INVO INVO BioScience Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

 

For the quarterly period ended June 30, 2024

 

OR

 

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

 

For the transition period from ________________ to ________________

 

Commission File Number: 001-39701

 

INVO Bioscience, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada		20-4036208
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

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

 

(978) 878-9505

(Registrant’s telephone number, including area code)

 

Not applicable

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

As of August 14, 2024, the Registrant had 3,906,072 shares of common stock outstanding.

 

 

 

INVO BIOSCIENCE, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED June 30, 2024

 

TABLE OF CONTENTS

 

Item		Page Number
PART I. FINANCIAL INFORMATION
1.	Financial Statements (Unaudited):	4
	Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	4
	Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (Unaudited)	5
	Consolidated Statements of Stockholders’ Equity (Deficit) for the six months ended June 30, 2024 and 2023 (Unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)	7
	Notes to the Consolidated Financial Statements	8
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
3.	Quantitative and Qualitative Disclosures about Market Risks	46
4.	Controls and Procedures	46
PART II. OTHER INFORMATION
1.	Legal Proceedings	47
1A.	Risk Factors	47
2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
3.	Defaults Upon Senior Securities	47
4.	Mine Safety Disclosure	47
5.	Other Information	47
6.	Exhibits	48
	Signatures	49

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

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

 

●	our business strategies;
●	the timing of regulatory submissions;
●	our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;
●	risks relating to the timing and costs of clinical trials and the timing and costs of other expenses;
●	risks related to market acceptance of products;
●	the ultimate impact of a health epidemic on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole;
●	intellectual property risks;
●	risks associated with our reliance on third-party organizations;
●	our competitive position;
●	our industry environment;
●	our anticipated financial and operating results, including anticipated sources of revenues;
●	assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches;
●	management’s expectation with respect to future acquisitions, including, without limitation, the proposed merger with NAYA Biosciences, Inc.;
●	statements regarding our goals, intentions, plans, and expectations, including the introduction of new products and markets; and
●	our cash needs and financing plans.

 

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

 

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

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INVO BIOSCIENCE, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		June 30,				December 31,
		2024				2023
							(audited)
ASSETS
Current assets
Cash		$	942,934			$	232,424
Accounts receivable			257,210				140,550
Inventory			250,066				264,507
Prepaid expenses and other current assets			945,853				622,294
Total current assets			2,396,063				1,259,775
Property and equipment, net			441,365				826,418
Lease right of use			2,614,466				5,740,929
Intangible assets, net			3,684,681				4,093,431
Goodwill			5,878,986				5,878,986
Equity investments			844,198				916,248
Investment in NAYA			2,172,000				2,172,000
Total assets		$	18,031,759			$	20,887,787
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	2,378,099			$	2,330,381
Accrued compensation			646,838				722,251
Notes payable – current portion, net			580,086				629,920
Notes payable – related parties, net			880,000				880,000
Deferred revenue			416,745				408,769
Lease liability, current portion			237,030				397,554
Additional payments for acquisition, current portion			2,500,000				2,500,000
Other current liabilities			350,000				350,000
Total current liabilities			7,988,798				8,218,875
Notes payable, net of current portion			1,172,902				1,253,997
Lease liability, net of current portion			2,506,543				5,522,090
Additional payments for acquisition, net of current portion			5,000,000				5,000,000
Total liabilities			16,668,243				19,994,962
Stockholders’ equity
Series A Preferred Stock, $5.00 par value; 1,000,000 shares authorized; 301,280 and 0 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively			1,506,404				-
Series B Preferred Stock, $5.00 par value; 1,200,000 shares authorized; 1,200,000 and 1,200,000 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively			6,000,000				6,000,000
Preferred Stock, value			6,000,000				6,000,000
Common Stock, $.0001 par value; 50,000,000 shares authorized; 3,864,072 and 2,492,531 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively			386				249
Additional paid-in capital			55,767,189				52,710,721
Accumulated deficit			(61,910,463	)			(57,818,145	)
Total stockholders’ equity			1,363,516				892,825
Total liabilities and stockholders’ equity		$	18,031,759			$	20,887,787

 

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

 

 

INVO BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		2024				2023				2024				2023
		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2024				2023				2024				2023
Revenue:
Clinic revenue		$	1,807,921			$	254,364			$	3,345,120			$	551,745
Product revenue			28,676				61,538				67,763				112,182
Total revenue			1,836,597				315,902				3,412,883				663,927
Operating expenses
Cost of revenue			861,648				235,714				1,711,882				466,719
Selling, general and administrative expenses			2,647,524				2,042,609				4,088,110				4,373,443
Research and development expenses			-				83,850				4,880				157,370
Depreciation and amortization			230,338				19,705				457,298				38,792
Total operating expenses			3,739,510				2,381,879				6,262,170				5,036,324
Loss from operations			(1,902,913	)			(2,065,977	)			(2,849,287	)			(4,372,397	)
Other income (expense):
Gain (loss) from equity method joint ventures			17,846				3,788				17,950				(23,947	)
Gain (loss) on disposal of fixed assets			50,000				-				(511,663	)			-
Gain on lease termination			-				-				94,551				-
Loss on debt extinguishment			(40,491	)			-				(40,491	)			-
Interest expense			(369,612	)			(175,192	)			(550,907	)			(391,781	)
Foreign currency exchange loss			-				(265	)			-				(400	)
Total other income (expense)			(342,257	)			(171,669	)			(990,560	)			(416,128	)
Net loss before income taxes			(2,245,170	)			(2,237,646	)			(3,839,847	)			(4,788,525	)
Income taxes			-				2,865				1,836				2,865
Net loss		$	(2,245,170	)		$	(2,240,511	)		$	(3,841,683	)		$	(4,791,390	)
Net loss per common share:
Basic		$	(0.62	)		$	(3.06	)		$	(1.25	)		$	(7.07	)
Diluted		$	(0.62	)		$	(3.06	)		$	(1.25	)		$	(7.07	)
Weighted average number of common shares outstanding:
Basic			3,609,812				732,255				3,072,877				677,684
Diluted			3,609,812				732,255				3,072,877				677,684

