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Item 7.Management s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This discussion includes certain forward-looking statements about our business and our expectations, including statements relating to revenues, international revenues, revenue growth rates, gross margin, operating expenses, amortization expense, earnings per share, available cash and operating cash flow. Any such statements are subject to risk that could cause the actual results to vary materially from expectations. For a further discussion of the various risks that may affect our business and expectations, see the section titled “Risk Factors” contained in Item 1A of Part I of this Annual Report on Form 10-K. The risks and uncertainties discussed therein do not reflect the potential future impact of any mergers, acquisitions or dispositions. In addition, any forward-looking statements represent our estimates only as of the day this Annual Report was filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

Background

We were formed on January 5, 2007 under the laws of the Commonwealth of Massachusetts under the name Bio X Cell, Inc. to acquire the assets of Medelle Corporation (“Medelle”). Dr. Claude Ranoux purchased all of the assets of Medelle, and then he contributed those assets, including four patents relating to the INVOcell technology, to Bio X Cell, Inc. upon its formation in January 2007.

On December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and each of the shareholders of INVO Bioscience entered into a share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation (“Emy’s”). Upon the closing of the share exchange on December 5, 2008, the INVO Bioscience shareholders transferred all of their shares of common stock in INVO Bioscience to Emy’s. In connection with the share exchange, Emy’s changed its name to INVO Bioscience, Inc. and Bio X Cell, Inc. became a wholly owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.).

The share exchange described immediately above was accounted for as a “reverse merger” because the former Bio X Cell shareholders owned a majority of the outstanding shares of common stock of Emy’s immediately following the share exchange. Bio X Cell was deemed the acquirer in the reverse merger. The financial results included in this Annual Report on Form 10-K are based on our audited balance sheet as of December 31, 2020 and 2019 and related audited statements of operations and stockholders’ deficiency and statements of cash flows for the periods ended December 31, 2020 and 2019, respectively.

Overview

We are a medical device company focused in the Assisted Reproductive Technology (“ART”) marketplace. Our mission is to increase access to care and expand fertility treatment and patient care across the globe. Our patented device, the INVOcell, is the first Intravaginal Culture (“IVC”) system in the world used for the natural in vivo incubation of eggs and sperm during fertilization and early embryo development. INVOcell was granted clearance in the United States by the U.S. Food & Drug Administration (“FDA”) in November 2015, received the CE mark in October 2019, and is now positioned to help provide millions of infertile couples across the globe access to a new infertility treatment option. We believe this novel device and procedure provides a more natural, safe, effective, efficient and economical fertility treatment compared to current infertility treatments, including in-vitro fertilization (“IVF”) and intrauterine insemination (“IUI”). Unlike conventional infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the women’s vaginal cavity as an incubator to support a more natural fertilization and embryo development environment. As such, this novel device promotes in vivo conception and early embryo development.

In both commercial utilization of the INVOcell and in clinical studies, the INVO Procedure has proven to have equivalent pregnancy success and live birth rates as IVF. Additionally, we believe there are emotional benefits with the mother’s participation in fertilization and early embryo development by vaginal incubation compared to that of conventional IVF treatment by offering patients a more connected and personalized method to achieve pregnancy.

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For many couples struggling with infertility, access to treatment is often not available. Financial challenges (cost of treatment) and limited availability (or capacity) of fertility medical care are two of the main challenges in the ART marketplace that contribute to the large percentage of untreated patients. Religious, social and cultural roadblocks can also prevent hopeful couples from realizing their dream to have a baby with conventional IVF. We believe INVOcell can address many of the key challenges in the ART market, particularly patient cost and infrastructure capacity constraints. The many benefits to the INVO solution include:

● Promotes greater involvement by couples in the treatment and conception.

In the second quarter of 2016, the first U.S. baby from the INVOcell and INVO Procedure following FDA clearance was born in Texas.

Sales and Marketing

Our product commercialization efforts are focused on identifying distributors and partners within targeted geographic regions that we believe can best promote, market and sale the INVOcell device and process to assist infertile couples in having a baby. We believe that our proven INVOcell procedure is an effective low-cost treatment option which can also be offered without the need for a more expensive IVF lab facility. We have been authorized to sell the INVOcell device in the United States since November 2015 after receiving de novo class II clearance from the US Food & Drug Administration (“FDA”). As a result of our January 2019 exclusive sales, marketing and distribution agreement with Ferring for the U.S., our primary focus will be on supporting Ferring and establishing INVO-clinics within the U.S. as well as developing key international markets around the world.

We anticipate that we will experience quarterly fluctuations in our revenues as a result of our efforts to expand the sales of the INVO technology to new markets. We expect international sales will increase moving forward as we continue to expand our efforts to expand INVOcell globally. We will continue to seek out partners that will contractually commit to meeting agreeable performance objectives that are consistent with our goals and objectives.

On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Distribution Agreement”) with Ferring International Center S.A. (“Ferring”), which closed on January 14, 2019. Pursuant to the Distribution Agreement, among other things, we granted Ferring an exclusive license in the United States (the “Territory”) with rights to sublicense under patents related to our proprietary INVOcellTM intravaginal culture device together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the United States. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to establish up to five clinics that will commercialize INVO cycles in the U.S. This agreement was amended on March 2, 2021 to provide for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements. We retained all commercialization rights for the Licensed Product outside of the United States. We believe the strategic partnership with a strong reproductive organization such as Ferring has provided us with the necessary sales and marketing resources and overall market credibility to help execute our goal to expand the INVOcell device around the world.

The Ferring license was deemed to be a functional license that provides the counterparty with a “right to access” to our intellectual property during the subscription period and accordingly, revenue is recognized over a period of time, which is generally the subscription period. During the twelve months ended December 31, 2020, we recognized $714,286, related to the Ferring license agreement.

As of December 31, 2020, we had deferred revenues of $3,571,429 relating to the Distribution Agreement with Ferring.

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On March 2, 2021, we entered into Amendment No. 1 to the Distribution Agreement (the “Amendment”) with Ferring. Pursuant to the Amendment, Ferring agreed to purchase a 2,004 count of product for $501,000 pursuant to the Distribution Agreement in March 2021, at which point the minimum annual target for 2020 set forth in Section 2.4 of the Distribution Agreement will be deemed to be satisfied in full as a result of such purchase. The Amendment provides for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements.

Operations

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

Historically, our most significant challenge in growing our business has been our limited resources. Beginning in 2019, as a result of the Ferring agreement and upfront payment, we expanded our sales and marketing efforts and regulatory and clinical development activities. Our cash needs are primarily attributable to funding our sales and marketing efforts, strengthening our training capabilities, satisfying existing obligations, funding our planned clinical trial for additional indications for use, building an administrative infrastructure, and costs and professional fees associated with being a public company. We currently expect our existing distribution and partnership agreements, such as that with Ferring and the other more recent agreements with non-U.S. companies to provide increased revenue in the future, which we expect will help offset the higher level of spending.

Selling, general and administrative expenses were $6,062,874 and $3,123,875 for the years ended December 31, 2020 and 2019, respectively. The $2,938,999 increase in selling, general and administrative expenses in 2020 was primarily the result of an increase in wages as we expanded our internal team, professional fees, legal fees, and increased our spending on expanded label efforts. However, $1,756,991 of this increase is related to non-cash stock compensation and stock option expense.

Throughout the period 2019 to 2020 we incurred annual net losses as we continued to market our product and proprietary process as we endeavored to increase our revenue base. We expect to continue incurring losses during 2021 as we continue to invest in INVO clinics in the U.S. and the global expansion of our business and INVOcell technology.

We cannot accurately predict the level of success our key partners will enjoy over the next 12-24 months. However, we anticipate that we will continue to launch the INVOcell device and INVO Procedure within the U.S. through our agreement with Ferring, and in other parts of the world with new distributor partnerships and joint venture agreements.

Critical Accounting Policies and Estimates

The discussion and analysis of INVO Bioscience’s financial condition presented in this section are based upon the audited consolidated financial statements of INVO Bioscience, which have been prepared in accordance with the generally accepted accounting principles in the United States. During the preparation of the financial statements, INVO Bioscience is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, INVO Bioscience evaluates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A summary of significant accounting policies is included below. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

Stock Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC 718-10 Share-Based Payment (formerly SFAS 123R). 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 performance goals in exchange for the award, which is usually immediate but sometimes over a vesting period. Warrants granted to non-employees are recorded as an expense over the requisite service period based on the grant date estimated fair value of the grant, determined using the Black-Scholes option pricing model.

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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.

5. Recognize as revenue when (or as) each performance obligation is satisfied.

Recent Accounting Pronouncements

In July 2017, FASB issued ASU 2017-11 (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). The new standard simplifies the accounting for certain financial instruments with down round features. Part I of ASU 2017-11 changes the classification analysis of certain equity-linked financial instruments, such as warrants and embedded conversion features, such that a down round feature is disregarded when assessing whether the instrument is indexed to an entity’s own stock under Subtopic 815-40, Contracts in Entity’s Own Equity. As a result, a down round feature, by itself, no longer requires an instrument to be re-measured at fair value through earnings each period, although all other aspects of the indexation guidance under Subtopic 815-40 continue to apply. Part II of ASU 2017-11 re-characterizes the indefinite deferral of certain provisions of Topic 480, Distinguishing Liabilities from Equity, (currently presented as pending content in the Codification) as a scope exception. No change in practice is expected as a result of these amendments. The new standard is effective for fiscal years beginning after December 15, 2018, early adoption is permitted. The amendments in Part II have no accounting impact and therefore do not have an associated effective date. The Company decided to early adopt this ASU 2017-11 and applied it to the convertible notes it issued during the year which are reflected in this Form 10K.Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. In May 2017, the FASB issued ASU No. 2017-09 which was issued to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, “Compensation – Stock Compensation” to changes in the terms and conditions of a share-based payment award. This update is effective for the Company in the fiscal year beginning October 1, 2018. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Leases (Topic 842). In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The Company adopted the standard effective January 1, 2019. The standard allows a number of optional practical expedients to use for transition. The Company choose the certain practical expedients allowed under the transition guidance which permitted us to not to reassess any existing or expired contracts to determine if they contain embedded leases, to not to reassess our lease classification on existing leases, to account for lease and non-lease components as a single lease component for equipment leases, and whether initial direct costs previously capitalized would qualify for capitalization under FASB ASC 842. The new standard also provides practical expedients and recognition exemptions for an entity's ongoing accounting policy elections. The Company has elected the short-term lease recognition for all leases that qualify, which means that we do not recognize a ROU asset and lease liability for any lease with a term of twelve months or less.

