of Principal Executive Offices)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ ☒
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 ☐ ☒
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. ☒ 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). ☒ 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 ☐ |
| 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.
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.
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, 2023 was $
The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of April 16, 2024 was .
DOCUMENTS INCORPORATED BY REFERENCE
Explanatory Note
In addition, Footnote 8 of the financial statements is being amended to state that the noncompetition agreements were deemed to have a useful life of 5 years instead of 15 years.
Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, respectively, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing. Accordingly, this Amendment should be read in conjunction with our Original Filing and our other filings made with the SEC subsequent to the filing of the Form 10-K.
FORM 10-K
Part II
Item 8. Financial Statements and Supplementary Data
| 3 |
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, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Transactions and Improper Revenue Recognition
As discussed in Note 1 to the consolidated financial statements, the Company recognizes 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 revenue standard. The model has a five-step approach:
Identify the contract with the customer.
Identify the performance obligations in the contract.
Determine the total transaction price.
Allocate the total transaction price to each performance obligation in the contract.
Recognize as revenue when (or as) each performance obligation is satisfied.
Auditing management’s evaluation of revenue from contracts with customers involves significant judgment, given the fact that the agreements require management’s evaluation, identification of the contract and the performance obligation, the total transaction price and the allocation of the total transaction price, the determination of when the performance obligation is satisfied, and consideration that revenue is an inherent fraud risk.
To evaluate the appropriateness and accuracy of the assessment by management, we evaluated management’s assessment in relationship to the relevant agreements.
/s/
M&K CPAS, PLLC
PCAOB ID: 2738
We have served as the Company’s auditor since 2019.
April 16, 2024
| F-1 |
INVO BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Lease right of use | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Investment in NAYA | ||||||||
| Equity investments | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accrued compensation | ||||||||
| Notes payable - current portion, net | ||||||||
| Notes payable - related party, net | ||||||||
| Deferred revenue | ||||||||
| Lease liability, current portion | ||||||||
| Additional payments for acquisition, current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Notes payable – net of current portion | ||||||||
| Deferred tax liability | ||||||||
| Additional payments for acquisition, net of current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Series B Preferred Stock, $ par value; shares authorized; and issued and outstanding as of December 31, 2023 and 2022, respectively. | ||||||||
| Common Stock, $ par value; shares authorized; and issued and outstanding as of December 31, 2023 and 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| Clinic revenue | ||||||||
| Product revenue | ||||||||
| Total revenue | ||||||||
| Operating expenses: | ||||||||
| Cost of revenue | ||||||||
| Selling, general and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Loss from equity method joint ventures | ( | ) | ( | ) | ||||
| Impairment from equity method joint venture | ( | ) | ||||||
| Loss from debt extinguishment | ( | ) | ||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Foreign currency exchange loss | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share: | ||||||||
| Basic | ( | ) | ( | ) | ||||
| Diluted | ( | ) | ( | ) | ||||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
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 | Preferred Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common stock issued to directors and employees | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Proceeds from the sale of common stock, net of fees and expenses | ||||||||||||||||||||||||||||
| Stock options issued to directors and employees as compensation | - | - | ||||||||||||||||||||||||||
| Warrants issued with notes payable | - | - | ||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued to directors and/or employees | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Preferred stock issued | ( | ) | ||||||||||||||||||||||||||
| Proceeds from the sale of common stock, net of fees and expenses | ||||||||||||||||||||||||||||
| Common stock issued for liability settlement | ||||||||||||||||||||||||||||
| Common stock issued with notes payable | ||||||||||||||||||||||||||||
| Options exercised for cash | ||||||||||||||||||||||||||||
| Warrants exercised (cashless) | ( | ) | ||||||||||||||||||||||||||
| Prefunded warrant exercise | ||||||||||||||||||||||||||||
| Stock options issued to directors and employees as compensation | - | - | ||||||||||||||||||||||||||
| Warrants issued with notes payable | - | - | ||||||||||||||||||||||||||
| Rounding for reverse split | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances, December 31, 2023 | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Non-cash stock compensation issued for services | ||||||||
| Non-cash stock compensation issued to directors and/or employees | ||||||||
| Fair value of stock options issued to employees | ||||||||
| Non-cash compensation for services | ||||||||
| Amortization of discount on notes payable | ||||||||
| Loss on impairment of intangible assets | ||||||||
| Loss from equity method investment | ||||||||
| Impairment from equity method joint venture | ||||||||
| Loss from debt extinguishment | ||||||||
| Depreciation and amortization | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued compensation | ( | ) | ||||||
| Deferred revenue | ||||||||
| Other current liabilities | ( | ) | ||||||
| Leasehold liability | ||||||||
| Accrued interest | ||||||||
| Deferred tax liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash used in investing activities: | ||||||||
| Payments to acquire property, plant, and equipment | ( | ) | ( | ) | ||||
| Payments to acquire intangible assets | ( | ) | ||||||
| Investment in joint ventures | ( | ) | ( | ) | ||||
| Payment for acquisitions | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash from financing activities: | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from notes payable – related parties | ||||||||
| Proceeds from the sale of common stock, net of offering costs | ||||||||
| Proceeds from warrant exercise | ||||||||
| Proceeds from option exercise | ||||||||
| Principal payments on notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Noncash activities: | ||||||||
| Fair value of warrants issued with debt | $ | $ | ||||||
| Fair value of common stock issued with debt | $ | $ | ||||||
| Fair value of shares issued for settlement of liability | $ | $ | ||||||
| Initial ROU asset and lease liability | $ | $ | ||||||
| Fair value of Series B preferred shares issued in exchange for shares of NAYA common stock | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
INVO BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
Note 1 – Summary of Significant Accounting Policies
Description of Business
INVO Bioscience, Inc. (“INVO” or the “Company”) is a healthcare services fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. The Company’s commercialization strategy is focused on the opening of dedicated “INVO Centers” offering the INVOcell and IVC procedure (with three centers in North America now operational), the acquisition of US-based, profitable in vitro fertilization (“IVF”) clinics (with one such clinic acquired in August 2023) and the sale and distribution of our technology solution into existing fertility clinics. The Company’s proprietary technology, INVOcell, is a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. This treatment solution is the world’s first intravaginal culture technique for the incubation of oocytes and sperm during fertilization and early embryo development.
Basis of Presentation
The accompanying consolidated financial statements present on a consolidated basis the accounts of the Company and its wholly owned subsidiaries and controlled affiliates. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets and the amount of consolidated net income (loss) that is attributable to the Company and to the noncontrolling interest in its consolidated statement of operations. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company uses the equity method of accounting when it owns an interest in an entity whereby it can exert significant influence over but cannot control the entity’s operations.
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
The Company considers events or transactions that have occurred after the consolidated balance sheet date of December 31, 2023, 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.