 

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

 

 

INVO BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

 

		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Total
		Common Stock								Series A Preferred Stock								Series B Preferred Stock								Additional Paid-in				Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Total
Balances, December 31, 2022			608,611			$	61				-			$	-				-			$	-			$	48,805,860			$	(49,783,533	)		$	(977,612	)
Common stock issued to directors and employees			3,490				-				-				-				-				-				46,503				-				46,503
Common stock issued for services			13,000				1				-				-				-				-				149,899				-				149,900
Proceeds from the sale of common stock, net of fees and expenses			69,000				7				-				-				-				-				2,708,635				-				2,708,642
Common stock issued with notes payable			4,167				-				-				-				-				-				56,313				-				56,313
Options exercised for cash			297				-				-				-				-				-				2,376				-				2,376
Stock options issued to directors and employees as compensation			-				-				-				-				-				-				325,834				-				325,834
Warrants issued with notes payable			-				-				-				-				-				-				327,389				-				327,389
Net Loss			-				-				-				-				-				-				-				(2,550,879	)			(2,550,879	)
Balances, March 31, 2023			698,565			$	69				-			$	-				-			$	-			$	52,422,809			$	(52,334,412	)		$	88,466
Common stock issued to directors and employees			504				-				-				-				-				-				5,062				-				5,062
Common stock issued for services			12,817				2				-				-				-				-				94,274				-				94,276
Proceeds from the sale of common stock, net of fees and expenses			115,000				12				-				-				-				-				20,285				-				20,297
Stock options issued to directors and employees			-				-				-				-				-				-				326,916				-				326,916
Net Loss			-				-				-				-				-				-				-				(2,240,511	)			(2,240,511	)
Balances, June 30, 2023			826,886			$	83				-			$	-				-			$	-			$	52,869,346			$	(54,574,923	)		$	(1,705,494	)
Balances, December 31, 2023			2,492,531			$	249				-			$	-				1,200,000			$	6,000,000			$	52,710,721			$	(57,818,145	)		$	892,825
Common stock issued to directors and/or employees			-				-				-				-				-				-				92				-				92
Common stock issued for services			125,500				13				-				-				-				-				142,437				-				142,450
Preferred stock issued			-				-				100,000				500,000				-				-				-				-				500,000
Stock options issued to directors and employees as compensation			-				-				-				-				-				-				71,301				-				71,301
Net loss			-				-				-				-				-				-				-				(1,596,513	)			(1,596,513	)
Balances, March 31 2024			2,618,031			$	262				100,000			$	500,000				1,200,000			$	6,000,000			$	52,924,551			$	(59,414,658	)		$	10,155
Balance			2,618,031			$	262				100,000			$	500,000				1,200,000			$	6,000,000			$	52,924,551			$	(59,414,658	)		$	10,155
Common stock issued to directors and/or employees			-				-				-				-				-				-				61				-				61
Common stock issued for services			69,155				6				-				-				-				-				59,992				-				59,998
Preferred stock issued			-				-				201,280				1,006,404				-				-				-				-				1,006,404
Proceeds from the sale of common stock, net of fees and expenses			260,000				26				-				-				-				-				165,105				-				165,131
Warrants issued with notes payable			-				-				-				-				-				-				188,755				-				188,755
Convertible note modification/extinguishment			-				-				-				-				-				-				40,491				-				40,491
Warrants issued for services																											971,012								971,012
Debt conversion			109,886				11				-				-				-				-				197,022				-				197,033
Warrant exercise			807,000				81				-				-				-				-				900,530				-				900,611
Stock options issued to directors and employees as compensation			-				-				-				-				-				-				69,035				-				69,035
Deemed dividend			-				-				-				-				-				-				250,635				(250,635	)			-
Net loss			-				-				-				-				-				-				-				(2,245,170	)			(2,245,170	)
Balances, June 30, 2024			3,864,072			$	386				301,280			$	1,506,404				1,200,000			$	6,000,000			$	55,767,189			$	(61,910,463	)		$	1,363,516
Balance			3,864,072			$	386				301,280			$	1,506,404				1,200,000			$	6,000,000			$	55,767,189			$	(61,910,463	)		$	1,363,516

 

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

 

 