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The most significant impact of adopting the standard was the recognition of ROU assets and lease liabilities for operating leases on the Company's consolidated balance sheet but it did not have an impact on the Company's consolidated statements of operations or consolidated statements of cash flows. The Company did not have a cumulative effect on adoption prior to January 1, 2019.

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU 2017-04 which simplifies the test for goodwill impairment by eliminating Step 2 from the Goodwill impairment test. This new guidance is effective for the Company beginning in fiscal year 2021. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Management does not believe that any other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.

Results of Operations

Fiscal year 2020 was impacted by the COVID-19 global pandemic, which affected the overall fertility industry as well as impacted some of our key partners and their efforts. However, we also believe important progress was made during the year that will help drive overall awareness and future expansion of INVOcell within key markets. This includes: 1) the availability of additional, real world (retrospective) data demonstrating quality patient outcomes with INVOcell, which further builds confidence and credibility around the technology, 2) the signing of additional distribution and joint venture agreements, 3) the addition of key personnel, and 4) the completion of a major public financing which provides the necessary working capital to execute on our growth and global market expansion efforts. While the ongoing pandemic may continue to impact 2021 and impede certain progress in some markets, the fertility industry has and continues to work toward a return to normal levels and we believe our expanded number of partners and active markets affords us a strong forward looking outlook.

The Assisted Reproductive Technology (“ART”) market also continues to benefit from a number of industry tailwinds, including 1) the large under-served potential patient population, 2) increasing infertility rates around the world 3) growing awareness and education of fertility treatment options, 4) a growing acceptance toward fertility treatment, 5) improvements in procedure techniques and hence improvements in pregnancy success rates and 6) generally improving insurance (private and public) reimbursement trends; all of which should help contribute to strong industry growth and patient demand for treatment. As a result of these dynamics, we feel INVO Bioscience and its novel technology solution are well positioned.

Comparison of the years ended December 31, 2020 and 2019

Revenues

Revenue for year ended December 31, 2020 was $1,037,286, compared to $1,480,213 for the ended December 31, 2019. The decrease was the result of a decline in product sales to Ferring.

However, pursuant to an amendment we entered into subsequent to the year end, Ferring placed a $501,000 order in March 2021, which we agreed would satisfy Ferring’s minimum purchase requirements for 2020.

Gross Profit

Gross profit for the year ended December 31, 2020 was $948,526 compared to $1,340,543 for the year ended December 31, 2019. Gross margins were 91% and 91% for the years ended December 31, 2020 and 2019, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2020 were $6,065,066, compared to $3,128,635 for the year ended December 31, 2019. The increase of $2,936,431 or 94% was primarily the result of an increase in personnel, stock-based compensation, marketing and other corporate expenses. Approximately $1,756,991 of this increase is related to non-cash stock compensation and stock option expense.

Research and Development Expenses

We began to fund additional research and development (“R&D”) efforts in 2020 as part of our 5-day label expansion efforts, and also submitted additional trademark and patent filings. Excluding the investment in inventory in anticipation of clinical trials and patents, R&D expenses were $398,426 for the year ended December 31, 2020. During 2019 we did not fund any R&D.

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Interest Expense, Financing Fees

Interest expense and financing fees were $2,836,504 for the year ended December 31, 2020, compared to $387,646 for the year ended December 31, 2019. The increase of $2,448,858, or approximately 632%, was primarily due to an increase in amortization of discount, debt issuance cost and interest on the 2020 Convertible Notes and was a non-cash related expense.

Income Taxes

As of December 31, 2020, we had unused federal net operating loss carryforwards (“NOLs”) of $21,819,421. These losses expire in various amounts at varying times beginning in 2027 with a portion carrying on indefinitely. Unless expiration occurs, these NOLs may be used to offset future taxable income and thereby reduce our income taxes otherwise payable.

We recorded a valuation allowance against our deferred tax assets at December 31, 2020 and 2019 totaling $6,408,401 and $4,401,714, respectively. The valuation allowance has been established for certain deferred tax assets for which we believe it is more likely than not that the tax benefits will not be realized, which are primarily federal and state net operating loss carryforwards. If our expectations for future operating results on a consolidated basis or at the state jurisdiction level vary from actual results due to changes in healthcare regulations, general economic conditions, or other factors, we may need to adjust the valuation allowance, for all or a portion of our deferred tax assets. Our income tax expense in future periods will be reduced or increased to the extent of offsetting decreases or increases, respectively, in our valuation allowance in the period when the change in circumstances occurs. These changes could have a significant impact on our future earnings.

Liquidity and Capital Resources

For the years ended December 31, 2020 and 2019, we had net losses of $8,347,316 and $2,167,544, respectively. The increase in net loss was due to increased operating expenses and interest expense. Approximately $2,626,220 of this increase was related to non-cash equity and debt amortization expenses as well as $1,756,991 of equity compensation. As of December 31, 2020, we had working capital of $8,254,540, compared to $42,330 as of December 31, 2019. As of December 31, 2020, our stockholders’ equity was $5,743,106, compared to a stockholders’ deficit of $3,713,595 as of December 31, 2019. Cash used in operations was $4,775,148 for the year ended December 31, 2020, compared to cash provided by operations of $1,370,513 for the year ended December 31, 2019.

During 2020, we raised $13.8 million in debt and equity financings. Based on our current plan, we believe we have sufficient liquidity for at least the next 12 months. To the extent additional funds are necessary to meet our longer-term liquidity needs to execute our business strategy, we may need to raise additional funding by way of debt or equity financings or a combination of these potential sources of funds, although we can provide no assurance that these sources of funding will be available on reasonable terms.

Historically, our primary sources of liquidity have been from equity or debt offerings and up-front distribution licensing fees. Until we can generate a sufficient amount of cash from operations, we may need to finance future cash needs through public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly scale back our operations or delay, scale back or discontinue the continuing development of our products. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

Cash Flows

The following table shows a summary of our cash flows for the years ended December 31, 2020 and 2019, (in thousands):

Cash (used in) provided by:

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As of December 31, 2020, we had $10,097,760 in cash compared to $1,238,585 on December 31, 2019. Net cash used in operating activities in 2020 was $4,775,148, as compared to net cash provided by operating activities of $1,370,513 for 2019. The increase in net cash used in operations was primarily due to the increase in net loss and a decrease in deferred revenue as a result of the initial exclusive license and distribution agreement fee we received in January 2019.

In 2020, cash used in investing activities of $187,254 related to new molds, additional trademarks and investment to establish joint ventures. In 2019, cash used in investing activities of $114,706 related to new molds and trademarks.

During 2020, cash provided by financing activities of $13,821,577 primarily related to the public offerings of equity and convertible notes. In 2019, cash used by financing activities of $229,465 primarily related to principal payments on notes payable.

Off Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

- Any obligation under certain guarantee contracts;

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Inflation

We believe that inflation has not had a material effect on our operations to date.

Item 7A. Quantitative and Qualitative Disclosure about Market Risks

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

We will be exposed to risk from changes in foreign currency exchange rates related to our foreign joint ventures. Our principal exchange rate exposure relates to the Malaysian Ringgit, the North Macedonian Denar, the Mexican Peso and the Indian Rupee.

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Item 8.Financial Statements and Supplementary Data

Page

Report of Independent Registered Public Accounting Firm F-1

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-2

Notes to Consolidated Financial Statements F-6

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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, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows for each of the years in the two-year period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Lack of Going Concern Paragraph

As discussed in Note 2 to the financial statements, due to the net loss and negative cash flows from operations for the year, the Company evaluated the need for a going concern.

Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses which are not able to be easily substantiated.

To evaluate the appropriateness of the lack of going concern paragraph in our audit opinion, we examined and evaluated the financial information that was the initial cause for this consideration along with management’s plans to mitigate the going concern and management’s disclosure on going concern.

/s/ M&K CPAS, PLLC

We have served as the Company’s auditor since 2019.

Houston, TX

March 30, 2021

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INVO Bioscience, Inc.

CONSOLIDATED BALANCE SHEETS

ASSETS

Current assets

Other assets 240 -

Investment in joint ventures 98,084 -

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities

Note payable – Payroll Protection Program 157,620 -

Convertible notes, net 536,063 -

Lease liability, net of current portion 58,634 81,494

Convertible notes, net - 325,784

Convertible notes – related party, net - 28,824

Stockholders’ equity (deficiency)

Total liabilities and stockholders' equity (deficiency) $ 10,947,343 $ 1,795,479

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

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INVO Bioscience, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended December 31,

Revenue:

Cost of goods sold:

Operating expenses:

Research and development expenses 398,426 -

Other income (expense):

Provision for income taxes (36 ) (433 )

Net loss per common share:

Weighted average number of common shares outstanding:

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

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INVO Bioscience, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

Common Stock Additional Accumulated

Shares Amount Paid-in Capital Deficit Total

Stock options issued to employees - - 69,787 - 69,787

Stock options issued to directors and employees - - 1,140,989 - 1,140,989

Rounding shares as a result of reverse stock split 133 - - - -

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

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INVO Bioscience, Inc.