Reclassifications
Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows.
Business Segments
The
Company operates in
Business Acquisitions
The Company accounts for all business acquisitions at fair value and expenses acquisition costs as they are incurred. Any identifiable assets acquired and liabilities assumed are recognized and measured at their respective fair values on the acquisition date. If information about facts and circumstances existing as of the acquisition date is incomplete at the end of the reporting period in which a business acquisition occurs, the Company will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once the Company receives sufficient information to finalize the fair values; however, the period will not exceed one year from the acquisition date. Any adjustments to provisional amounts that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined.
Variable Interest Entities
The Company’s consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and variable interest entities (“VIE”), where the Company is the primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The Company reconsiders whether an entity is still a VIE only upon certain triggering events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary. See “Note 3 – Variable Interest Entities” for additional information on the Company’s VIEs.
| F-6 |
Equity Method Investments
Investments in unconsolidated affiliates, which the Company exerts significant influence but does not control or otherwise consolidate are accounted for using the equity method. Equity method investments are initially recorded at cost. These investments are included in investment in joint ventures in the accompanying consolidated balance sheets. The Company’s share of the profits and losses from these investments is reported in loss from equity method joint venture in the accompanying consolidated statements of operations. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the investees and records reductions in carrying values when necessary.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the 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
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 impairment recorded during the year ended December 31, 2023, and an impairment of $
| 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.
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, 2023, the Company did 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. |
| F-8 |
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.
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 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, 2023, and 2022, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss (numerator) | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted-average number of common shares outstanding (denominator) | ||||||||
| Basic and diluted net loss per common share | ) | ) | ||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Options | ||||||||
| Convertible notes and interest | ||||||||
| Convertible preferred shares | ||||||||
| Unit purchase options and warrants | ||||||||
| Total | ||||||||
| F-9 |
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 revenue collection, equity financings, notes, and convertible notes. For
the years ended December 31, 2023 and 2022, the Company incurred a net loss of approximately $
The
Company has been dependent on raising capital through debt and equity financings to meet its needs for cash used in operating and
investing activities. During 2022, the Company received proceeds of $
Although the Company’s audited consolidated financial statements for the year ended December 31, 2023 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, 2023 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 – Business Combinations
Wisconsin Fertility Institute
On
August 10, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Buyer”) and wholly owned
subsidiary of INVO Centers LLC (“INVO CTR”), a Delaware company wholly-owned by INVO, consummated its acquisition of the
Wisconsin Fertility Institute (“WFI”) for a combined purchase price of $
WFI is comprised of (a) a medical practice, Wisconsin Fertility and Reproductive Surgery Associates, S.C., a Wisconsin professional service corporation d/b/a Wisconsin Fertility Institute (“WFRSA”), and (b) a laboratory services company, Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”). WFRSA owns, operates and manages WFI’s fertility practice that provides direct treatment to patients focused on fertility, gynecology and obstetrics care and surgical procedures, and employs physicians and other healthcare providers to deliver such services and procedures. FLOW provides WFRSA with related laboratory services.
INVO purchased the non-medical assets of WFRSA and one hundred percent of FLOW’s membership interests. The Buyer and WFRSA entered into a management services agreement pursuant to which WFRSA outsourced all its non-medical activities to the Buyer.
The Company’s consolidated financial statements for the year ended December 31, 2023 include WFI’s results of operations. For the year ended December 31, 2023, WFI’s results of operations are included from the acquisition date of August 10, 2023 through December 31, 2023. The Company’s consolidated financial statements reflect the preliminary purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.
| F-10 |
The following allocation of the purchase price is as follows:
| Consideration given: | ||||
| Cash | ||||
| Holdback | ||||
| Additional payments | ||||
| Assets and liabilities acquired: | ||||
| FLOW intercompany receivable | ||||
| Accounts receivable | ||||
| Property and equipment, net | ||||
| Other current assets | ||||
| Tradename | ||||
| Noncompetition agreement | ||||
| Goodwill | ||||
| Deferred revenue | ( | ) | ||
| WFRSA intercompany note | ( | ) | ||
Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the years ended December 31, 2023 and 2022 assume the acquisition was completed on January 1, 2022:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Pro forma revenue | ||||||||
| Pro forma net loss | ( | ) | ( | ) | ||||
Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results. The share and per share data have been retroactively reflected for the acquisition.
As of December 31, 2023, the Company has $
Note 4 – Variable Interest Entities
Consolidated VIEs
Bloom INVO, LLC
On June 28, 2021, INVO Centers 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 $
The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR also performs all required, industry specific compliance and accreditation functions, and product documentation for product registration.
| F-11 |
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 $
The Georgia JV opened to patients on September 7, 2021.
The
Company determined the Georgia JV is a VIE, and that the Company is its primary beneficiary because the Company has an obligation to
absorb losses that are potentially significant and the Company controls the majority of the activities that impact the Georgia JV’s
economic performance, specifically control of the INVOcell and lab services quality management. As a result, the Company consolidated
the Georgia JV’s results with its own. As of December 31, 2023, the Company invested $
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
The Alabama JV opened to patients on August 9, 2021.
The
Company determined the Alabama JV is a VIE, and that there is no primary beneficiary. As a result, the Company uses the equity method
to account for its interest in the Alabama JV. As of December 31, 2023, the Company invested $
Positib Fertility, S.A. de C.V.
On September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”).
The Mexico JV opened to patients on November 1, 2021.
The
Company determined the Mexico JV is a VIE, and that there is no primary beneficiary. As a result, the Company uses the equity method
to account for its interest in the Mexico JV. As of December 31, 2023, the Company invested $
| F-12 |
The following table summarizes our investments in unconsolidated VIEs:
| Carrying Value as of | ||||||||||||||
| Location | Percentage Ownership | December 31, 2023 | December 31, 2022 | |||||||||||
| HRCFG INVO, LLC | Alabama, United States | % | $ | |||||||||||
| Positib Fertility, S.A. de C.V. | Mexico | % | ||||||||||||
| Total investment in unconsolidated VIEs | $ | |||||||||||||
Earnings from investments in unconsolidated VIEs were as follows:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| HRCFG INVO, LLC | $ | ( | ) | ( | ) | |||
| Positib Fertility, S.A. de C.V. | ( | ) | ( | ) | ||||
| Total earnings from unconsolidated VIEs | $ | ( | ) | ( | ) | |||
The following tables summarize the combined unaudited financial information of our investments in unconsolidated VIEs:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Statements of operations: | ||||||||
| Operating revenue | $ | |||||||
| Operating expenses | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | ( | ) | |||
| December 31, 2023 | December 31, 2022 | |||||||
| Balance sheets: | ||||||||
| Current assets | $ | |||||||
| Long-term assets | ||||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Long-term liabilities | ( | ) | ( | ) | ||||
| Net assets | $ | |||||||
Note 5 – Agreements and Transactions with VIE’s
The Company sells the INVOcell to its consolidated and unconsolidated VIEs and anticipates continuing to do so in the ordinary course of business. All intercompany transactions with consolidated entities are eliminated in the Company’s consolidated financial statements. Per ASC 323-10-35-8 the Company eliminates any sales to an unconsolidated VIE for INVOcell inventory that the VIE still has remaining on the books at period end.