INVO BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		2024				2023
		For the Six Months Ended
		June 30,
		2024				2023
Cash flows from operating activities:
Net loss		$	(3,841,683	)		$	(4,791,390	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation issued for services			1,173,460				244,176
Stock compensation issued to directors and employees			153				51,565
Fair value of stock options issued to employees			140,336				652,750
Non-cash compensation for services			90,000				90,000
Amortization of discount on notes payable			349,010				301,098
Loss (gain) from equity method investment			(17,950	)			23,947
Loss from debt extinguishment			40,491				-
Loss from disposal of assets			511,663				-
Gain on lease termination			(94,551	)			-
Depreciation and amortization			457,298				38,792
Changes in assets and liabilities:
Accounts receivable			(116,660	)			2,241
Inventory			14,441				(16,416	)
Prepaid expenses and other current assets			(469,479	)			(184,513	)
Accounts payable and accrued expenses			35,435				432,654
Accrued compensation			(75,413	)			256,158
Deferred revenue			7,976				41,311
Leasehold liability			10,080				1,829
Accrued interest			69,179				62,938
Net cash used in operating activities			(1,716,214	)			(2,792,860	)
Cash from investing activities:
Payments to acquire property, plant, and equipment			(104,829	)			(261,505	)
Proceeds from sale of fixed assets			75,590				-
Investment in joint ventures			-				(8,447	)
Net cash used in investing activities			(29,239	)			(269,952	)
Cash from financing activities:
Proceeds from the sale of notes payable			442,500				714,000
Proceeds from the sale of common stock, net of offering costs			165,131				2,728,938
Proceeds from sale of preferred stock			1,506,404				-
Proceeds from warrant exercise			900,611				-
Proceeds from option exercise			-				2,375
Principal payments on note payable			(558,683	)			(360,151	)
Net cash provided by financing activities			2,455,963				3,085,162
Increase (decrease) in cash and cash equivalents			710,510				22,350
Cash and cash equivalents at beginning of period			232,424				90,135
Cash and cash equivalents at end of period		$	942,934			$	112,485
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	108,513			$	5,720
Noncash activities:
Common stock issued upon conversion notes payable and accrued interest		$	197,033			$	-
Fair value of warrants issued with debt			188,755				327,390
Deemed dividend			250,635				-
Fair value of shares issued upon the conversion of debt			-				197,033
Initial ROU asset and lease liability			-				2,312,892

 

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

 

 

INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(UNAUDITED)

 

Note 1 – Summary of Significant Accounting Policies

 

Description of Business

 

INVO Bioscience, Inc. (“INVO” or the “Company”) is a healthcare services company dedicated to expanding access to fertility care around the world. The Company’s commercial strategy is primarily focused on operating fertility-focused clinics, which include the opening of “INVO Centers” dedicated primarily to offering the intravaginal culture (“IVC”) procedure enabled by its INVOcell® medical device (“INVOcell”) and the acquisition of US-based, profitable in vitro fertilization (“IVF”) clinics. The Company has two operational INVO Centers in the United States and completed its first IVF clinic acquisition in August 2023. The Company also continues to engage in the sale and distribution of its INVOcell technology solution into existing independently owned and operated fertility clinics.

 

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 June 30, 2024, but prior to the filing of the consolidated financial statements with the SEC in this Quarterly Report on Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q.

 

Reclassifications

 

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

 

Business Segments

 

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

 

Business Acquisitions

 

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

 

Variable Interest Entities

 

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

 

8

 

 

Equity Method Investments

 

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

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

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

 

Inventory

 

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

 

Property and Equipment

 

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

 

9

 

 

Long- Lived Assets

 

Long-lived assets and certain identifiable assets related to those assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the non-discounted future cash flows of the asset are less than their carrying amount, their carrying amounts are reduced to fair value and an impairment loss recognized. There was no impairment recorded during the six months ended June 30, 2024, and 2023.

 

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 June 30, 2024, the Company had cash balances in excess of FDIC limits.

 

Revenue Recognition

 

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

 

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

 

10

 

 

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

 

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

 

Stock Based Compensation

 

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

 

Loss Per Share

 

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share are computed similarly to basic earnings per share except that the denominator is increased to include potentially dilutive securities. The Company’s diluted loss per share is the same as the basic loss per share for the three months ended June 30, 2024, and 2023, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

 

Schedule of Earnings Per Share Basic and Diluted

		2024				2023				2024				2023
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Net loss (numerator)		$	(2,245,170	)			(2,240,511	)			(3,841,683	)			(4,791,390	)
Basic and diluted weighted-average number of common shares outstanding (denominator)			3,609,812				732,255				3,072,877				677,684
Basic and diluted net loss per common share			(0.62	)			(3.06	)			(1.25	)			(7.07	)

 

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

 Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share 

		2024				2023
		As of June 30,
		2024				2023
Options			97,992				121,255
Convertible notes and interest			532,289				55,120
Preferred stock			1,884,727				-
Warrants and unit purchase options			4,131,081				348,151
Total			6,646,089				524,526

 

Recently Adopted Accounting Pronouncements

 

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

 

Note 2 – Liquidity

 

Historically, the Company has funded its cash and liquidity needs primarily through revenue collection and debt and equity financings. For the six months ended June 30, 2024, and 2023, the Company incurred a net loss of approximately $3.8 million and $4.8 million, respectively, and has an accumulated deficit of approximately $61.9 million as of June 30, 2024. Approximately $2.6 million of the net loss was related to non-cash expenses for the six months ended June 30, 2024, compared to $1.4 million for the six months ended June 30, 2023.

 

11

 

 

The Company has been dependent on raising capital from debt and equity financings to meet its needs for cash used in operating and investing activities. During the first six months of 2024, the Company received $1.5 million from the sale of preferred stock, $0.9 million from the exercise of warrants, $0.4 million in net proceeds from the sale of notes, and $0.2 million in net proceeds from the sale of common stock. Over the next 12 months, the Company’s plan includes growing the Wisconsin Fertility Institute and pursuing additional IVF clinic acquisitions. Until the Company can generate positive cash from operations, it will need to raise additional funding to meet its liquidity needs and to execute its business strategy. As in the past, the Company will seek debt and/or equity funding, which may not be available on reasonable terms, if at all.