CONSOLIDATED STATEMENTSOF CASH FLOWS

For the Year Ended December 31,

Cash flows from operating activities:

Non-cash stock compensation issued for services 150,862 46,000

Non-cash stock compensation issued to directors and employees 465,140 17,750

Fair value of stock options issued to employees 1,140,989 69,787

Fair value of stock to be issued for legal settlement - 93,750

Debt conversion expense 131,984 -

Amortization of leasehold right of use asset 22,564 14,558

Changes in assets and liabilities:

Prepaid expenses and other current assets 38,210 53,544

Accounts payable and accrued expenses (42,603 ) (200,298 )

Deferred tax liabilities 36 433

Net cash (used in) provided by operating activities (4,775,148 ) 1,370,513

Cash flows from investing activities:

Payments to acquire property, plant and equipment (49,261 ) (64,839 )

Other assets (240 ) -

Investment in joint ventures (98,084 ) -

Net cash (used in) investing activities (187,254 ) (114,706 )

Cash flows from financing activities:

Proceeds from the sale of common stock, net of offering costs 11,475,052 -

Proceeds from notes payable 157,620 -

Principal payment on notes payable – related parties (40,000 ) (97,743 )

Net cash provided by (used in) financing activities 13,821,577 (229,465 )

Cash and cash equivalents at beginning of period 1,238,585 212,243

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Non cash activities:

Beneficial conversion feature on convertible notes $ 2,062,586 $ -

Settlement of accrued compensation $ - $ 712,162

Fair value of options issued for debt $ 524,452 $ -

Fair value of warrants issued with debt $ 524,452 $ -

Fair value of warrants issued to service providers $ 8,660 $ -

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

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INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) General

INVO Bioscience (“INVO” or the “Company”) is a medical device company focused on the Assisted Reproductive Technology (“ART”) marketplace. The primary focus is the manufacture and sale of the INVOcell device and the INVO technology to provide an alternative infertility treatment for couples. The Company’s patented device, the INVOcell, is the first Intravaginal Culture (“IVC”) system in the world used for the natural in vivo incubation of eggs and sperm during fertilization and early embryo development (the “INVO Procedure”). INVOcell was granted clearance in the United States by the U.S. Food & Drug Administration (“FDA”) in November 2015, received the CE mark in October 2019, and is now positioned to help provide millions of infertile couples across the globe access to a new infertility treatment option. The Company believes this novel device and procedure provides a more natural, safe, effective, efficient and economical fertility treatment compared to current infertility treatments, including in-vitro fertilization (“IVF”) and intrauterine insemination (“IUI”). Unlike conventional infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the women’s vaginal cavity as an incubator to support a more natural fertilization and embryo development environment. This novel device promotes in vivo conception and early embryo development.

In both current utilization of the INVOcell and in clinical studies, the INVO Procedure has proven to have equivalent pregnancy success and live birth rates as the traditional assisted reproductive technique, IVF. Additionally, we believe there are emotional benefits of the mother’s participation in the fertilization and early embryo development by vaginal incubation compared to that of conventional IVF treatment. INVOcell also offers to patients a more personalized way to achieve pregnancy.

(B) Basis of Presentation(Share Exchange and Corporate Structure)

The accompanying consolidated financial statements present on a consolidated basis the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Medesole JV Agreement

On January 16, 2020, the Company announced a joint venture agreement for the Indian market. Under terms of the agreement, INVO and our partner, Medesole Healthcare and Trading Pvt Ltd (“Medesole”), will each own 50% of the joint venture. The Company will provide the device, training and general technology support to the joint venture, while Medesole will be responsible for the operations of INVO clinics in India. Both partners will equally invest in start-up and capital expenditures and share in the revenue and profits of the joint venture. The business model allows INVO to benefit not only from the sale of the device, but from the delivery of the entire solution. The current joint venture arrangements are in the developmental stage and therefore only the initial startup costs are included in the financial statement for the year ended December 31, 2020.

Mexico JV Agreement

Effective September 24, 2020, INVO Centers, LLC, 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 and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the INVO Procedure and offer related medical treatments in Mexico. Each party will own one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico Company”). The Mexico Company will acquire the INVOcell product at cost plus any incurred shipping, customs and related fees.

The Mexico Company will operate in Monterrey Nuevo Leon, Mexico and any other cities and places in Mexico as approved by the Mexico Company’s board of directors and Shareholders. In addition, the Shareholders agreed that the Mexico Company will be the Company’s exclusive distributor in Mexico. The Shareholders also agreed not to compete directly or indirectly with the Mexico Company in Mexico. For the year ended December 31, 2020 the Company has invested $51,670 in this joint venture. This joint venture arrangements are in the developmental stage and therefore only the initial startup costs are included in the financial statement for the year ended December 31, 2020.

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North Macedonia JV Agreement

On November 23, 2020, the Company entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote and market technologies related to the INVOcell and INVO Procedure in North Macedonia, (ii) establish a private healthcare institution to offer the INVO Procedure. The joint venture will be co-managed and owned 50% by each of INVO and Ginekaliks. For the year ended December 31, 2020 the Company has invested $2,597 in this joint venture. This joint venture arrangements are in the developmental stage and therefore only the initial startup costs are included in the financial statement for the year ended December 31, 2020.

Malaysia JV Agreement

On November 23, 2020, the Company entered into a separate joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated in Malaysia, to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market our technologies related to the INVOcell and INVO Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Clinics in Malaysia. The joint venture will be co-managed and owned 50% by each of INVO Bioscience and SNS Murni. For the year ended December 31, 2020 the Company has invested $7,348 in this joint venture. This joint venture arrangements are in the developmental stage and therefore only the initial startup costs are included in the financial statement for the year ended December 31, 2020.

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.

(D) 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.

(E) Inventory

Inventories consist of raw materials, work in process and finished products and are stated at the lower of cost or market; using the first-in, first-out (FIFO) method as a cost flow convention.

(F) Property and Equipment

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

(G) Stock Based Compensation

The Company accounts for stock-based compensation under the provisions of Accounting Standards Codification 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.

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(H) Loss Per Share

Basic loss per share calculations are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share are computed similar to basic earnings per share except that the denominator is increased to include securities or other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2020 and 2019, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Years Ended December 31,

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

Years Ended December 31,

Effect of dilutive common stock equivalents:

(I) 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.

(J) 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.

(K) Business Segments

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

(L) 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, 2020, the Company had cash balances in excess of FDIC limits.

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(M) Revenue Recognition

1. Identify the contract with the customer.

2. Identify the performance obligations in the contract.

3. Determine the total transaction price.

5. Recognize as revenue when (or as) each performance obligation is satisfied.

Revenues for products, including: INVOcell®, INVO TM Retention System, and INVO Microscope Holding Block are 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.

On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Distribution Agreement”) with Ferring International Center S.A. (“Ferring”), which closed on January 14, 2019. At the closing, we received a $5,000,000 license payment upfront from Ferring. Pursuant to the Distribution Agreement, among other things, we granted Ferring an exclusive license in the United States market only, with rights to sublicense under patents related to our proprietary intravaginal culture device (INVOcellTM), together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the U.S. market. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to five clinics that will commercialize INVO cycles in the U.S. This agreement was amended on March 2, 2021 to provide for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements. Ferring is obligated to make a second payment to us of $3,000,000 upon procurement of a five (5) day label enhancement from the FDA for the current incubation period for the Licensed Product at least three (3) years prior to the expiration of the term of the license for the Licensed Product and provided further that Ferring has not previously exercised its right to terminate the Distribution Agreement for convenience. In addition, under the terms of a separate Supply Agreement, Ferring is obligated to pay us a specified supply price for each Licensed Product purchased by Ferring for distribution. The Distribution Agreement has an initial term expiring on December 31, 2025 and at the end of the initial term it may be terminated by us if Ferring fails to generate specified minimum revenues to us from the sale of the Licensed Product during the final two years of the initial term. Provided that no such termination occurs at the end of the initial term, thereafter the term of the Distribution Agreement shall automatically be renewed for successive three (3) years terms unless terminated by mutual consent. We retain all commercialization rights for the Licensed Product outside of the United States.

The Ferring license was deemed to be a functional license that provide customers with a “right to access” to our intellectual property during the subscription period and accordingly, under ASC 606-10-55-60 revenue is recognized over a period of time, which is generally the subscription period. The initial upfront payment of $5,000,000 which was received upon the signing of the agreement is being recognized to income over the 7 year term.

(N) 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 enterprise are less than their carrying amount, their carrying amounts are reduced to the fair value and an impairment loss recognized. There was no impairment recorded during the years ended December 31, 2020 and 2019.

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(O) Recent Accounting Pronouncements

In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The Company adopted the standard effective January 1, 2019. The standard allows a number of optional practical expedients to use for transition. The Company chose the certain practical expedients allowed under the transition guidance which permitted the Company to not to reassess any existing or expired contracts to determine if they contain embedded leases, to not to reassess our lease classification on existing leases, to account for lease and non-lease components as a single lease component for equipment leases, and whether initial direct costs previously capitalized would qualify for capitalization under FASB ASC 842. The new standard also provides practical expedients and recognition exemptions for an entity's ongoing accounting policy elections. The Company has elected the short-term lease recognition for all leases that qualify, which means that we do not recognize a ROU asset and lease liability for any lease with a term of twelve months or less.

The Company adopted Accounting Standards Update No. 2016-02: Leases, or ASU 2016-02, effective January 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position.

The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows.

The Company adopted ASC 842 on a modified retrospective approach at the effective date and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify the accounting and disclosure requirements for income taxes by eliminating various exceptions in accounting for income taxes as well as clarifying and amending existing guidance to improve consistency in application of ASC 740. The provisions of ASU 2019-12 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact that ASU 2019-12 will have on its consolidated financial statements.

Management was not aware of any accounting issued, but not yet effective accounting standards, if currently adopted would have material effect on the consolidated financial statements.

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(P) Reverse Stock Splits

On May 26, 2020, the Company effected a 1-for-20 reverse stock split of its common stock. All shares, options and warrants throughout these consolidated financial statements have been retroactively restated to reflect the reverse split.

On November 9, 2020, the Company effected a 5-for-8 reverse stock split of its common stock. All shares, options and warrants throughout these consolidated financial statements have been retroactively restated to reflect the reverse split.

NOTE 2 LIQUIDITY

On January 14, 2019, INVO Bioscience entered into a distribution agreement (the “Distribution Agreement”) with Ferring International Center S.A. (“Ferring”) which granted Ferring an exclusive licensing rights to sublicense the Company’s INVOcell together with the retention device for the U.S. market. Under the terms of the Distribution Agreement, Ferring was obligated to make an initial payment to the Company of $5,000,000 upon satisfaction of certain closing conditions. The Company received the initial $5 million cash payment upon the execution of the Ferring distribution agreement in January 2019.