The following table summarizes the Company’s transactions with VIEs:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Bloom Invo, LLC | ||||||||
| INVOcell revenue | $ | |||||||
| Unconsolidated VIEs | ||||||||
| INVOcell revenue | $ | |||||||
The Company had balances with VIEs as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Bloom Invo, LLC | ||||||||
| Accounts receivable | $ | |||||||
| Notes payable | ||||||||
| Unconsolidated VIEs | ||||||||
| Accounts receivable | $ | |||||||
| F-13 |
Note 6 – Inventory
Components of inventory are:
| December 31, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Note 7 – Property and Equipment
The estimated useful lives and accumulated depreciation for equipment are as follows as of December 31, 2023, and December 31, 2022:
| Estimated Useful Life | ||
| Manufacturing equipment | ||
| Medical equipment | ||
| Office equipment |
| December 31, 2023 | December 31, 2022 | |||||||
| Manufacturing equipment | $ | $ | ||||||
| Medical equipment | ||||||||
| Office equipment | ||||||||
| Leasehold improvements | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total equipment, net | $ | $ | ||||||
During
each of the years ended December 31, 2023, and 2022, the Company recorded depreciation expense of $
Note 8 – Intangible Assets & Goodwill
Components of intangible assets are as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Tradename | $ | $ | ||||||
| Noncompetition agreement | ||||||||
| Goodwill | ||||||||
| Less: accumulated amortization | ( | ) | ||||||
| Total intangible assets | $ | $ | ||||||
The Company capitalizes the initial expense related to establishing patents by country and then amortizes the expense over the life of the patent, typically 20 years. It then expenses annual filing fees to maintain the patents. The Company regularly reviews the value of its patents in the marketplace in proportion to the expense it must spend to maintain the patent. The Company fully impaired its patents as of December 31, 2022.
During
the years ended December 31, 2023, and 2022, the Company recorded amortization expenses related to patents of $
The trademarks have an indefinite life and therefore are not amortized. Trademarks are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. The Company fully impaired its trademarks related to the INVO name as of December 31, 2022.
As part of the acquisition of Wisconsin
Fertility Institute, that closed on August 10, 2023, the Company acquired tradename valued at $
Goodwill has an indefinite useful life and is therefore not amortized.The Company reviewed and found no indicators for impairment of the intangible assets related to the acquisition of Wisconsin Fertility Institute as of December 31, 2023.
| F-14 |
Note 9 – Leases
The Company has various operating lease agreements in place for its office and joint ventures. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2019, the Company is required to report a right-of-use asset and corresponding liability to report the present value of the total lease payments, with appropriate interest calculation. Per the terms of ASU 2016-02, the Company can use its implicit interest rate, if known, or applicable federal rate otherwise. Since the Company’s implicit interest rate was not readily determinable, the Company utilized the applicable federal rate, as of the commencement of the lease. Lease renewal options included in any lease are considered in the lease term if it is reasonably certain the Company will exercise the option to renew. The Company’s operating lease agreements do not contain any material restrictive covenants.
As of December 31, 2023, the Company’s lease components included in the consolidated balance sheet were as follows:
| Lease component | Balance sheet classification | December
31, 2023 | ||||
| Assets | ||||||
| ROU assets - operating lease | Other assets | $ | ||||
| Total ROU assets | $ | |||||
| Liabilities | ||||||
| Current operating lease liability | Current liabilities | $ | ||||
| Long-term operating lease liability | Other liabilities | |||||
| Total lease liabilities | $ | |||||
Future minimum lease payments as of December 31, 2023 were as follows:
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and beyond | ||||
| Total future minimum lease payments | $ | |||
| Less: Interest | ( |
) | ||
| Total operating lease liabilities | $ |
| F-15 |
Note 10 – Notes Payable
Notes payables consisted of the following:
| December 31, 2023 | December 31, 2022 | |||||||
| Note
payable. | $ | $ | ||||||
| Related
party demand notes with a | ||||||||
| Convertible
notes. | ||||||||
| Cash advance agreement | ||||||||
| Less debt discount and financing costs | $ | ( | ) | $ | ( | ) | ||
| Total, net of discount | ||||||||
Related Party Demand Notes
In
the fourth quarter of 2022, the Company received $
In
consideration for subscribing to the JAG Note for $
In
the fourth quarter of 2022, the Company received $
The financing fees for all demand notes were recorded as a debt discount and as of December 31, 2023 the Company had fully amortized the discount.
For
the year ended December 31, 2023, the Company incurred $
Jan and March 2023 Convertible Notes
In
January and March 2023, the Company issued $
The
cumulative fair value of the warrants at issuance was $
Interest
on these notes accrues at a rate of ten percent (
All amounts due under these notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders into the Common Stock at a fixed conversion price for the notes as described above.
As of December 27, 2023, the Company secured written consent by the note holders of the Q1 23 Convertible Notes for the maturity date
to be extended to June 30, 2024. As an incentive for the Q1 23 Convertible Note holders to approve the extension, the Company agreed to
lower both the Q1 23 Convertible Notes fixed conversion price and the related warrant exercise price to $
| F-16 |
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 $
The
cumulative fair value of the warrants at issuance was $
Pursuant
to the February Debentures, interest on the February Debentures accrued at a rate of eight percent (
All amounts due under the February Debentures were convertible at any time after the issuance date, in whole or in part, at the option of the February Investors into Common Stock at an initial price of per share. This conversion price was subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments and is subject to a floor price.