 

Although the Company’s audited consolidated financial statements for the year ended December 31, 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 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 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 (“Wood Violet”) and wholly owned subsidiary of INVO Centers LLC (“INVO CTR”), a Delaware company wholly-owned by INVO, consummated its acquisition of the Wisconsin Fertility Institute (“WFI”) for a combined purchase price of $10,000,000, of which $2,500,000 was paid on the closing date (net cash paid was $2,150,000 after a $350,000 holdback) plus assumption of the inter-company loan owed by WFRSA (as defined below) in the amount of $528,756. The remaining three installments of $2,500,000 each will be within ninety (90) days of the subsequent three anniversaries of closing. The sellers have the option to take all or a portion of the final three installments in shares of INVO common stock at a per share value of $125.00, $181.80, and $285.80, for the second, third, and final installments, respectively.

 

WFI was 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 owned, operated, and managed WFI’s fertility practice that provided direct treatment to patients focused on fertility, gynecology, and obstetrics care and surgical procedures, and employed physicians and other healthcare providers to deliver such services and procedures. FLOW provided WFRSA with related laboratory services.

 

INVO purchased the non-medical assets of WFRSA and one hundred percent of FLOW’s membership interests through Wood Violet. Concurrently, Wood Violet and WFRSA entered into a management services agreement pursuant to which WFRSA outsourced all its non-medical activities to Wood Violet. As a result, post-closing, WFI is comprised of (a) WFRSA, which only employs physicians to provide medical services, and (b) Wood Violet, which employs all other clinic personnel and provides all non-medical services, including laboratory services. FLOW is no longer operational as its operations were absorbed by Wood Violet.

 

The Company’s consolidated financial statements for the six months ended June 30, 2024 include WFI’s results of operations. The Company’s condensed consolidated financial statements reflect the final purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.

The following allocation of the purchase price is as follows:

Schedule of Allocation of Purchase Price  

Consideration given:
Cash			2,150,000
Holdback			350,000
Additional payments			7,500,000
Business acquisition cost			10,000,000
Assets and liabilities acquired:
FLOW intercompany receivable			528,756
Accounts receivable			214,972
Property and equipment, net			25,292
Other current assets			56,274
Tradename			253,000
Noncompetition agreement			3,961,000
Goodwill			5,878,986
Deferred revenue			(389,524	)
WFRSA intercompany note			(528,756	)
Total assets and liabilities acquired			10,000,000

 

12

 

 

Note 4 – Variable Interest Entities

 

Consolidated VIEs

 

Bloom INVO, LLC

 

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

 

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

 

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

 

The Bloom Agreement provides Bloom with a “profits interest” in the Georgia JV and, in connection with such profits interest, states that profits and losses be allocated to its members based on a hypothetical liquidation of the Georgia JV. In such a scenario, liquidation proceeds would be distributed in the following order: (a) to INVO CTR until the difference between its capital contributions and distributions equals $0; (b) to Bloom until its distributions equal 150% of the liquidation amounts distributed to INVO CTR (a “catch-up” to rebalance the distributions between members); and (c) thereafter on a pro rata basis. The Georgia JV had no assets or liabilities at the time the units were issued, and, as of June 30, 2024, INVO CTR had made capital contributions greater than the net loss of the Georgia JV. As such, the entire net loss was allocated to INVO CTR, and no loss was allocated to the noncontrolling interest of Bloom.

 

The Atlanta Clinic 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 June 30, 2024, the Company invested $0.9 million in the Georgia JV in the form of capital contributions as well as $0.5 million in the form of a note. For the six months ended June 30, 2024 and 2023, the Georgia JV recorded net losses of $47 thousand and $0.1 million respectively. Noncontrolling interest in the Georgia JV was $0.

 

Unconsolidated VIEs

 

HRCFG INVO, LLC

 

On March 10, 2021, INVO CTR entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to establish a joint venture, formed as HRCFG INVO, LLC (the “Alabama JV”), for the purpose of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center in Birmingham, Alabama (the “Birmingham Clinic”). The Company also provides certain funding to the Alabama JV. INVO CTR and HRSCGF party owns 50% of the Alabama JV.

 

The Birmingham clinic 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 June 30, 2024, the Company invested $1.3 million in the Alabama JV in the form of a note. For the six months ended June 30, 2024, the Alabama JV recorded net income of $36 thousand, of which the Company recognized a gain from equity method investments of $18 thousand. For the six months ended June 30, 2023, the Alabama JV recorded a net income of $2 thousand, of which the Company recognized a gain from equity method investments of $805.

 

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”) to establish a joint venture, formed as Positib Fertility, S.A. de C.V. (the “Mexico JV”), under which the Shareholders sought to commercialize INVOcell and the related IVC procedure and to offer related medical treatments in Mexico through the establishment of an INVO Center in Monterrey, Mexico (the “Monterrey Clinic”). Each Shareholder owns one-third of the Mexico JV.

 

The Monterrey Clinic 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. During the fourth quarter of 2023, our Mexico JV partner informed the Company that the primary physician onsite had resigned. The Company elected to impair the investment at year end 2023 in this JV due to the uncertainty and possibility that the Mexico JV may offer reduced services or suspend operations. The total impairment for 2023 was approximately $0.09 million. As of June 30, 2024, INVO investment in the Mexico JV was $0.