On November 12, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters (the “Underwriters”), in connection with the Company’s public offering (the “Offering”) of 3,625,000 shares of the common stock, at a public offering price of $3.20 per share. The initial closing of the Offering for 3,625,000 shares of common stock took place on November 17, 2020. On November 18, 2020, the Underwriters exercised their option pursuant to the Underwriting Agreement to purchase an additional 528,750 shares of common stock (the “Option Shares”). The closing for the Option Shares took place on November 20, 2020 for which the Company received $1,522,800 in net proceeds after deducting underwriting discounts and commissions. With the exercise of the option to purchase the Option Shares, the total amount of shares of common Stock sold in the Offering was 4,153,750 shares with aggregate net proceeds received by the Company of $11,837,800 after deducting underwriting discounts and commissions and offering expenses.

For the years ended December 31, 2020 and 2019, the Company had net losses of $8,347,316 and $2,167,544, respectively. The Company had working capital of $8,254,540 as of December 31, 2020, compared to $42,330 as of December 31, 2019. As of December 31, 2020, the Company’s stockholder’s equity was $5,743,106 compared to a deficiency of $3,713,595 as of December 31, 2019. Cash used in operation for 2020 was $4,775,148, compared to cash provided by operations of $1,370,513 for 2019.

In connection with the preparation of its financial statements for the years ended December 31, 2020 and 2019, the Company’s management evaluated the Company’s ability to continue as a going concern in accordance with the ASU 2014-15, Presentation of Financial Statements–Going Concern (Subtopic 205-40), which requires an assessment of relevant conditions or events, considered in the aggregate, that are known or reasonably knowable by management on the issuance dates of the financial statements which indicated the probable likelihood that the Company will be unable to meet its obligations as they become due within one year after the issuance date of the financial statements.

As part of its evaluation, management assessed known events, trends, commitments, and uncertainties, which included the profitability of the Company and the cash flow generated by its operations, and the amount of capital recently and/or in the process of being raised.

Working capital at December 31, 2020 improved by $8,212,210 from the previous year.

As a result of the public offering on November 12, 2020, of 3,625,000 shares of common stock and an over-allotment of 528,750 shares of common stock on November 17, 2020 that resulted in net proceeds received of approximately $11.8 million, combined with the projected cash needs, management believes that it has completely mitigated the circumstance that led to a doubt with respect to the Company’s ability to continue as a going concern which existed at the time of the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and (ii) it has sufficient liquidity for at least the next 12 months.

NOTE 3 INVENTORY

The components of inventory are:

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NOTE 4 PROPERTY AND EQUIPMENT

The estimated useful lives and accumulated depreciation for furniture, equipment and software are as follows:

Estimated Useful Life

Manufacturing equipment 6 to 10 years

Medical equipment 10 years

Office equipment 3 to 7 years

Medical equipment 49,261 -

The Company recorded depreciation expense of $10,110 and $6,230 in 2020 and 2019, respectively.

NOTE 5 PATENTS AND TRADEMARKS

The Company capitalizes the initial expense related to establishing the patent 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 the patent in the marketplace in proportion to the expense it must spend to maintain the patent.

The Company has recorded the following patent costs:

The Company recorded amortization expense of $1,807 and $4,558 in 2020 and 2019, respectively.

Estimated amortization expense as of December 31, 2020 is as follows:

Years ended December 31,

2025 and thereafter -

As of December 31, 2020, and December 31, 2019, the Company recorded the following trademarks balances:

Accumulated amortization - -

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The trademarks have an indefinite life, so no amortization expense is calculated. Trademarks are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. The Trademark assets were created in 2019 and no material adverse changes have occurred since their creation.

NOTE 6 LEASES

The Company has an operating lease for our office, which have an initial term of 5 years with an option to renew for 3 additional years. There is no early termination clause included. The operating lease agreements does not contain any material restrictive covenants. Per FASB’s ASU 2016-02, Leases (Topic 842), 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 least payments, with appropriate interest calculation. Per the terms of ASU 201-02, the Company can use its implicit interest rate, if known, or applicable federal rate otherwise. Since the Company’s implicit interest rate was not readily determinable, the Company utilized the applicable federal rate, which was 3.0% as of April 2019.

ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the net present value of the Company’s obligation to make payments arising from these leases. The lease liabilities are based on the present value of fixed lease payments over the lease term using the implicit lease interest rate or, when unknown, the Company's incremental borrowing rate on the lease commencement date. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option(s). Operating lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less, or short-term leases, are not recorded on the accompanying consolidated balance sheet.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component under the practical expedient provisions of the standard. The Company has lease agreements with terms less than one year. For the qualifying short-term leases, the Company elected the short-term lease recognition exemption in which the Company will not recognize ROU assets or lease liabilities, including the ROU assets or lease liabilities for existing short-term leases of those assets in upon adoption.

Variable lease payments and short-term lease expenses were immaterial to the Company’s financial statements for the years ended December 31, 2020 and 2019. The Company’s lease agreements do not contain material restrictive covenants.

The components of the lease assets and liabilities are as follows:

Lease Component Balance Sheet Classification December 31, 2020

Assets

ROU assets - operating lease Other assets $ 79,319

Liabilities

Current operating lease liability Current liabilities $ 22,707

Long-term operating lease liability Other liabilities 58,634

Total lease liabilities $ 81,341

Rent expense is recognized on a straight-line basis over the life of the lease. Rent expense consists of the following:

Year ended

Operating lease costs $ 24,982

Total rent expense $ 24,982

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Future minimum lease payments under non-cancellable leases were as follows:

Total future minimum lease payments $ 85,646

Total operating lease liabilities $ 81,341

Current operating lease liability $ 22,707

Long-term operating lease liability 58,634

Total operating lease liabilities $ 81,341

NOTE 7 CONVERTIBLE NOTES AND NOTES PAYABLE

Notes Payable

2018 Convertible Notes Payable

In April and May 2018, the Company issued convertible notes (the “2018 Convertible Notes”) payable to investors in the aggregate principal amount of $895,000. The 2018 Convertible Notes accrued interest at the rate of 9% per annum which was payable in stock. The 2018 Convertible Notes in an aggregate principal amount of $550,000, were due on January 30, 2020, and 2018 Convertible Notes with an aggregate principal amount of $345,000 were due on March 31, 2021. The notes were convertible into shares of common stock at a price of $6.40 per share, provided, that if the Company completes a subsequent equity financing, the holders of the 2018 Convertible Notes could elect to convert the notes in shares of the Company’s common stock at a price equal to 75% of the price paid per share in such subsequent equity financing. During the fourth quarter of 2018, three noteholders converted their notes with a value of $200,000 into 32,982 shares of common stock. During the twelve months ended December 31, 2019, two noteholders converted principal and accrued interest of $235,000 and $3,723, respectively, into a total of 37,301 shares of common stock.

At inception of issuance, the Company calculated a beneficial conversion feature of the 2018 Convertible Notes in the form of a discount of $895,000; In May 2020, the remaining balance of $396,044, which included the principal balance of $420,000, accrued interest of $94,419, and the conversion discount of $118,375. As part of the extinguishment of the 2018 Convertible Notes, the Company issued 2020 Convertible Notes (as described below) to two remaining holders in the amount of $143,640. The remaining balance related to these notes was $116,693, which was comprised of a principal balance of $125,000, accrued interest of $23,318, net of the remaining discount of $31,625. In accordance with ASC 470, the extinguishment for these two holders was accounted for as a modification and no gain or loss was recorded. In May 2020, the remaining balance of $35,483, which included the principal balance of $40,000, accrued interest of $7,355, and a conversion discount of $11,872, was repaid. As of December 31, 2020, the balance of the 2018 Convertible Notes is $0.

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2020 Convertible Notes Payable

From May 15, 2020 through July 1, 2020, the Company entered into definitive securities purchase agreements (“Purchase Agreements”) with accredited investors for their purchase of (i) secured convertible notes issued by us in the aggregate original principal amount of $3,494,840 (the “Notes”), and (ii) Unit Purchase Options (“Purchase Options”) to purchase 303,623 units (each, a “Unit”), at an exercise price of $3.20 per Unit (subject to adjustments), with each Unit exercisable for (A) one share of the Company’s common stock and (B) a 5-year warrant (the “Warrants”) to purchase one share of our common stock at an exercise price of $3.20 (subject to adjustments) (the “Private Placement”). Each purchaser of a Note was issued a 5-year Purchase Option to purchase 0.086875 Units (as adjusted for the Reverse Splits (as defined below) for each dollar of Notes purchased. The Company received gross proceeds of approximately $3.5 million (of which $3,351,200 was received in cash and $143,640 resulted from cancellation of indebtedness). Tribal Capital Markets, LLC acted as placement agent (the “Placement Agent”) in the Private Placement. The Company paid the Placement Agent and certain selling agents a cash fee of 8% on a portion of the proceeds for an aggregate amount of $236,000. The Company also agreed to issue the Placement Agent and the selling agent 5-year warrants to purchase 6,750 shares of our common stock at an exercise price of $3.20. These warrants have the same terms and conditions as the Warrants issued in the Private Placement, except for the different exercise price. The Company received approximately $2,998,905 in net proceeds from the Private Placement, after deducting Placement Agent fees and selling agent fees payable to the Placement Agent and selling agent, respectively, and investor counsel in connection with the transaction. The Company used approximately $413,456, in proceeds to repay outstanding 9% promissory notes and the Company intends to use the remaining proceeds for working capital and general corporate purposes.

Pursuant to that certain Form of Secured Convertible Note entered into in connection with the Purchase Agreement (the “Form of Note”), interest on such Notes accrues at a rates of ten percent (10%) per annum and is payable either in cash or in shares of the Company’s common stock at conversion price of $3.20 (following and subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments) on each of the six and twelve month anniversary of the issuance date and on the maturity dates of November 15, 2021, December 22, 2021 and December 30, 2021.

All amounts of principal and interest due under the Notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders, into the Company’s common stock at a fixed conversion price of $3.20, which is subject to adjustment as described above.