The
Company could prepay the February Debentures at any time in whole or in part by paying a sum of money equal to
While
any portion of each February Debenture remained outstanding, if the Company received cash proceeds of more than $
The
February Warrants included anti-dilution protection whereby a subsequent offering priced below the February Warrants’ strike price
then in effect would entitle the February Investors to a reduction of such strike price to the price of such subsequent offering and
an increase in the February Warrant Shares determined by dividing the dollar amount for which the February Warrants are exercisable by
such lower strike price. As a result of the $
Standard Merchant Cash Advance
On
July 20, 2023, the Company entered into a Standard Merchant Cash Advance Agreement (the “Cash Advance Agreement”) with Cedar
Advance LLC (“Cedar”) under which Cedar purchased $
| F-17 |
On
August 31, 2023, the Company refinanced the Initial Advance through the purchase by Cedar of $
The
financing fees were recorded as a debt discount. For the year ended December 31, 2023 the Company amortized $
Revenue Loan and Security Agreement
On
September 29, 2023, the Company, Steven Shum, as a Key Person, and the Company’s wholly-owned subsidiaries Bio X Cell, Inc, INVO
CTR, Wood Violet Fertility LLC, FLOW and Orange Blossom Fertility LLC as guarantors (the “Guarantors”), entered into a Revenue
Loan and Security Agreement (the “Loan Agreement”) with Decathlon Alpha V LP (the “Lender”) under which the Lender
advanced a gross amount of $
The
financing fees for the RSLA Loan were recorded as a debt discount. For the year ended December 31, 2023, the Company amortized
$
Note 11 – Related Party Transactions
In
the fourth quarter of 2022, the Company received $
As
of December 31, 2023 the Company owed accounts payable to related parties totaling $
| F-18 |
Note 12 – Stockholders’ Equity
Reverse Stock Split
On
June 28, 2023, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of
1-for-20 and also approved a proportionate decrease in its authorized common stock to shares from .
Increase in Authorized Common Stock
On October 13, 2023, shareholders of the Company approved an increase to the number of authorized shares of the Company’s common stock from shares to shares as set forth below. On October 13, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock from shares to shares.
Series A Preferred Stock
On November 20, 2023, the Company filed with the Nevada Secretary of State a Certificate of Designation of Series A Convertible Preferred Stock (the “Series A Certificate of Designation”) which sets forth the rights, preferences, and privileges of the Series A Preferred Stock (the “Series A Preferred”). One million () shares of Series A Preferred with a stated value of $ per share were authorized under the Series A Certificate of Designation.
Each
share of Series A Preferred has a stated value of $, which is convertible into shares of the Company’s common stock (the “Common
Stock”) at a fixed conversion price equal to $
Each share of Series A Preferred stock shall automatically convert into Common Stock upon the closing of a merger (the “Merger”) of INVO Merger Sub Inc., a wholly owned subsidiary of the Company and a Delaware corporation (“Merger Sub”), with and into NAYA Biosciences, Inc., a Delaware corporation (“NAYA”) pursuant to an Agreement and Plan of Merger, as amended, by and among the Company, Merger Sub, and NAYA (the “Merger Agreement”).
The holders of Series A Preferred shall be entitled to receive a pro-rata portion, on an as-if converted basis, of any dividends payable on Common Stock.
In the event of any voluntary or involuntary liquidation, dissolution, or winding up, or sale of the Company (other than the Merger), each holder of Series A Preferred shall be entitled to receive its pro rata portion of an aggregate payment equal to (i) $, multiplied by (ii) the total number of shares of Series A Preferred Stock issued under the Series A Certificate of Designation.
Other than those rights provided by law, the holders of Series A Preferred shall not have any voting rights.
On December 29, 2023, the Company entered into securities purchase agreement (the “Preferred Series A SPA”) with NAYA for the purchase of shares of the Company’s Series A Preferred Stock at a purchase price of $ per share. The parties agreed that NAYA’s purchases will be made in tranches in accordance with the following schedule: (1) $ no later than Dec 29, 2023; (2) $ no later than January 19, 2024; (3) $ no later than February 2, 2024; (4) $ no later than February 16, 2024; and (5) an additional amount as may be required prior to closing of the previously announced merger by and among the Company, INVO Merger Sub, Inc. and NAYA, and to be determined in good faith by the parties to adequately support the Company’s fertility business activities per an agreed forecast, as well as for a period of twelve (12) months post-closing including a catch-up on the Company’s past due accrued payables still outstanding. The Preferred Series A SPA contains customary representations, warranties and covenants of the Company and NAYA.
On
January 4, 2024, the Company and NAYA closed on shares of Series A Preferred Stock in the first tranche of this private offering
for gross proceeds of $
| F-19 |
Series B Preferred Stock
On November 20, 2023, the Company filed with the Nevada Secretary of State a Certificate of Designation of Series B Convertible Preferred Stock (the “Series B Certificate of Designation”) which sets forth the rights, preferences, and privileges of the Series B Preferred Stock (the “Series B Preferred”). One million two hundred () shares of Series B Preferred with a stated value of $ per share were authorized under the Series B Certificate of Designation.
Each
share of Series B Preferred has a stated value of $, which is convertible into shares of the Company’s common stock (the “Common
Stock”) at a fixed conversion price equal to $ per share, subject to adjustment. The Company may not effect the conversion
of any shares of Series B Preferred if, after giving effect to the conversion or issuance, the holder, together with its affiliates,
would beneficially own more than
Each share of Series B Preferred stock shall automatically convert into Common Stock upon the closing of the Merger.
The holders of Series B Preferred shall be entitled to receive a pro-rata portion, on an as-if converted basis, of any dividends payable on Common Stock.
In the event of any voluntary or involuntary liquidation, dissolution, or winding up, or sale of the Company (other than the previously announced merger with NAYA), each holder of Series B Preferred shall be entitled to receive its pro rata portion of an aggregate payment equal to (i) $, multiplied by (ii) the total number of shares of Series B Preferred Stock issued under the Series B Certificate of Designation.
Other than those rights provided by law, the holders of Series B Preferred shall not have any voting rights.
On November 19, 2023, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Cytovia Therapeutics Holdings, Inc., a Delaware corporation (“Cytovia”) for Cytovia’s acquisition of shares of the Company’s newly designated Series B Preferred Stock in exchange for shares of common stock of NAYA held by Cytovia (the “Share Exchange”). On November 20, 2023, the Company and Cytovia closed on the exchange of shares. As of December 31, 2023, the Company owns approximately % of the outstanding shares of NAYA’s common stock and had no significant control over NAYA therefore the asset is accounted for using the fair value method.
February 2023 Equity Purchase Agreement
On
February 3, 2023, the Company entered into an equity purchase agreement (the “ELOC”) and registration rights agreement (the
“ELOC RRA”) with an accredited investor (the “Feb 3 Investor”) pursuant to which the Company has the right, but
not the obligation, to direct the Feb 3 Investor to purchase up to $
Also on February 3, 2023, the Company issued to the Feb 3 Investor shares of Common Stock for its commitment to enter into the ELOC.
The obligation of the Feb 3 Investor to purchase shares of Common Stock pursuant to the ELOC ends on the earlier of (i) the date on which the purchases under the ELOC equal the Maximum Commitment Amount, (ii) 24 months after the date of the ELOC (February 3, 2025), (iii) written notice of termination by the Company, (iv) the date that the ELOC RRA is no longer effective after its initial effective date, or (v) the date that the Company commences a voluntary case or any person or entity commences a proceeding against the Company pursuant to or within the meaning of federal or state bankruptcy law, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
During the Commitment Period, and subject to the shares of Common Stock underlying the ELOC be registered, the price that Feb 3 Investor will pay to purchase the shares of Common Stock that it is obligated to purchase under the ELOC shall be 97% of the “market price,” which is defined as the lesser of (i) the lowest closing price of our Common Stock during the 7 trading day-period following the clearance date associated with the applicable put notice from the Company or (ii) the lowest closing bid price of the Common Stock on the principal trading market for the Common Stock (currently, the Nasdaq Capital Market) on the trading day immediately preceding a put date.