 

13

 

 

The following table summarizes our investments in unconsolidated VIEs:

 Schedule of Investments in Unconsolidated Variable Interest Entities 

								Carrying Value as of
		Location		Percentage Ownership				June 30, 2024				December 31, 2023
HRCFG INVO, LLC		Alabama, United States			50	%		$	844,198				916,248
Positib Fertility, S.A. de C.V.		Mexico			33	%			-				-
Total investment in unconsolidated VIEs								$	844,198				916,248

 

Earnings from investments in unconsolidated VIEs were as follows:

Schedule of Earnings from Investments in Unconsolidated Variable Interest Entities 

		2024				2023				2024				2023
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
HRCFG INVO, LLC		$	17,846			$	19,474			$	17,950			$	805
Positib Fertility, S.A. de C.V.			-				(15,686	)			-				(24,752	)
Total earnings (loss) from unconsolidated VIEs			17,846				3,788				17,950				(23,947	)

 

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

Schedule of Financial Information of Investments in Unconsolidated Variable Interest Entities 

		2024				2023				2024				2023
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Statements of operations:
Operating revenue		$	333,308			$	458,069			$	665,622			$	807,396
Operating expenses			(297,616	)			(466,184	)			(629,722	)			(880,050	)
Net profit (loss)			35,692				(8,115	)			35,900				(72,654	)

 

		June 30, 2024				December 31, 2023
Balance sheets:
Current assets		$	286,582				288,369
Long-term assets			991,387				1,026,873
Current liabilities			(517,415	)			(510,091	)
Long-term liabilities			(123,060	)			(123,060	)
Net assets		$	637,494				682,091

 

Note 5 – Agreements and Transactions with VIE’s

 

The Company sells INVOcells 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. Pursuant to ASC 323-10-35-8, the Company eliminates any sales to an unconsolidated VIE for INVOcell inventory that the VIE still has remaining on the books at period end.

 

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

 Summary of Transaction with Variable Interest Entities

		2024				2023				2024				2023
		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Bloom INVO, LLC
INVOcell revenue		$	15,000			$	6,000			$	25,500			$	10,500
Unconsolidated VIEs
INVOcell revenue		$	-			$	6,750			$	7,500			$	9,750

 

The Company had balances with VIEs as follows:

 Summary of Balances with Variable Interest Entities

		June 30, 2024				December 31, 2023
Bloom INVO, LLC
Accounts receivable		$	28,500				31,500
Notes payable			489,948				482,656
Unconsolidated VIEs
Accounts receivable		$	22,500				15,000

 

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Note 6 – Inventory

 

Components of inventory are as follows:

 

Schedule of Inventory

		June 30, 2024				December 31, 2023
Raw materials		$	53,480			$	53,479
Finished goods			196,586				211,028
Total inventory		$	250,066			$	264,507

 

Note 7 – Property and Equipment

 

The estimated useful lives and accumulated depreciation for equipment are as follows as of June 30, 2024, and December 31, 2023:

Schedule of Estimated Useful Lives of Property and Equipment

 

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

 

 

Schedule of Property and Equipment

		June 30, 2024				December 31, 2023
Manufacturing equipment		$	132,513			$	132,513
Medical equipment			404,272				303,943
Office equipment			89,904				85,404
Leasehold improvements			96,817				538,151
Property, plant and equipment, gross			96,817				538,151
Less: accumulated depreciation			(282,141	)			(233,593	)
Total equipment, net		$	441,365			$	826,418

 

During the three months ended June 30, 2024, and 2023, the Company recorded depreciation expense of $25,963 and $19,705, respectively.

 

During the six months ended June 30, 2024, and 2023, the Company recorded depreciation expense of $48,548 and $38,792, respectively.

 

For the three months ended June 30, 2024, the Company recognized a gain on disposal of fixed assets of $50,000 related to the termination of its Tampa, Florida INVO Center project (the “Tampa Project”).

 

For the six months ended June 30, 2024, the Company recognized a loss on disposal of fixed assets of $511,663 related to the termination of the Tampa Project.

 

Note 8 – Intangible Assets & Goodwill

 

Components of intangible assets are as follows:

 Schedule of Finite-Lived Intangible Assets

		June 30, 2024				December 31, 2023
Tradename		$	253,000			$	253,000
Noncompetition agreement			3,961,000				3,961,000
Goodwill			5,878,986				5,878,986
Less: accumulated amortization			(529,319	)			(120,569	)
Total intangible assets		$	9,563,667			$	9,972,417

 

As part of the WFI acquisition, that closed on August 10, 2023, the Company acquired a tradename valued at $253,000, noncompetition agreements valued at $3,961,000 and goodwill of $5,878,986 which includes assembled workforce valued at $34,000. The tradename was deemed to have a useful life of 10 years. The noncompetition agreements were deemed to have a useful life of 15 years.

 

During the three months ended June 30, 2024, and 2023, the Company recorded amortization expenses related to intangible assets of $204,375 and $0, respectively.

 

During the six months ended June 30, 2024, and 2023, the Company recorded amortization expenses related to intangible assets of $408,750 and $0, respectively.

 

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 WFI as of June 30, 2024.