Upon any issuance by the Company of any of its equity securities, including common stock, for cash consideration, indebtedness or a combination thereof after the date hereof (a “Subsequent Equity Financing”), each holder of a Note will have the option to convert the outstanding principal and accrued but unpaid interest of its Note into the number of fully paid and non-assessable shares of common stock issued in the Subsequent Equity Financing (“Conversion Securities”) equal to the product of unpaid principal, together with the balance of unpaid and accrued interest and other amounts payable hereunder multiplied by 1.1, divided by the price per share paid by the investors for the Conversion Securities.

A Note may not be converted, and shares of common stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of our outstanding ordinary shares.

The Company may prepay the Notes at any time in whole or in part by paying an amount equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest plus a prepayment fee equal to one percent (1%) of the principal amount to be repaid.

The Notes contain customary events of default including but not limited to: (i) failure to make payments when due; and (ii) bankruptcy or insolvency of the Company. If an event of default occurs, each holder may require the Company to redeem all or any portion of the Notes (including all accrued and unpaid interest thereon), in cash.

The Notes are secured by the proceeds from the $3,000,000 milestone payment pursuant to Section 7.2(b) of the Distribution Agreement dated November 12, 2018 between the Obligor and Ferring International Center S.A., after such proceeds are actually received by the Company from Ferring, all pursuant to the terms of a Security Agreement entered into between the Company and the noteholders under the Purchase Agreements.

Of the $3,494,840 in net proceeds received in the offering, $1,048,904 million was allocated to the unit purchase options issued to investors based on their relative fair value and $ 2,062,586 of beneficial conversion feature based on their relative fair value. This amount represented a discount on the debt and additional paid-in-capital at the date of issuance.

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In November 2020, $1,319,840 of principal elected to convert as part of the public underwritten offering.

The remaining principal balances of the 2020 Convertible Notes were as follows:

Less beneficial conversion feature discount (604,897 ) -

Less options discount (224,051 ) -

Less warrants discount (229,954 ) -

Less issuance cost (129,408 ) -

Total, net of discount $ 536,063 $ -

Interest expense on the 2020 Convertible Note was $194,631 and $0 for the years ended December 31, 2020 and 2019, respectively.

Amortization of options discount on the 2020 Convertible note was $300,365 and $0 for the years ended December 31, 2020 and 2019, respectively.

Amortization of warrant discount on the 2020 Convertible Note was $301,228 and $0 for the years ended December 31, 2020 and 2019, respectively.

Amortization of beneficial conversion feature on the 2020 Convertible Note was $1,670,135 and $0 for the years ended December 31, 2020 and 2019, respectively.

Amortization of issuance costs on the 2020 Convertible Note was $222,508 and $0 for the years December 31, 2020 and 2019, respectively.

On July 1, 2020, the Company received a loan in the principal amount of $157,620 relating to the U.S. Small Business Administration’s Paycheck Protection Program. The loan will mature 18 months from the date of funding is payable over 18 equal monthly installments, and bears interest at a rate of 1% per annum. The loan is forgivable up to 100% of the principal balance based upon satisfaction of certain criteria under the Paycheck Protection Program. The Company has applied for full forgiveness.

NOTE 8 OTHER RELATED PARTY TRANSACTIONS

On March 5, 2009, the Company entered into a related party transaction with Kathleen Karloff, the former Chief Executive Officer and a former Director of the Company. During the twelve months ended December 31, 2019, the Company paid the remaining balance due Ms. Karloff in the amount of $62,743 along with $55,000 of accrued interest.

In April 2011, the Company issued a new short-term convertible note (“Q211 Note”) payable to James Bowdring in the amount of $50,000. The Note carries a 10% interest rate. The Company paid $25,000 of the Note in 2011 in cash. The Q211 Note is convertible into common stock of the Company at a conversion price of $0.96 per share, subject to adjustments. During the years ended December 31, 2020 and December 31, 2019, the Company accrued interest in the amount of $0 and $1,493 on the Q211 Note, respectively.

In November 2011, the Company issued a new convertible note (“Q411 Note”) payable to James Bowdring in the amount of $10,000. The Q411 Note carries a 10% interest rate. The Q411 Note was converted into common stock of the Company at a conversion price of $0.32 per share, subject to adjustments. In addition, $0 and $597 of interest was accrued in the years ended December 31, 2020 and 2019, respectively.

On August 7, 2019, the Company sent James Bowdring, a related party, a check in the amount of $65,197 as full payment of the foregoing promissory notes. On August 8, 2019, Mr. Bowdring’s legal counsel returned this check with a letter stating that the check did not properly account for the compound interest identified in such notes. In addition, the letter stated Mr. Bowdring’s desire to convert these promissory notes into shares of the Company’s common stock in lieu of any cash payment. The Company does not believe that Mr. Bowdring has the right to convert such notes upon receiving payment of such notes and intends to vigorously contest any conversion of these notes.

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In May 2018, James Bowdring and his children participated in the “2018 Convertible Notes” offerings in the aggregate principal amount of $40,000. The 2018 Convertible Notes accrue interest at the rate of 9% per annum which is paid in stock. These Notes are due on March 31, 2021. The notes are convertible into shares of common stock at a price of $6.40 per share, provided, that if the Company completes a subsequent equity financing, the holders of the 2018 Convertible Notes can elect to convert the notes in shares of our common stock at a price equal to 75% of the price paid per share in such subsequent equity financing. In addition, $1,380 and $3,599 of interest was accrued in the twelve months ended December 31, 2020 and 2019, respectively.

Accounts payable and accrued liabilities balances include accrued directors fees, expenses reports for management and employees for expenses they paid for personally related to travel or normal business expenses.

December 31,

Accounts payable and accrued liabilities $ 65,197 $ 41,842

In November 2020, Paulson Investment Company served as a co-managing underwriter for the Company’s underwritten public offering and received fee and commissions for such role in the amount of $271,440. Trent Davis, one of our directors is President of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and commissions received by Paulson.

NOTE 9 STOCKHOLDERS’ EQUITY

Reverse Stock Splits

On December 16, 2019, the Company’s stockholders approved a reverse stock split at a ratio of between 1-for 5 and 1-for-25, with discretion for the exact ratio to be approved by the Company’s board of directors. On February 19, 2020, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 1-for-20. On May 21, 2020, the Company filed a certificate of change (with an effective date of May 26, 2020) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 1-for-20 reverse stock split of its outstanding common stock. The reverse split took effect at the open of business on May 26, 2020.

On October 22, 2020 the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 5-for-8 and also approved a proportionate decrease in the Company’s authorized common stock to 125,000,000 shares from 200,000,000. On November 5, 2020, the Company filed a certificate of change (with an effective date of November 9, 2020) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 5-for-8 reverse stock split of its outstanding common stock. As a result of the reverse stock split, 133 shares were issued in lieu of fractional shares. On November 6, 2020, the Company received notice from FINRA/OTC Corporate Actions that the reverse split would take effect at the open of business on November 9, 2020 and the reverse stock split took effect on that date. The consolidated financial statement presented reflect the reverse splits.

Public offering

On November 12, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters (the “Underwriters”), in connection with the Company’s public offering (the “Offering”) of 3,625,000 shares of common stock, at a public offering price of $3.20 per share. The initial closing of the Offering for 3,625,000 shares of common stock took place on November 17, 2020. On November 18, 2020, the Underwriters exercised their option pursuant to the Underwriting Agreement to purchase an additional 528,750 shares of common stock (the “Option Shares”). The closing for the Option Shares took place on November 20, 2020 for which the Company received $1,522,800 in net proceeds after deducting underwriting discounts and commissions. With the exercise of the option to purchase the Option Shares, the total amount of shares of common stock sold in the Offering was 4,153,750 shares with aggregate net proceeds received by the Company of $11,837,800 after deducting underwriting discounts and commissions and offering expenses.

During the year ended December 31, 2020 the Company incurred $1,816,948 of offering costs related to issuance of common stock.

Year Ended December 31, 2020

In January 2020, the Company issued 31,250 shares of common stock under its 2019 Stock Incentive Plan with a fair value of $221,400 to an officer.

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In February 2020, the Company issued 3,125 shares of common stock under its 2019 Stock Incentive Plan with a fair value of $24,750 to an employee of which $20,626 was amortized in the twelve months ended December 31, 2020.

In February 2020, the Company issued 3,098 shares of common stock under its 2019 Stock Incentive Plan with a fair value of $25,000 to a board member.

In February 2020, the Company issued 1,875 shares of common stock under its 2019 Stock Incentive Plan with a fair value of $15,000 for services.

In February 2020, pursuant to Section 4(a)(2) of the Securities Act of 1933 as amended (the “Securities Act”), the Company issued 1,563 shares of common stock with a fair value of $11,500 in consideration of consulting services rendered. The Company did not receive any proceeds from the issuance.

In March 2020, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 1,563 shares of common stock with a fair value of $11,500 in consideration of consulting services rendered. The Company did not receive any proceeds from the issuance.

In May 2020, pursuant to Section 3(a)(9) of the Securities Act, the Company issued 24 shares of common stock as the result of the rounding on the reverse stock split. The Company did not receive any proceeds from the issuance.

In May 2020, the Company issued 3,438 shares of common stock under its 2019 Stock Incentive Plan with a fair value of $25,930 to employees of which $19,287 was amortized in the twelve months ended December 31, 2020.

In June 2020, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 3,750 shares of common stock with a fair value of $22,800 in consideration of consulting services rendered. The Company did not receive any proceeds from the issuance.

In August 2020, the Company issued 12,500 shares of restricted stock under its 2019 Stock Incentive Plan with a fair value of $72,200 to an employee of which $30,083 was amortized in the twelve months ended December 31, 2020.

In August 2020, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 3,750 shares of common stock with a fair value of $19,500 in consideration of consulting services rendered. The Company did not receive any proceeds from the issuance.

In November 2020, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 109 shares of common stock in consideration of consulting services rendered. The Company did not receive any proceeds from the issuance.

In November 2020, the Company issued 4,153,750 shares of common stock for cash proceeds of $13,292,000.

In November 2020, pursuant to Section 3(a)(9) of the Securities Act, the Company issued 453,699 shares of common stock with fair value of $1,451,824 are the result of the conversion of notes payables and accrued interest. No gain or loss was recorded on conversion, as the issuance of common stock was pursuant to the terms of a prior agreement.