To date, the Company has not been in a position to register the shares underlying the ELOC as a result of standstill agreements related to the RD Offering and the August 2023 Offering (both as defined below).
| F-20 |
March 2023 Registered Direct Offering
On
March 23, 2023, INVO entered into a securities purchase agreement (the “March Purchase Agreement”) with a certain institutional
investor, pursuant to which the Company agreed to issue and sell to such investor (i) in a registered direct offering (the “RD
Offering”), shares of Common Stock, and a pre-funded warrant (the “Pre-Funded Warrant”) to purchase up to
The March Warrant (and the shares of Common Stock issuable upon the exercise of the March Warrant) was not registered under the Securities Act and was offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrant is immediately exercisable upon issuance, will expire eight years from the date of issuance, and in certain circumstances may be exercised on a cashless basis.
On
March 27, 2023, the Company closed the RD Offering and March Warrant Placement, raising gross proceeds of approximately $
August 2023 Public Offering
On
August 4, 2023, the Company, entered into securities purchase agreements (the “Purchase Agreements”) with certain institutional
and other investors, pursuant to which the Company agreed to issue and sell to such investors in a public offering (the “August
2023 Offering”), units (the “Units”) at a price of $ per Unit, with each Unit consisting of (i) one share
of Common Stock (the “Shares”) of the Company, and (ii) two common stock purchase warrants (the “Warrants”),
each exercisable for one share of Common Stock at an exercise price of $
The
Company closed the Offering on August 8, 2023, raising gross proceeds of approximately $
In
connection with the August 2023 Offering, on August 4, 2023, the Company entered into a placement agency agreement (the “Placement
Agency Agreement”) with Maxim Group LLC (the “Placement Agent”), pursuant to which (i) the Placement Agent agreed to
act as placement agent on a “best efforts” basis in connection with the August 2023 Offering and (ii) the Company agreed
to pay the Placement Agent an aggregate fee equal to
| F-21 |
The
August 2023 Offering was facilitated by the Company entering into an Amendment to Securities Purchase Agreement on July 7, 2023 (the
“Armistice Amendment”) with Armistice Capital Markets Ltd. to delete Section 4.12(a) of our March 23, 2023 Securities Purchase
Agreement (the “Armistice SPA”) with Armistice pursuant to which we agreed that from March 23, 2023 until 45 days after the
effective date of the Resale Registration Statement (as defined below) we would not (i) issue, enter into any agreement to issue or announce
the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents or (ii) file any registration statement or
any amendment or supplement thereto, other than the prospectus supplement filed in connection with that offering and the Resale Registration
Statement (the “Subsequent Equity Financing Provision”). In consideration of Armistice’s agreement to enter into the
Armistice Amendment and delete the Subsequent Equity Financing Provision from the Armistice SPA, we agreed to pay Armistice a fee a $
Year Ended December 31, 2023
During
2023, the Company issued shares of Common Stock to employees and directors and shares of Common Stock to consultants with
a fair value of $
During 2023, the Company issued shares of Common Stock to consultants in consideration of services rendered with a fair value of
$
During
2023, the Company issued shares of Common Stock upon the exercise of options. The Company received proceeds of $
In
February 2023, the Company issued shares of Common Stock with a fair value of $
In
February 2023, the Company shares of Common Stock in connection with the ELOC with a fair value of $
In
March 2023, the Company issued shares of Common Stock in the RD Offering and March Warrant Placement. The Company received net
proceeds of approximately $
In June 2023, the Company issued shares of Common Stock upon exercise
prefunded warrants. The Company received net proceeds of $
On July 11, 2023, the Company issued shares of Common Stock in consideration of a settlement with an unrelated third party. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Company did not receive any cash proceeds from this issuance.
In August 2023, the Company issued shares of Common Stock upon exercise of an existing warrant on a net-exercise basis. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) and/or 3(a)(9) of the Securities Act of 1933, as amended.
On
August 8, 2023, the Company issued shares of Common Stock in the August 2023 Offering. The Company received net proceeds of
approximately $
Equity Incentive Plans
In October 2019, the Company adopted the 2019 Plan. Under the 2019 Plan, the Company’s board of directors is authorized to grant stock options to purchase Common Stock, restricted stock units, and restricted shares of Common Stock to its employees, directors, and consultants. The 2019 Plan initially provided for the issuance of shares. . In January 2023, the number of available shares increased by shares bringing the total shares available under the 2019 Plan to .
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 three-year period.
| F-22 |
| Number
of Shares | Weighted
Average Exercise Price | Aggregate
Intrinsic Value | ||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Canceled | ||||||||||||
| Balance as of December 31, 2023 | ||||||||||||
| Exercisable as of December 31, 2023 | $ | $ | ||||||||||
| Years
ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Risk-free interest rate range | to | % | to | % | ||||
| Expected life of option-years | to | to | ||||||
| Expected stock price volatility | 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 | |||||||
| Year ended December 31, 2022 | $ | $ | ||||||
| Year ended December 31, 2023 | $ | $ | ||||||
For the year ended December 31, 2023, 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, 2023, the weighted average remaining service period is years.
Restricted Stock and Restricted Stock Units
In the year ended December 31, 2023, the Company granted in restricted stock units and shares of restricted stock to certain employees, directors, and consultants under the 2019 Plan. Restricted stock issued to employees, directors, and consultants generally vest either at grant or vest over a period of from the date of grant.