 

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Note 9 – Leases

 

The Company has various operating lease agreements in place for its office and joint ventures. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2019, the Company is required to report a right-of-use asset and corresponding liability to report the present value of the total lease payments, with appropriate interest calculation. The rate implicit in the lease was not readily determinable. Historically, the Company historically utilized the applicable federal rate as of the commencement of the lease; however, the Company has determined that utilization of the applicable federal rate was not its comparable incremental borrowing rate. The Company has since calculated the incremental borrowing rate for each lease by developing a synthetic credit rating for the Company as of the commencement date of each lease, adjusting the synthetic credit rating to reflect the collateralized nature of the incremental borrowing rate, and based on the adjusted synthetic rating and the various terms of the leases, selected the incremental borrowing rate based on the commencement date, duration of the lease, and a corresponding weight-adjusted corporate yield curve. The Company then completed a sensitivity analysis on all of its current leases and determined there was no material difference between using the applicable federal rate and the applicable incremental borrowing rate. 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 June 30, 2024, the Company’s lease components included in the consolidated balance sheet were as follows:

 Schedule of Lease Components

Lease component		Balance sheet classification		June 30, 2024
Assets
ROU assets – operating lease		Other assets		$	2,614,466
Total ROU assets				$	2,614,466
Liabilities
Current operating lease liability		Current liabilities		$	237,030
Long-term operating lease liability		Other liabilities			2,506,543
Total lease liabilities				$	2,743,573

 

Future minimum lease payments as of June 30, 2024 were as follows:

 Schedule of Future Minimum Lease Payments

2024				235,757
2025				477,947
2026				490,122
2027				480,096
2028 and beyond				2,329,321
Total future minimum lease payments			$	4,013,243
Less: Interest				(1,269,670	)
Total operating lease liabilities			$	2,743,573

 

For the six months ended June 30, 2024, the weighted average remaining lease term for operating leases was 102 months. For the six months ended June 30, 2024, the weighted average discount rate for operating leases was 9.0%. The Company paid approximately $0.2 million in cash for operating lease amounts included in the measurement of lease liabilities for the six months ended June 30, 2024. The Company did not have any finance leases as of June 30, 2024.

 

For the six months ended June 30, 2024, the Company recognized a gain on lease termination of $94,551 related to the termination of the lease associated with the Tampa Project.

 

Note 10 – Notes Payable

 

Notes payables consisted of the following:

 Schedule of Notes Payable

		June 30, 2024				December 31, 2023
Note payable. 35% - 100 % cumulative interest. Matures on June 29, 2028		$	1,349,757			$	1,451,245
Note payable. 35% - 100 % cumulative interest. Matures on June 29, 2028		$	1,349,757			$	1,451,245
Related party demand notes with a 10% financing fee. 10% annual interest from issuance. As of June 30, 2024, all these notes are callable.			880,000				880,000
Convertible notes. 10% annual interest. Conversion price of $1.20			235,000				410,000
Convertible note. 12% annual interest. Conversion price of $1.00			275,000				-
Cash advance agreement			175,332				287,604
Less debt discount and financing costs			(282,101	)			(264,932	)
Total, net of discount		$	2,632,988			$	2,763,917

 

Related Party Demand Notes

 

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

 

16

 

 

In consideration for subscribing to the JAG Note for $100,000 dated December 29, 2022, and for agreeing to extend the date on which the other JAG Notes are callable to March 31, 2023, the Company issued JAG a warrant to purchase 17,500 shares of common stock. The warrant may be exercised for a period of five (5) years from issuance at a price of $10.00 per share. The financing fees for said JAG Note and the fair value of the warrant issued were capped at the total proceeds. The relative fair value of the warrant was recorded as a debt discount and, as of June 30, 2024, the Company had fully amortized the discount. On July 10, 2023, JAG agreed to extend the date on which the JAG Notes are callable to September 30, 2023.

 

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

 

The financing fees for all demand notes were recorded as a debt discount and, as of June 30, 2024, the Company had fully amortized the discount.

 

For the six months ended June 30, 2024, the Company incurred $40,444 in interest related to these demand notes.

 

January and March 2023 Convertible Notes

 

In January and March 2023, the Company issued $410,000 of convertible notes (“Q1 23 Convertible Notes”) for $310,000 in cash and the conversion of $100,000 of demand notes from the fourth quarter of 2022. These convertible notes were issued with fixed conversion prices of $10.00 (for the $275,000 issued in January 2023) and $12.00 (for the $135,000 issued in March 2023) and with 5-year warrants to purchase 19,375 shares of the common stock at an exercise price of $20.00.

 

The cumulative fair value of the warrants at issuance was $132,183. This was recognized as a debt discount and will to be amortized on a straight-line basis over the life of the respective notes. As of June 30, 2024, the debt discount was fully amortized.

 

Interest on these notes accrues at a rate of ten percent (10%) per annum and is payable at the holder’s option either in cash or in shares of common stock at the conversion price set forth in the notes on December 31, 2023, unless converted earlier. For the six months ended June 30, 2024, the Company incurred $17,766 in interest related to these convertible notes.

 

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

 

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 $2.25. The maturity date extension and the conversion and exercise price reduction applies to all Q1 23 Convertible Notes. As the terms for the note were deemed to be substantially different, the Company recognized a $163,278 loss from debt extinguishment related to the change in terms.

 

As of June 28, 2024, the Company secured written consent by the note holders for the Q1 23 Convertible Notes for the maturity date to be extended to December 31, 2024. As an incentive for the note holders to approve the extension, the Company agreed (a) to lower both the Q1 23 Convertible Notes fixed conversion price and the related warrant exercise price to $1.20, (b) to provide the Q1 23 Convertible Notes holders the right to demand early repayment at the closing of the proposed merger with NAYA Biosciences, Inc. (“NAYA”) or if the Company raises more than $3 million dollars in a single equity raise, and (c) to increase the number of shares of common stock available under the related warrants to a total of 124,421. The maturity date extension, the conversion reduction, and the early repayment right applies to all Q1 23 Convertible Notes, and the exercise price reduction and additional warrant coverage applies to all related warrants. As the terms for the note were deemed to be substantially different, the Company recognized a $40,491 loss from debt extinguishment related to the change in term and immediately recognized $78,443 of debt discount.