In November 2020, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 22,250 shares of common stock with a fair value of $70,562 in consideration of consulting services rendered. The Company did not receive any proceeds from the issuance.

In November 2020, the Company issued 5,793 shares of restricted stock under its 2019 Stock Incentive Plan with a fair value of $18,494 to directors of which $18,494 was amortized in the twelve months ended December 31, 2020.

In December 2020, the Company issued 49,757 shares of restricted stock to directors under its 2019 Stock Incentive Plan, with a fair value of $152,700.

Year Ended December 31, 2019

In January 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 1,875 shares of common stock with a fair value of $26,600 to service providers.

In February 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 8,394 shares of common stock for conversion of notes payable and accrued interest in the amount of $53,723.

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In April 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 25,000 shares of common stock for conversion of notes payable in the amount of $160,000.

In May 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 3,907 shares of common stock for conversion of notes payable in the amount of $25,000.

In August 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 1,562 shares of common stock with a fair value of $15,000 to service providers.

In November 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 625 shares of common stock with a fair value of $4,400 to service providers.

In November 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 9,375 shares of common stock with a fair value of $93,750 pursuant a legal settlement signed on November 11, 2019.

NOTE 10 EQUITY-BASED COMPENSATION

Equity Incentive Plans

In October 2019, the Company adopted its 2019 Stock Incentive Plan (the "2019 Plan"). Under the 2019 Plan, the Company’s Board of Directors is authorized to grant both incentive and non-statutory stock options to purchase common stock and restricted stock awards to its employees, directors, and consultants. The 2019 Plan initially provided for the issuance of 500,000 shares. In January 2020, the number of available shares was increased to 793,093, pursuant to a provision in the 2019 Plan providing for an automatic annual increase equal to 6% of the total number of shares of Company common stock outstanding on December 31 of the preceding calendar year.

Options generally have a life of 3 to 10 years and exercise price 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 or based on performance objective.

The following table sets forth the activity of the options to purchase common stock under the 2019 Plan. The prices represent the closing price of our common stock on the OTC QB Venture Market until November 12, 2020 and the Nasdaq Capital Market on the respective dates.

Options Outstanding Options Exercisable

Balance at December 31, 2018 - $ - $ - $ - - $ - $ -

Forfeited - $ - $ - $ - - $ - $ -

Exercised - $ - $ - $ - - $ - $ -

Forfeited - $ - $ - $ - - $ - $ -

Exercised - $ - $ - $ - - $ - $ -

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

Years ended December 31,

Risk-free interest rate range 0.48%-1.65 % 1.6 %

Expected life of option-years $5.00 -$5.77 2.9

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 our 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-executes, within the Company. The Company does not currently pay dividends on its common stock nor does it expect to in the foreseeable future.

Options Outstanding Options Exercisable

Year ended December 31, 2018 $ - - - $ - - $ -

Total Intrinsic Value of Options Exercised Total Fair Value of Options Vested

Year ended December 31, 2018 $ - $ -

For the years ended December 31, 2020, the weighted average grant date fair value of options granted was $6.94 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, 2020, the weighted average remaining service period is 3.5 years.

The Company recognized $1,141,042 in stock-based compensation expense, which is recorded in selling, general and administrative expenses on the consolidated statement of operations for the years ended December 31, 2019. Unamortized stock option expense at December 31, 2020 that will be amortized over the weighted-average remaining service period of 3.5 years totaled $1,832,069.

Year December 31, 2020

On January 6, 2020, the Company granted one former employee a total of 2,500 options to purchase shares of the Company common at a price as of $7.04 per share. The Option Shares will vest when certain economic conditions are met by the Company and are exercisable until January 6, 2030. These economic conditions were met, and the options vested, on November 17, 2020. The total estimated value using the Black-Scholes Model, based on a volatility rate of 110.8%-128.0% and an option fair value of $5.94 was $14,851.

On January 17, 2020, the Company granted one employee a total of 125,000 options to purchase shares of the Company common at a price as of $6.84 per share. The Option Shares will vest ratably over twenty-four (24) months and are exercisable until January 17, 2030. The total estimated value using the Black-Scholes Model, based on a volatility rate of 110.8%-128.0% and an option fair value of $5.94 was $742,542.

On February 1, 2020, the Company granted one employee a total of 9,375 options to purchase shares of the Company common at a price as of $8.32 per share. The Option Shares will vest ratably over twenty-four (24) months and are exercisable until February 1, 2030. The total estimated value using the Black-Scholes Model, based on a volatility rate of 110.8%-128.0% and an option fair value of $6.56 was $61,487.

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On February 5, 2020, the Company granted five Board member a total of 15,490 options to purchase shares of the Company common at a price as of $8.07 per share. The Option Shares will vest 16.67% immediately, 83.33% will vest ratably over ten (10) months and are exercisable until December 5, 2030. The total estimated value using the Black-Scholes Model, based on a volatility rate of 110.8%-128.0% and an option fair value of $6.33 was $98,063.

On March 23, 2020, the Company granted one employee a total of 12,500 options to purchase shares of the Company common at a price as of $8.32 per share. The Option Shares will vest ratably over thirty-six (36) months and are exercisable until March 23, 2030. The total estimated value using the Black-Scholes Model, based on a volatility rate of 110.8%-128.0% and an option fair value of $6.98 was $87,258.

On April 6, 2020, the Company granted one employee a total of 938 options to purchase shares of the Company common at a price as of $8.32 per share. The Option Shares will vest ratably over thirty-six (36) months and are exercisable until March 10, 2030. The total estimated value using the Black-Scholes Model, based on a volatility rate of 117.8% and an option fair value of $5.77 was $5,412.

On August 11, 2020, the Company granted one employee a total of 162,500 options to purchase shares of the Company common at a price as of $5.76 per share. The Option Shares will vest ratably over thirty-six (36) months and are exercisable until August 10, 2030. The total estimated value using the Black-Scholes Model, based on a volatility rate of 113.2% and an option fair value of $4.76 was $773,655.

On November 27, 2020, the Company granted three Board members a total of 5,793 options to purchase shares of the Company common at a price as of $3.16 per share. The Option Shares will vest immediately and are exercisable until November 27, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 208.3% and an option fair value of $3.16 was $18,318.

Twelve Months Ended December 31, 2019

On October 16, 2019, the Company granted one employee a total of 202,599 options to purchase shares of the Company common at a price as of $8.16 per share. The Option Shares will vest ratably over thirty-six (36) months and are exercisable until October 16, 2022. The total estimated value using the Black-Scholes Model, based on a volatility rate of 116.33% and an option fair value of $6.20 was $1,256,163.

On October 29, 2019, the Company granted one former employee a total of 27,345 options to purchase shares of the Company common at a price as of $9.25 per share. The Option Shares will vest when certain economic conditions are met by the Company and are exercisable until October 25, 2029. These economic conditions were met, and the options vested, on November 17, 2020. The total estimated value using the Black-Scholes Model, based on a volatility rate of 119.98% and an option fair value of $7.70 was $210,564.

On October 29, 2019, the Company granted one employee a total of 30,074 options to purchase shares of the Company common at a price as of $9.25 per share. The Option Shares will vest when certain economic conditions are met by the Company and are exercisable until October 25, 2029. These economic conditions were met, and the options vested, on November 17, 2020. The total estimated value using the Black-Scholes Model, based on a volatility rate of 119.98% and an option fair value of $7.70 was $231,579.

Restricted Stock and Restricted Stock Units

In 2020, we issued 70,302 of restricted stock, to certain employees. Shares issued to employees vest monthly over 1 year on the anniversary dates of their grant. In 2020 64,021 shares of restricted stock vested.

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The following table summarizes our aggregate restricted stock awards and restricted stock unit activity in 2020:

Balance at January 1, 2018 - $ - $ -

Forfeitures (- ) $ - $ (- )

The Company recognized $459,890 in stock-based compensation expense, which is recorded in selling, general and administrative expenses on the consolidated statement of operations for the years ended December 31, 2020, and the Company will recognize $77,927 over the remaining requisite service period.

NOTE 11 STOCK OPTIONS AND WARRANTS

In connection with the issuance of the 2020 Convertible Notes, the Company also issued options to purchase 303,623 units at an exercise price of $3.20 per unit, with each unit consisting of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $3.20 per share. The units and warrants are exercisable for a period of five years from the date of issuance and are subject to a downward provision if the Company issues securities at a lower price. Warrant holders have a right to require the Company to pay cash in the event of a fundamental transaction. In accordance with ASC 815, the warrants and options issued in this period were determined to require equity treatment and $524,452 related to the options and $533,112 related to warrants was recorded in stockholders’ equity in the year ended December 31, 2020.

In connection with the issuance of the 2020 Convertible Notes, the Company agreed to issue the placement agent and the selling agent five-year warrants to purchase 6,750 shares of the Company’s common stock at an exercise price of $3.20. In the year ended December 31, 2020, $47,293 was recorded in stockholders’ equity related to these warrants.

A Monte Carlo model was used because the investor warrants and options contain fundamental transaction payouts and reset events that cannot be modeled with a Black Scholes model.

The fair value of the options and warrants issued to the convertible debt holders is estimated as of the issue date using a Monte Carlo model with the following assumptions:

Twelve Months ended December 31,

Risk-free interest rate range 0.38% - 0.39 % - %

Expected life of warrants and option (years) 4.47 - 4.62 -

Expected stock price volatility 105.5% - 106.2 % - %

Expected dividend yield 0 % - %

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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 and warrants. Expected volatility is based upon the historical volatility of the Company’s common stock over the period commensurate with the expected term of the related instrument. The options and warrants are valued assuming projected reset events adjusting the exercise price and a forced exercise upon a projected fundamental transaction by management. The options and warrants early exercise are modeled assuming registration after 180 days. The Company does not currently pay dividends on its common stock nor does it expect to in the foreseeable future.