Number of Unvested Shares | Weighted Average Grant
Date | Aggregate Value of Shares | ||||||||||
| Balance as of December 31, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ( | ) | ||||||||
| Forfeitures | ||||||||||||
| Balance as of December 31, 2023 | ||||||||||||
The Company recognizes stock compensation expense on a straight-line basis
over the vesting period of the grant. If the restricted stock vests immediately, the corresponding stock compensation expense is recognized
immediately. For the year ended December 31, 2023, the Company recognized $
| F-23 |
Note 14 – Unit Purchase Options and Warrants
The following table sets forth the activity of unit purchase options:
| Number
of Unit Purchase Options | Weighted Average Exercise Price | Aggregate
Intrinsic Value | ||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Canceled | ||||||||||||
| Balance as of December 31, 2023 | ||||||||||||
The following table sets forth the activity of warrants:
| Number
of Warrants | Weighted
Average Exercise Price | Aggregate
Intrinsic Value | ||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Canceled | ||||||||||||
| Balance as of December 31, 2023 | $ | $ | ||||||||||
Warrants related to Jan and March 2023 Convertible Notes
In January and March 2023, the
Company issued
Warrants related to February 2023 Convertible Debentures
On February 3, and February 17, 2023, the Company
issued warrants (the “February Warrants”) to purchase shares (the “February Warrant Shares”) of Common
Stock at an exercise price of $
The February Warrants included
anti-dilution protection whereby a subsequent offering priced below the February Warrants’ strike price then in effect would entitle
the February Investors to a reduction of such strike price to the price of such subsequent offering and an increase in the February Warrant
Shares determined by dividing the dollar amount for which the February Warrants are exercisable by such lower strike price. As a result
of the $ unit purchase price of the August Public Offering, following consummation of the August Public Offering, the February Warrants
now entitle the February Investors to purchase a total
Warrants related to March 2023 Registered Direct Offering
On March 23, 2023, INVO entered into a securities
purchase agreement (the “March Purchase Agreement”) with a certain institutional investor, pursuant to which the Company agreed
to issue and sell to such investor (i) in a registered direct offering (the “RD Offering”), shares of Common Stock,
and a pre-funded warrant (the “Pre-Funded Warrant”) to purchase up to
The March Warrant (and the shares of Common Stock issuable upon the exercise of the March Warrant) was not registered under the Securities Act and was offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrant is immediately exercisable upon issuance, will expire eight years from the date of issuance, and in certain circumstances may be exercised on a cashless basis.
On July 7, 2023, we entered into an Amendment to Securities
Purchase Agreement (the “Armistice Amendment”) with Armistice Capital Markets Ltd. to delete Section 4.12(a) of our March
23, 2023 Securities Purchase Agreement (the “Armistice SPA”) with Armistice pursuant to which we agreed that from March 23,
2023 until 45 days after the effective date of the Resale Registration Statement (as defined below) we would not (i) issue, enter into
any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents or (ii)
file any registration statement or any amendment or supplement thereto, other than the prospectus supplement filed in connection with
that offering and the Resale Registration Statement (the “Subsequent Equity Financing Provision”). In consideration of Armistice’s
agreement to enter into the Armistice Amendment and delete the Subsequent Equity Financing Provision from the Armistice SPA, we agreed
to pay Armistice a fee a $
On December 26, 2023, INVO held its 2023 annual meeting of stockholders (the “2023 Annual Meeting”) whereby INVO’s stockholders voted on and approved the Exercise Price Reduction.
Warrants related to August 2023 Public Offering
On August 4, 2023, the Company, entered into securities
purchase agreements (the “Purchase Agreements”) with certain institutional and other investors, pursuant to which the Company
agreed to issue and sell to such investors in a public offering (the “August 2023 Offering”), units (the “Units”)
at a price of $ per Unit, with each Unit consisting of (i) one share of Common Stock (the “Shares”) of the Company, and
(ii) two common stock purchase warrants (the “Warrants”), each exercisable for one share of Common Stock at an exercise price
of $
In connection with the August 2023 Offering, on August
4, 2023, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with Maxim Group LLC (the
“Placement Agent”), pursuant to which (i) the Placement Agent agreed to act as placement agent on a “best efforts”
basis in connection with the August 2023 Offering and (ii) the Company agreed to pay the Placement Agent an aggregate fee equal to
| F-24 |
Note 15 – Income Taxes
The provision for income taxes consists of the following for the years ended December 31, 2023, and 2022:
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| Federal income taxes: | ||||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ||||||
| Total federal income taxes | ( | ) | ||||||
| State income taxes: | ||||||||
| Current | ||||||||
| Deferred | ( | ) | ||||||
| Total state income taxes | ||||||||
| Total income taxes | $ | $ | ||||||
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 2023 and 2022 federal statutory rate as compared to the effective income tax rate is as follows:
| December 31 | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Pre-Tax Book Income at Statutory Rate | $ | ( | ) | % | $ | ( | ) | % | ||||||||
| State Tax Expense, net | - | % | - | % | ||||||||||||
| Permanent Items | - | % | - | % | ||||||||||||
| Hanging Credit | % | - | ||||||||||||||
| True-Ups | ( | ) | % | ( | ) | % | ||||||||||
| Change in Federal Valuation Allowance | - | % | - | % | ||||||||||||
| Total Expense | $ | - | % | $ | - | % | ||||||||||
| F-25 |
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, 2023 and 2022, are as follows:
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Accrued Compensation | $ | $ | ||||||
| Amortization of Discount Notes Payable | ||||||||
| Lease (ASC 842) | ||||||||
| Charitable Contributions | ||||||||
| Stock Option Expense | ||||||||
| Restricted Stock Unit | ||||||||
| Net Operating Losses | ||||||||
| Org Costs | ||||||||
| -IRC Sec. 174 Expense | ||||||||
| Investment in HRCFG INVO, LLC | ( | ) | ||||||
| Equity in earnings - Positib | ( | ) | ||||||
| Gross deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Fixed Assets | ( | ) | ( | ) | ||||
| ROU Lease (ASC 842) | ( | ) | ( | ) | ||||
| Trademark Amortization | ( | ) | ( | ) | ||||
| Deferred Revenue | ( | ) | ( | ) | ||||
| Tax Amortization of Org Cost | ( | ) | ( | ) | ||||
| Gain/Loss on sale of assets | ( | ) | ( | ) | ||||
| Gross deferred tax liability | ( | ) | ( | ) | ||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax liability | $ | $ | ( | ) | ||||
The
Company recorded a full valuation allowance against its net deferred tax asset at December 31, 2023 and 2022 totaling $
As
of December 31, 2023, the Company has federal net operating loss carryforwards of approximately $
Note 16 – Commitments and Contingencies
Insurance
The Company’s insurance coverage is carried with third-party insurers and includes: (i) general liability insurance covering third-party exposures; (ii) statutory workers’ compensation insurance; (iv) excess liability insurance above the established primary limits for general liability and automobile liability insurance; (v) property insurance, which covers the replacement value of real and personal property and includes business interruption; and (vi) insurance covering our directors and officers for acts related to our business activities. All coverage is subject to certain limits and deductibles, the terms and conditions of which are common for companies with similar types of operations.
Legal Matters
The Company is not currently subject to any material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business, or legal proceedings it considered immaterial may in the future become material. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and can divert management resources.
| F-26 |
NAYA Biosciences Merger Agreement
On October 22, 2023, the Company, INVO Merger Sub Inc., a wholly owned subsidiary of the Company and a Delaware corporation (“Merger Sub”), and NAYA Biosciences, Inc., a Delaware corporation (“NAYA”), entered into an Agreement and Plan of Merger, as amended on October 25, 2023 (the “Merger Agreement”).
Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge (the “Merger”) with and into NAYA, with NAYA continuing as the surviving corporation and a wholly owned subsidiary of the Company.
At the effective time and as a result of the Merger, each share of Class A common stock, par value $ per share, of NAYA (the “NAYA common stock”) outstanding immediately prior to the effective time of the Merger, other than certain excluded shares held by NAYA as treasury stock or owned by the Company or Merger Sub, will be converted into the right to receive (subject to adjustment as set forth in the Merger Agreement) shares of a newly designated series of common stock, par value $ per share, of the Company which shall be entitled to ten (10) votes per each share (“Company Class B common stock”) for a total of approximately shares of the Company (together with cash proceeds from the sale of fractional shares, the “Merger Consideration”).
Immediately following the effective time of the Merger, Dr. Daniel Teper, NAYA’s current chairman and chief executive officer, will be named chairman and chief executive officer of the Company, and the board of directors will be comprised of at least nine (9) directors, of which (i) one shall be Steven Shum, INVO’s current chief executive officer, and (ii) eight shall be identified by NAYA, of which seven (7) shall be independent directors.
The
completion of the Merger is subject to satisfaction or waiver of certain customary mutual closing conditions, including (1) the adoption
of the Merger Agreement by the stockholders of the Company and NAYA, (2) the absence of any injunction or other order issued by a court
of competent jurisdiction or applicable law or legal prohibition prohibiting or making illegal the consummation of the Merger, (3) the
completion of due diligence, (4) the completion of a private sale of the Company’s preferred stock at a price per share of $
per share, in a private offering resulting in an amount equal to at least $
| F-27 |
The
Merger Agreement contains termination rights for each of the Company and NAYA, including, among others: (1) if the consummation of the
Merger does not occur on or before December 31, 2023 (the “End Date”) (which has since been extended to April 30, 20204),
except that any party whose material breach of the Merger Agreement caused or was the primary contributing factor that resulted in the
failure of the Merger to be consummated on or before the End Date, (2) if any governmental authority has enacted any law or order making
illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger, and (3) if the required vote of
the stockholders of either the Company or NAYA has not been obtained. The Merger Agreement contains additional termination rights for
NAYA, including, among others: (1) if the Company materially breaches its non-solicitation obligations or fails to take all action necessary
to hold a stockholder meeting to approve the transactions contemplated by the Merger Agreement, (2) if the aggregate of the liabilities
of the Company, excluding certain specified liabilities, exceed $
If
all of NAYA’s conditions to closing are satisfied or waived and NAYA fails to consummate the Merger, NAYA would be required to
pay the Company a termination fee of $
On
December 27, 2023, the Company entered into second amendment (“Second Amendment”) to the Merger Agreement. Pursuant to the
Second Amendment, the parties agreed to extend the End Date to April 30, 2024. The parties further agreed to modify the closing condition
for the Interim PIPE from a private offering of shares of Company common stock at a price that is a premium to the market price of the
Company common stock in an estimated amount of $
Note 17 – Subsequent Events
NAYA Securities Purchase Agreement
On
January 4, 2024, the Company and NAYA closed on shares
of Series A Preferred Stock in the first tranche of Preferred Series A SPA for gross proceeds of $
| F-28 |
Consulting Shares
In February 2024, the Company issued 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. The Company did not receive any cash proceeds from this issuance.
Future Receipts Agreement
On
February 26, 2024, the Company finalized an Agreement for the Purchase and Sale of Future Receipts (the “Future Receipts Agreement”)
with a buyer (the “Buyer”) under which the Buyer purchased $ of our future sales for a gross purchase price of $
Triton Purchase Agreement
On
March 27, 2024, the Company entered into a purchase agreement (the “Triton Purchase Agreement”) with Triton Funds LP (“Triton”),
pursuant to which the Company agreed to sell, and Triton agreed to purchase, upon the Company’s request in one or more transactions,
up to shares of the Company’s common stock, par value $ per share, providing aggregate gross proceeds to the Company
of up to $
Among other limitations, unless otherwise agreed upon by Triton, each individual sale of shares of common stock will be limited to no more than the number of shares of common stock that would result in the direct or indirect beneficial ownership by Triton of more than 9.99% of the then-outstanding shares of common stock. In addition, the total cumulative number of shares of common stock that may be issued to Triton under the Triton Purchase Agreement may not exceed the requirements of Nasdaq Listing Rule 5635(d), except that such limitation will not apply in the event the Company obtains stockholder approval of the shares of common stock to be issued under the Triton Purchase Agreement, if necessary, in accordance with the requirements of Nasdaq Listing Rule 5635(d).
The Triton Purchase Agreement provides that the Company will file a prospectus supplement (the “Prospectus Supplement”) to its Registration Statement on Form S-3, which was declared effective on April 16, 2021 (File No. 333-255096) (the “Base Registration Statement”), covering the offering and sale of the shares of common stock to Triton pursuant to the Triton Purchase Agreement. Triton’s obligation to purchase shares of common stock under the Triton Purchase Agreement is conditioned upon, among other things, the filing of the Prospectus Supplement and the Base Registration Statement remaining effective.
The Triton Purchase Agreement contains customary representations, warranties, and covenants by each of the Company and Triton. Actual sales of shares of common stock to Triton will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. Triton has no right to require any sales of shares of common stock by the Company but is obligated to make purchases of shares of common stock from the Company from time to time, pursuant to directions from the Company, in accordance with the Triton Purchase Agreement. During the term of the Triton Purchase Agreement, Triton has covenanted not to cause or engage in any short selling of shares of common stock.
On
March 27, 2024, the Company sold to Triton private placement warrants to purchase up to
On March 27, 2024, the Company delivered a purchase notice for shares of common stock. The Company’s common stock traded below the purchase price following the date of the purchase notice, giving Triton the right to return to the Company any of the shares. Triton notified the Company that it will return shares to the Company and closed the purchase of shares pursuant to the Triton Purchase Agreement.
| F-29 |
FirstFire Securities Purchase Agreement
On
April 5, 2024, the Company entered into a purchase agreement (the “FirstFire Purchase Agreement”) with FirstFire Global Opportunities
Fund, LLC (“FirstFire”), pursuant to which FirstFire agreed to purchase, and
Among other limitations, the total cumulative number of shares of common stock that may be issued to FirstFire under the FirstFire Purchase Agreement may not exceed the requirements of Nasdaq Listing Rule 5635(d), except that such limitation will not apply in the event the Company obtains stockholder approval of the shares of common stock to be issued under the Purchase Agreement, if necessary, in accordance with the requirements of Nasdaq Listing Rule 5635(d). The Company has agreed to hold a meeting for the purpose of obtaining this stockholder approval within nine (9) months of the date of the FirstFire Purchase Agreement.