 

During the second quarter of 2024, $175,000 of notes and $22,033 of interest were converted to 109,886 shares of common stock.

 

February 2023 Convertible Debentures

 

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

 

The cumulative fair value of the warrants at issuance was $291,207. This was recognized as a debt discount and will be amortized on a straight-line basis over the life of the respective notes. As of June 30, 2024, the Company had fully amortized the discount.

 

Pursuant to the February Debentures, interest on the February Debentures accrued at a rate of eight percent (8%) per annum payable at maturity, one year from the date of the February Debentures. For the six months ended June 30, 2024, the Company incurred $0 in interest on the February Debentures.

 

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

 

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

 

While any portion of each February Debenture remained outstanding, if the Company received cash proceeds of more than $2,000,000 (the “Minimum Threshold”) in the aggregate from any source or series of related or unrelated sources, the February Investors had the right in their sole discretion to require the Company to immediately apply up to 50% of all proceeds received by the Company above the Minimum Threshold to repay the outstanding amounts owed under the February Debentures. In April 2023, the Company used $360,151 in proceeds from the RD Offering (as described in Note 11 below) to repay a portion of the February Debentures. On August 8, 2023, the Company repaid the remaining balance of $139,849 with proceeds from the August 2023 Offering (as described in Note 12 below).

 

The February Warrants included anti-dilution protection whereby a subsequent offering priced below the February Warrants’ strike price then in effect would entitle the February Investors to a reduction of such strike price to the price of such subsequent offering and an increase in the February Warrant Shares determined by dividing the dollar amount for which the February Warrants are exercisable by such lower strike price. As a result of the $2.85 unit purchase price of the August 2023 Offering (as described in Note 12 below), following consummation of the August 2023 Offering, the February Warrants now entitle the February Investors to purchase a total 65,790 at an exercise price of $2.85 per February Warrant Share. On August 8, 2023, the Company issued 26,391 shares of common stock upon exercise of one of the February Warrants on a net-exercise basis and, on August 21, 2023, the Company issued 17,594 shares of common stock upon exercise of the other February Warrant on a net-exercise basis. Following these exercises, there were no February Warrants outstanding.

 

Standard Merchant Cash Advance

 

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

 

On August 31, 2023, the Company refinanced the Initial Advance through the purchase by Cedar of $746,750 of the Company’s receivables for a gross purchase price of $515,000 (the “Refinanced Advance”). The Company received net cash proceeds of $134,018 after applying $390,892 towards the repayment of the Initial Advance. The new Cash Advance Agreement provides that if the Company repays the Refinanced Advance within 30 days then the amount payable to Cedar shall be reduced to $643,750, and if the Refinanced Advance is repaid on days 31 to 60 then the amount payable to Cedar shall be reduced to $674,650. Until the purchase price is repaid, the Company agreed to pay Cedar $16,594 per week. On September 29, 2023, the Company repaid $0.3 million of the Cash Advance Agreement with proceeds from the RLSA Loan (as defined below). As a result of such payment, the weekly payment was reduced to $9,277. As of June 30, 2024, the remaining balance on the Cash Advance Agreement was $64,956.

 

The financing fees were recorded as a debt discount. For the six months ending June 30, 2024, the Company amortized $139,678 of the debt discount and, as of June 30, 2024, had a remaining debt discount balance of $111,044.

 

Revenue Loan and Security Agreement

 

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

 

The financing fees for the RSLA Loan were recorded as a debt discount. For the six months ending June 30, 2024, the Company amortized $1,579 of the debt discount and as of June 30, 2024 had a remaining debt discount balance of $12,632. For the six months ended June 30, 2024, the Company incurred $108,513 in interest related to the RSLA Loan.

 

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 $344,925 of our future sales for a gross purchase price of $236,250. The Company received net proceeds of $225,000. Until the purchase price has been repaid, the Company agreed to pay the Buyer $13,797 per week. As of June 30, 2024, the remaining balance on the Future Receipts Agreement was $110,376.

 

The financing fees were recorded as a debt discount. For the six months ending June 30, 2024, the Company amortized $89,772 of the debt discount and, as of June 30, 2024, had a remaining debt discount balance of $30,152.

 

FirstFire Convertible Note

 

On April 5, 2024, the Company entered into a purchase agreement with FirstFire Global Opportunities Fund, LLC (“FirstFire”), pursuant to which FirstFire agreed to purchase, and the Company agreed to issue and sell, (i) a promissory note with an aggregate principal amount of $275,000, which is convertible into shares of the Company’s common stock, according to the terms, conditions, and limitations outlined in the note (the “FirstFire Note”), (ii) a warrant to purchase 229,167 shares of the Company’s common stock at an exercise price of $1.20 per share, (iii) a warrant to purchase 500,000 shares of common stock at an exercise price of $0.01 issued to FirstFire, and (iv) 50,000 shares of common stock, for a purchase price of $250,000. Carter, Terry, & Company, Inc. acted as placement agent for the transaction, for which it received a cash fee of $25,000 and 11,655 restricted shares of the Company’s common stock.