NOTE 12 INCOME TAXES

The provision for income taxes consists of the following for the year ended December 31, 2020 and 2019:

December 31

Federal income taxes:

Current - -

Total federal income taxes (84 ) 349

State 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 2020 and 2019 federal statutory rate as compared to the effective income tax rate is as follows:

December 31

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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, 2020 and 2019, are as follows:

December 31

Deferred tax assets:

Amortization of Discount Notes Payable 93,017 99,635

Charitable Contributions 127 -

Stock Option Expense 28,212 -

Restricted Stock Unit 10,665 -

Deferred tax liabilities:

Trademark Amortization (1,529 ) (433 )

Convertible Note Interest Expense (42,111 ) -

Note Issuance Cost (3,855 ) -

Net deferred tax liability $ (468 ) $ (433 )

The Company recorded a full valuation allowance against its net deferred tax asset at December 31, 2020 and 2019 totaling $6,408,401 and $4,401,714, respectively. A naked credit resulting from indefinite lived intangibles was valued at December 31, 2020 and 2019 totaling ($468) and ($433), respectively.

As of December 31, 2020, the Company has federal net operating loss carryforwards totaling $21,819,421. Of that amount, $10,793,313 will expire, if not utilized, in various years beginning in 2028 and which are also subject to the limitations of IRC §382. The remaining carryforward amount of $11,026,108, has no expiration period and can be applied to 80% of taxable income per year in future periods. State net operating loss carryforwards total $16,774,460. Of that amount, $4,659,523 will begin to expire in 2033 and are subject to the limitations of IRC §382. The remaining $12,114,937 of state net operating loss carryforwards are similar to the federal net operating loss in that it has no expiration period and can be applied to 100% of state taxable income per year.

IRC §382 of the Internal Revenue Code of 1986, as amended imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its NOLs to reduce its tax liability. An “ownership change” is generally defined as any change in ownership of more than 50% of a corporation’s “stock” by its “5-percent shareholders” over a rolling three-year period based upon each of those shareholder’s lowest percentage of stock owned during such period. Such a change in ownership occurred in 2007. At this time, The Company does not believe this limitation, when combined with amounts allowable due to net unrecognized built in gains, will affect its ability to use any NOLs before they expire.

The Company routinely inspect its income tax filings for current and previous positions that could be considered uncertain. If a position is deemed to carry a more-likely-than-not probability of notwithstanding challenge from a tax authority, the Company would record a liability for Uncertain Tax Positions (UTP) for the tax in question. As of December 31, 2020, and for all prior years, the Company does not and have not carried any UTP’s on the balance sheet. If a UTP was recorded, it is the Company’s policy to include interest and penalties on taxes as part of income tax expense.

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There are currently no income tax examinations being performed at the federal or state level and the Company is not aware of any possible future audits or examinations. The Company’s federal and state income tax returns from 2017 and forward remain open to examination by the corresponding taxing authorities under the statute of limitations, generally. However, due to the loss carryforwards established on historical tax filings, it is possible that the taxing authorities could examine tax years as far back as 2007 in order to determine if the net operating loss carryforward is appropriate.

NOTE 13 COMMITMENTS AND CONTINGENCIES

A) Litigation

INVO Bioscience, Inc. v. James Bowdring

On August 7, 2019, the Company sent James Bowdring, the brother of the Company’s then Chief Financial Officer, a check in the amount of $65,197 as full and final payment under those certain promissory notes dated April 8, 2011 and November 9, 2011. On August 8, 2019, Mr. Bowdring’s legal counsel returned the check. The basis for returning the check was a claim that the interest due under the Notes called for compounded interest and not per annum interest, this amount is recorded in Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheet. In addition, the letter rejecting the tender of the payment in full check alleged Mr. Bowdring was considering a future intention to convert his Promissory Notes into shares of the Company’s common stock. Mr. Bowdring, through his counsel, indicated that such future intention to convert the Notes to common stock were contingent upon Mr. Bowdring addressing certain personal issues which were not disclosed by his counsel in the correspondence returning the checks. The Company does not believe that Mr. Bowdring has the right to seek conversion of the Notes once payment for the Notes has been tendered. In order to resolve the issue of the Company’s tender of payment in full versus Mr. Bowdring’s assertion that he can reject tender and seek conversion, the Company has filed an action in the Suffolk Superior Court in Boston on September 3, 2019 seeking Declaratory Judgment and Judgment for Breach of Contract. On September 30, 2019, Mr. Bowdring filed an answer and counterclaim under which he alleged breach of contract, fraud, promissory estoppel, unfair and deceptive practices and constructive trust. Mr. Bowdring is seeking receipt of all shares due under the adjusted conversion price.

The 10% Senior Secured Convertible Promissory Notes were issued on April 8, 2011 and November 9, 2011, with maturity dates thirty days subsequent to the dates of issuance. Interest was calculated at 10% per annum, compounded based on a 360-day year. Investors had the option to convert any unpaid principal and accrued interest into shares of Company’s common stock original conversion prices of $0.96 and $0.32, respectively, subject to adjustments upon the Company’s issuances of stock at prices less than the original conversion prices during the 24-months after issuance of each note (i.e., currently $0.2100).

The Company does not currently expect the above matter to have a material adverse effect upon either the Company’s results of operations, financial position, or cash flows.

B) Employee Agreements

On October 10, 2019, the Company entered into an agreement with our newly appointed CEO, Steve Shum. The Company agreed to pay Mr. Shum an annual salary of $260,000. In addition, Mr. Shum earned a bonus compensation of $75,000 bonus upon a successful up-listing to the Nasdaq exchange which was paid as of December 31, 2020. All other bonus amounts will be determined by the Board of Directors, at their sole discretion. In addition to his base salary and performance bonus, the Company granted Mr. Shum: (i) 400,000 shares of our common stock and (ii) a three-year option to purchase 6,483,171 shares of our common stock at an exercise price of $0.255 per share. These options will vest monthly over a 3-year period.

On January 15, 2020, the Company entered into an employment agreement (the “Campbell Employment Agreement”) with Michael Campbell to continue serving as the Company’s Chief Operating Officer and Vice President of Business Development. The Campbell Employment Agreement provides for an annual base salary of $220,000, and a target annual incentive bonus of up to 50% of base salary if the Company achieves goals and objectives determined by the board of directors. In connection with the Campbell Employment Agreement, on January 17, 2020, the Company granted Mr. Campbell 31,250 shares of Company common stock, and an option to purchase 125,000 shares of Company common stock (the “Option”) at an exercise price of $6.84096 per share. One quarter of the Option vested upon grant, and the remainder vests in monthly increments over a period of two years from the date of grant. Mr. Campbell is also entitled to customary benefits, including health insurance and participation in employee benefit plans. The Campbell Employment Agreement provides that if Mr. Campbell terminates the Campbell Employment Agreement for “cause” (as defined in the Campbell Employment Agreement) or the Company terminates the Campbell Employment Agreement without “cause,” then he will continue to receive his base salary and certain insurance benefits for three months after termination. The Company may terminate the Campbell Employment Agreement without “cause” on 60 days’ notice.

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C) Consulting Agreements

The Company has entered into a consulting agreement with Shine Management, Inc. through which it is receiving outsourced accounting and the support of its acting CFO, Debra Hoopes. Debra is the CFO and Chief Administrative Officer of Shine Management, Inc. and Management Services Company in Charlottesville, VA.

(D) Major Customer Concentration Risk

The Company has one major customer, Ferring, that accounted for approximately 98.3% and $1,019,286 of sales for the year ended December 31, 2020. The Company expects to maintain this relationship with the customer.

NOTE 14 CONTRACTS WITH CUSTOMERS

The Company adopted ASC 606, Revenue from Contracts with Customers effective January 1, 2018 using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenues for 2020 are reported under ASC 606, while prior period amounts are not adjusted and continue to be reported under ASC 605, Revenue Recognition.

The Company routinely enters into agreements with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products that it offers. However, these agreements do not obligate the Company to provide goods to the customer and there is no consideration promised to us at the onset of these arrangements. For customers without separate agreements, the Company has a standard list price established by geography and by currency for all products and our invoices contain standard terms and conditions that are applicable to those customers where a separate agreement is not controlling. The Company’s performance obligations are established when a customer submits a purchase order or notification (in writing, electronically or verbally) for goods, and it accept the order. The Company identifies performance obligations as the delivery of the requested product(s) in appropriate quantities and to the location specified in the customer’s e-mail/or purchase order. The Company generally recognizes revenue upon the satisfaction of these criteria when control of the product has been transferred to the customer at which time it has an unconditional right to receive payment. The Company’s prices are fixed and are not affected by contingent events that could impact the transaction price. The Company does not offer price concessions and does not accept payment that is less than the price stated when it accepted the purchase order, except in rare credit related circumstances. The Company does not have any material performance obligations where it is acting as an agent for another entity.

In January 2019, the Company announced a U.S. license and distribution agreement with Ferring International Center S.A. (“Ferring”). The agreement calls for the issuance of an initial upfront payment of $5,000,000 which we received upon the signing of the agreement, ongoing product revenue, and then subsequent licensing fee payment of $3,000,000 that will provide us with a source of non-dilutive financing to execute our plan. Under the terms of the agreement the Company can pursue developing international markets and as well as partnering and opening INVO-only reproductive centers within the U.S. market. The initial upfront payment of $5,000,000 which the Company received upon the signing of the agreement is being recognized to income over the 7-year term.

Under the terms of the Distribution Agreement, Ferring completed its obligation to make an initial payment to the Company of $5,000,000 upon completion of the required closing conditions, including executed agreements from all current manufacturers of the Licensed Product that upon a material supply default by the Company, Ferring can assume a direct purchase relationship with such manufacturers. Ferring is obligated to make a second payment to the Company of $3,000,000 provided that the Company is successful in obtaining a five (5) day label enhancement from the FDA for the current incubation period for the Licensed Product at least three (3) years prior to the expiration of the term of the license for the Licensed Product and provided further that Ferring has not previously exercised its right to terminate the Distribution Agreement for convenience. In addition, the Company entered into a separate Distribution Agreement. The Distribution Agreement has an initial term expiring on December 31, 2025 and at the end of the initial term it may be terminated by the Company if Ferring fails to generate specified minimum revenues to the Company from the sale of the Licensed Product during the final two years of the initial term.