The FirstFire Purchase Agreement contains customary representations, warranties, and covenants by each of the Company and FirstFire. Among other covenants of the parties, the Company granted FirstFire the right to participate in any subsequent placement of securities until the earlier of eighteen (18) months after the date of the FirstFire Purchase Agreement or extinguishment of the FirstFire Note. The Company has also granted customary “piggy-back” registration rights to FirstFire with respect to the shares of common stock underlying the FirstFire Note (the “Conversion Shares”), the First Warrant Shares, the Second Warrant Shares, and the Commitment Shares. FirstFire has covenanted not to cause or engage in any short selling of shares of common stock until the FirstFire Note is fully repaid.
The following sets forth the material terms of the FirstFire Note, the First Warrant, and the Second Warrant.
FirstFire Note
Interest
and Maturity. The FirstFire Note carries an interest rate of twelve percent (
Conversion.
The holder of the FirstFire Note is entitled to convert any portion of the outstanding and unpaid principal amount and accrued interest
into Conversion Shares at a conversion price of $
Prepayment. The Company may prepay the FirstFire Note at any time in whole or in part by paying a sum of money equal to 110% of the sum of the principal amount to be redeemed plus the accrued and unpaid interest.
Future
Proceeds. While any portion of the FirstFire Note is outstanding, if the Company receives cash proceeds of more than $
| F-30 |
Covenants. The Company is subject to various covenants that restrict its ability to, among other things, declare dividends, make certain investments, sell assets outside the ordinary course of business, or enter into transactions with affiliates, thereby ensuring the Company operational and financial activities are conducted in a manner that prioritizes the repayment of the FirstFire Note.
Events of Default. The FirstFire Note outlines specific events of default and provides FirstFire certain rights and remedies in such events, including but not limited to the acceleration of the FirstFire Note’s due date and a requirement for the Company to pay a default amount. Specific events that constitute a default under the FirstFire Note include, but are not limited to, failure to pay principal or interest when due, breaches of covenants or agreements, bankruptcy or insolvency events, and a failure to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Upon an event of default, the FirstFire Note becomes immediately due and payable, and the Borrower is subject to a default sum as stipulated.
The FirstFire Note is subject to, and governed by, the terms and conditions of the FirstFire Purchase Agreement.
First Warrant
The
First Warrant grants the holder thereof the right to purchase up to
Exercisability. The First Warrant is be immediately exercisable and will expire five years from the issuance date. The First Warrant is exercisable, at the option of the holder, in whole or in part, by delivering to the Company a duly executed exercise notice and, at any time a registration statement registering the issuance of the First Warrant Shares under the Securities Act of 1933, as amended (the “Securities Act”) is effective and available for the issuance of such First Warrant Shares, or an exemption from registration under the Securities Act is available for the issuance of such First Warrant Shares, by payment in full in immediately available funds for the number of First Warrant Shares purchased upon such exercise. If a registration statement registering the issuance of the First Warrant Shares underlying the First Warrant under the Securities Act is not effective or available, the holder may, in its sole discretion, elect to exercise the First Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of First Warrant Shares determined according to the formula set forth in the First Warrant.
Exercise Limitation. A holder will not have the right to exercise any portion of the First Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of the common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the First Warrant.
Trading
Market Regulation. Until the Company has obtained stockholder approval of the FirstFire Purchase Agreement and the issuance of the
securities issued pursuant thereto,
Exercise Price Adjustment. Subject to the aforementioned limitations, the exercise price of the First Warrant is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock, upon any distributions of assets, including cash, stock or other property to our stockholders, and if we issue additional shares of common stock at a price per share that is less than the exercise price then in effect.
Fundamental Transactions. The Company shall not enter into or be a party to a fundamental transaction unless the successor entity assumes all obligations of the Company under the First Warrant and other transaction documents. Upon consummation of a fundamental transaction, then the successor entity will succeed to, and be substituted for the Company, and may exercise every right and power that the Company may exercise and will assume all of the Company’s obligations under the First Warrant with the same effect as if such successor entity had been named in the First Warrant itself.
Rights as a Stockholder. Except as otherwise provided in the First Warrant or by virtue of such holder’s ownership of shares of common stock, the holder of the First Warrant will not have the rights or privileges of a holder of common stock, including any voting rights, until the holder exercises the First Warrant.
| F-31 |
Second Warrant
The
Second Warrant grants the holder thereof the right to purchase up to
Exercisability. The Second Warrant will only become exercisable on the specific Triggering Event Date, which is the date that an Event of Default occurs under the Note, and will expire five years from such date. The Second Warrant includes a ‘Returnable Warrant’ clause, providing that the Second Warrant shall be cancelled and returned to the Company if the Note is fully extinguished before any Triggering Event Date. The Second Warrant will be exercisable, at the option of each holder, in whole or in part by delivering to the Company a duly executed exercise notice and, at any time a registration statement registering the issuance of the Second Warrant Shares under the Securities Act is effective and available for the issuance of such Second Warrant Shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of Second Warrant Shares purchased upon such exercise. If a registration statement registering the issuance of Second Warrant Shares under the Securities Act is not effective or available, the holder may, in its sole discretion, elect to exercise the Second Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Second Warrant Shares determined according to the formula set forth in the warrant.
Exercise Limitation. A holder will not have the right to exercise any portion of the Second Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of the common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Second Warrant.
Trading
Market Regulation. Until the Company has obtained stockholder approval of the FirstFire Purchase Agreement and the issuance of the
securities issued pursuant thereto,
Exercise Price Adjustment. Subject to the aforementioned limitations, the exercise price of the Second Warrant is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock, upon any distributions of assets, including cash, stock or other property to our stockholders, and if we issue additional shares of common stock at a price per share that is less than the exercise price then in effect.
Fundamental Transactions. The Company shall not enter into or be a party to a fundamental transaction unless the successor entity assumes all obligations of the Company under the Second Warrant and other transaction documents. Upon consummation of a fundamental transaction, then the successor entity will succeed to, and be substituted for the Company, and may exercise every right and power that the Company may exercise and will assume all of the Company’s obligations under the Second Warrant with the same effect as if such successor entity had been named in the Second Warrant itself.
Rights as a Stockholder. Except as otherwise provided in the Second Warrant or by virtue of such holder’s ownership of shares of common stock, the holder of the Second Warrant will not have the rights or privileges of a holder of common stock, including any voting rights, until the holder exercises the Second Warrant.
| F-32 |
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
The exhibits listed in the Original Filing and the exhibits listed below in this Amendment are filed with, or incorporated by reference in, this report.
Item 16. Form 10-K Summary
Not applicable.
| 4 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized on April 17, 2024.
| INVO Bioscience, Inc. | ||
| Date: April 17, 2024 | By: | /s/ Steven Shum |
| Steven Shum | ||
Chief Executive Officer (Principal Executive Officer) | ||
| 5 |