 

The FirstFire Note carries an interest rate of twelve percent (12%) per annum, with the first twelve months of interest, amounting to $33,000, guaranteed, and fully earned as of the issue date. The maturity date of the FirstFire Note is twelve (12) months from the issue date, at which point the Principal Amount, together with any accrued and unpaid interest and other fees, shall be due and payable to the holder of the FirstFire Note.

 

The financing fees for the FirstFire Note were recorded as a debt discount. For the six months ending June 30, 2024, the Company amortized $39,539 of the debt discount and, as of June 30, 2024, had a remaining debt discount balance of $128,273. For the six months ended June 30, 2024, the Company incurred $33,000 in interest related to the FirstFire Note. 

 

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Note 11 – Related Party Transactions

 

In the fourth quarter of 2022, the Company issued a series of demand promissory notes in the aggregate principal amount of $550,000 to a related party, JAG, a company in which the Company’s Chief Financial Officer is a beneficiary but does not have any control over its investment decisions with respect to the Company, for an aggregate purchase price of $500,000. The JAG Notes accrue 10% annual interest from their respective dates of issuance. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest. On July 10, 2023, the Company issued an additional demand promissory note in the principal amount of $110,000 to JAG for a purchase price of $100,000.

 

In consideration for subscribing to the JAG Note for $100,000 dated December 29, 2022, and for agreeing to extend the date on which the other JAG Notes are callable to March 31, 2023, the Company issued JAG a warrant to purchase 17,500 shares of common stock. The warrant may be exercised for a period of five (5) years from issuance at a price of $10.00 per share. On July 10, 2023, JAG agreed to extend the date on which the JAG Notes are callable to September 30, 2023.

 

In the fourth quarter of 2022, the Company issued demand promissory notes in the aggregate principal amount of $220,000 for an aggregate purchase price of $200,000, of which (1) $100,000 was received from its Chief Executive Officer ($60,000 on November 29, 2022, $15,000 on December 2, 2022, and $25,000 on December 13, 2022) and (2) $100,000 was received from an entity controlled by its Chief Financial Officer ($75,000 on November 29, 2022 and $25,000 on December 13, 2022). These notes accrue 10% annual interest accrues from the date of issuance. These notes are callable with 10 days prior written notice. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee, and accrued interest.

 

For the six months ended June 30, 2024, the Company incurred $40,444 in interest related to these demand notes and as of June 30, 2024 the total outstanding balance, including principal and accrued interest, was $1,003,897.

 

As of June 30, 2024, the Company owed accounts payable to related parties totaling $227,321, primarily related to unpaid employee expense reimbursements and unpaid board fees, and accrued compensation of $375,422, primarily related to deferred wages and accrued paid time off.

 

Note 12 – Stockholders’ Equity

 

Reverse Stock Split

 

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

 

Increase in Authorized Common Stock

 

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

 

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 Company’s Series A Preferred Stock (the “Series A Preferred”). One million (1,000,000) shares of Series A Preferred with a stated value of $5.00 per share were authorized under the Series A Certificate of Designation.

 

Each share of Series A Preferred has a stated value of $5.00 and is convertible into shares of the Company’s common stock at a fixed conversion price equal to $2.20 per share, subject to adjustment. The Company may not effect the conversion of any shares of Series A Preferred if, after giving effect to the conversion or issuance, the holder, together with its affiliates, would beneficially own more than 9.99% of the Company’s outstanding common stock. Moreover, the Company may not effect the conversion of any shares of Series A Preferred if, after giving effect to the conversion or issuance, the holder, together with its affiliates, would beneficially own more than 19.99% of the Company’s outstanding common stock unless and until the Company receives the approval required by the applicable rules and regulations of The Nasdaq Stock Market LLC (or any subsequent trading market).

 

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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 (“Merger Sub”), with and into 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) $5.00, 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.

 

Since the conversion of the Series A Preferred Stock is contingent on the closing of the Merger, it is not considered a mandatorily redeemable financial instrument until the closing of the Merger and therefore is not considered a liability under ASC 480. Additionally, since the Series A Preferred Stock is redeemable for the Company’s common stock upon an event within the Company’s control, it is classified as permanent equity.

 

On December 29, 2023, the Company entered into securities purchase agreement (the “Preferred Series A SPA”) with NAYA for the purchase of 1,000,000 shares of the Company’s Series A Preferred Stock at a purchase price of $5.00 per share. The parties agreed that NAYA’s purchases would be made in tranches in accordance with the following schedule: (1) $500,000 no later than December 29, 2023; (2) $500,000 no later than January 19, 2024; (3) $500,000 no later than February 2, 2024; (4) $500,000 no later than February 16, 2024; and (5) an additional amount as may be required prior to closing of the Merger, 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 100,000 shares of Series A Preferred Stock in the first tranche of this private offering for gross proceeds of $500,000.

 

Effective as of May 1, 2024, the Company entered into an Amendment (the “SPA Amendment”) to the Series A Preferred SPA. Pursuant to the SPA Amendment, the parties agreed to the following closing schedule for NAYA’s purchases of the remaining 838,800 shares of the Company’s Series A Preferred Stock at a purchase price of $5.00 per share:

Schedule of Closing Price for NAYA's Purchases of Remaining Shares

Closing Date		Shares				Aggregate Purchase Price
May 10, 2024			20,000			$	100,000
May 17, 2024			30,000			$	150,000
May 24, 2024			30,000			$	150,000
May 31, 2024			30,000			$	150,000
June 7, 2024			30,000			$