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On March 2, 2021, the Company entered into Amendment No. 1 to the Distribution Agreement (the “Amendment”) with Ferring. Pursuant to the Amendment, Ferring agreed to purchase a 2,004 count of product for $501,000 in March 2021, at which point the minimum annual target for 2020 set forth in Section 2.4 of the Distribution Agreement will be deemed to be satisfied in full as a result of such purchase. The Amendment provides for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements.

The Ferring license was deemed to be a functional license that provide customers with a “right to access” to our intellectual property during the subscription period and, accordingly, revenue is recognized over a period of time, which is generally the subscription period. During the twelve months ended December 31, 2020, the Company recognized $714,286 related to the Ferring license agreement.

As of December 31, 2020, and December 31, 2019, the Company had deferred revenues of $3,571,429 and $4,477,261, respectively.

On September 20, 2019, the Company entered into an exclusive distribution agreement with Quality Medicines, Cosmetics & Medical Equipment Import for the territories of Sudan, Uganda and Ethiopia. This distribution agreement has a term of one year and may be extended by mutual agreement and is based on wholesale prices. Quality Medicines is required to register our product in each of these countries.

On September 11, 2019, the Company entered into an exclusive distribution agreement with G-Systems Limited registered in Nigeria. In the territories of Nigeria. This distribution agreement has a term of one year and may be extended by mutual agreement and is based on wholesale prices. G-Systems is required to register our produce in Nigeria.

On November 12, 2019, the Company announced that it had entered into exclusive distribution agreements with Biovate a Jordanian company for the territory of Jordan and Orcan Medical for the territory of Turkey. This agreement has a term of one year with extensions by mutual agreement. Safadi Drugstore is required to register our product in Jordan.

On November 23, 2020, the Company entered into a Distribution Agreement with IDS Medical Systems (“Distributor”) to distribute the INVOcell system to Malaysia under which Distributor was appointed as the exclusive distributor in Malaysia. The Company can elect to terminate Distributor’s exclusivity upon its failure to meet certain purchase targets, in its sole discretion. The agreement is for a term of three years. The Company also granted Distributor an exclusive right to the INVO trademarks in Malaysia in connection with the sale of products in Malaysia.

Sources of Revenue

The Company has identified the following revenues disaggregated by revenue source:

Domestic Product revenue

Domestic Licensing fee

For the twelve months ended December 31, 2020 and 2019 the source of revenue was derived from:

Contract Balances

The Company incurs agreement obligations on general customer purchase orders and e-mails that have been accepted but unfulfilled. Due to the short duration of time between order acceptance and delivery of the related product, the Company has determined that the balance related to these obligations is generally immaterial at any point in time. The Company monitors the value of orders accepted but unfulfilled at the close of each reporting period to determine if disclosure is appropriate.

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Warranty

The Company’s general product warranties do not extend beyond an assurance that the product delivered will be consistent with stated specifications and do not include separate performance obligations.

Significant Judgments in the Application of the Guidance in ASC 606

There are no significant judgments associated with the satisfaction of our performance obligations. The Company generally satisfy performance obligations upon delivery of the product to the customer. This is consistent with the time in which the customer obtains control of the products. Therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial. The Company considers variable consideration in establishing the transaction price. Forms of variable consideration applicable to our arrangements include sales returns, rebates, volume-based bonuses, and prompt pay discounts. The Company uses historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products in the periods in which the related revenue is recognized and adjusted in future periods as necessary.

Commissions and Contract Costs

The Company does not use or offer sales commissions of any type. The Company generally does not incur incremental charges associated with securing agreements with customers which would require capitalization and recovery over the life of the agreement.

Practical Expedients

The Company’s payment terms for sales direct to customers and distributors are substantially less than the one year collection period that falls within the practical expedient in determination of whether a significant financing component exists.

Shipping and Handling Charges

Fees charged to customers for shipping and handling of products are included as an offset to the costs for shipping and handling of products included as a component of cost of products.

NOTE 15 INVESTMENT IN JOINT VENTURES

The following table sets forth a list of the Company’s current joint venture arrangements.

Subsidiary Name Country Percent (%) Ownership

SNS MURNI INVO Bioscience Malaysia Sendirian Berhad Malaysia 50%

Ginekalix INVO Bioscience LLC Skopje North Macedonia 50%

Positib Fertility, S.A. de C.V Mexico 33%

Medesole INVO Bioscience India India 50%

The current joint venture arrangements are in the developmental stage and therefore only the initial startup costs are included in the financial statement for the year ended December 31, 2020.

Malaysia JV Agreement

On November 23, 2020, the Company entered into a separate joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated in Malaysia, to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market its technologies related to the INVOcell and INVO Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Clinics in Malaysia. The joint venture will be co-managed and owned 50% by each of INVO Bioscience and SNS Murni. For the year ended December 31, 2020 the Company has invested $7,348 in this joint venture.

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North Macedonia JV Agreement

On November 23, 2020, the Company entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote and market technologies related to the INVOcell and INVO Procedure in North Macedonia, (ii) establish a private healthcare institution to offer the INVO Procedure. The joint venture will be co-managed and owned 50% by each of INVO Bioscience and Ginekaliks. For the year ended December 31, 2020 the Company has invested $2,597 in this joint venture.

Mexico JV Agreement

Effective September 24, INVO Centers, LLC 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 and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the INVO Procedure and offer related medical treatments in Mexico. Each party will own one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico Company”). The Mexico Company will acquire the INVOcell product at cost plus any incurred shipping, customs and related fees.

Medesole JV Agreement

On January 13, 2020, the Company entered into a joint venture agreement (the “Agreement”) with Medesole Healthcare and Trading Private Limited, India (“Medesole”), an Indian corporation that promotes and distributes healthcare technologies, medical equipment and allied services to hospitals, clinics and primary health care centers in India and the Middle East.

Pursuant to the Agreement, the Company and Medesole will form a joint venture entity incorporated and registered in India, which will operate under the name Medesole INVO Bioscience India Private Limited (the “JV”). After formation, the Company will grant to the JV all required licenses for promoting, marketing and selling the Company’s INVOcell® technology in India. The Company and Medesole intend that the JV will open and operate dedicated INVOcell® clinics only in India.

The JV will be co-managed and owned 50% by each of INVO and Medesole, who will share equally in the expenditures, revenues and profits of the JV. The Agreement has a term of three years and may be terminated by either party on 180 days’ prior written notice.

US Clinic JV Agreements

As of December 31, 2020, the Company was in negotiations with several potential joint venture partners but had not yet entered into any definitive agreements for additional U.S. INVO Clinics. The Company has invested $30,340 in joint ventures the Company is currently exploring.

NOTE 16 SUBSEQUENT EVENTS

Alabama Joint Venture

On March 10, 2021, the Company’s wholly owned subsidiary, INVO Centers, LLC (“INVO Centers”), entered into a limited liability company agreement (the “JV LLC Agreement”) with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of commercializing INVOcell and the INVO Procedure at a dedicated fertility clinic in Birmingham, Alabama. The name of the joint venture LLC is HRCFG INVO, LLC (the “JV Company”). The responsibilities of HRCFG’s principals include providing clinical practice expertise, performing recruitment functions, providing all necessary training, and providing day-to-day management of the clinic. The responsibilities of INVO Centers will provide access to and will be the exclusive provider to the JV Company of the INVOcell and the INVO Procedure. INVO Centers will also perform all required in vitro fertilization, industry specific compliance and accreditation functions, and product documentation for product registration. The Company will also provide certain funding to the JV Company. In connection with the formation of the JV Company, the Company provided an initial $30,000 in funding, in exchange for a note issued by HRCFG, which will be repaid from the operating profit of the JV Company. Interest on the note accrues at a rate of 1.5%. In addition, the Company has agreed to issue 25,000 shares of our common stock to HRCFG (i) upon the Birmingham clinic opening for business, and (ii) upon each additional INVOcell clinic opened for business by the JV Company.

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In March 2021, the Company and HRCFG, as lessees, entered into a Lease Agreement with Trustmark National Bank, as lessor, for the lease of a 4,129 square foot facility in Birmingham, Alabama for the clinic associated with the JV LLC Agreement. The lease term will commence upon the earlier of June 1, 20201 or the opening of the clinic, and will be 86 months. The base rent per month will initially be $9,196.44 and will increase 2.25% each year.

Amendment to Ferring Agreement

Equity Issuances

In March 2021, three noteholders converted $1,237,624 of principal and accrued interest to 386,758 shares of common stock.

In March 2021, the Company issued 77,444 shares of our common stock and 77,444 issued warrants upon exercise of outstanding unit purchase options for which it received $247,821 in proceeds.

In March 2021, the Company issued 39,094 shares of our common stock upon exercise of outstanding warrants for which it received $125,104 in proceeds.

In March 2021, the Company issued 85,568 shares of its common stock upon exercise of outstanding unit purchase options. The unit purchase options were exercised to purchase 131,114 shares and were exercised in full on a cashless basis and accordingly 45,546 shares were withheld at the market price of $9.20 per share less the exercise price of $3.20 per share to fund the exercise price.

In March 2021, the Company issued 131,114 warrants upon the exercise in full of 131,114 unit purchase options. The Company did not receive any proceeds upon exercise.

In March 2021, the Company issued 90,748 shares of our common stock upon exercise of outstanding warrants. The warrants were exercised to purchase 139,056 shares and were exercised in full on a cashless basis and accordingly 48,308 shares were withheld by the Company at the market price of $9.20 per share less the exercise price of $3.20 per share to fund the exercise price.

In January 2021, the Company issued 58,500 shares of our common stock with a fair value of $179,490 in consideration of consulting services rendered.

In February 2021, the Company issued 5,000 shares of our common stock with a fair value of $15,250 in consideration of consulting services rendered.

In March 2021, the Company issued 8,000 shares of our common stock with a fair value of $26,640 in consideration of consulting services rendered.

IVF US Equity

IVF · 10-K · period ended 2020-12-31

Item 7.Management s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure about Market Risks

Item 8.Financial Statements and Supplementary Data

IVF US Equity☆

IVF · 10-K · period ended 2020-12-31

Item 7.Management s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure about Market Risks

Item 8.Financial Statements and Supplementary Data

IVF US Equity