Item 1A. Risk Factors
You should carefully consider the following risk factors,
in addition to the other information in this report on Form 10-K, including the section of this report titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related
notes. If any of the events described in the following risk factors and the risks described elsewhere in this report on Form 10-K occurs,
our business, operating results and financial condition could be seriously harmed. This report on Form 10-K also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking
statements as a result of factors that are described below and elsewhere in this report.
Risks Related to Our Financial
Condition and Our Need for Additional Capital
Our financial situation
creates doubt whether we will continue as a going concern.
From the inception of our
consolidated subsidiaries on January 5, 2007, through December 31, 2024, we had an accumulated net loss of $67.2 million. There
can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or
additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements.
To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have
to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on
acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital
is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment.
We
have substantial indebtedness outstanding, and our operations are significantly leveraged. If we were unable to service our indebtedness,
our business would be adversely affected.
In
order to finance our operations we have incurred substantial indebtedness, including our secured convertible debenture held by Five Narrow
Lane LP and our secured obligation to Decathlon. We may not be able to continue to service our debt in the future. If we are unable to
service our debt and fail to pay our debt obligations in a timely fashion, we will be in default under one or more of our loan agreements.
Upon such a default, our secured creditors could exercise their rights and remedies under the applicable loan agreements, which
could include seizing all of our assets and selling them off under the Uniform Commercial Code and the loan agreements. Any such action
would have a material adverse effect on our business and prospects.
We will need to raise
additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may
force us to delay, limit or terminate operations.
We do not expect that
our current cash position will be sufficient to fund our current operations and service our current debt obligations for the next 12
months. Our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds
sooner than planned, through public or private equity or debt financings, government or other third-party funding or a combination
of these approaches. Raising funds in the current economic environment may present additional challenges. Even if we believe we have
raised or generated sufficient funds for our current or future operating plans, we may seek additional capital if market conditions
are favorable or if we have specific strategic considerations.
Any additional
fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient
amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the
rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such
issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute
our existing stockholders. The incurrence of additional indebtedness would result in increased fixed payment obligations, and we may
be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on
our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact
our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or
otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our
technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on
our business, operating results and prospects.
If we are unable to obtain
funding on a timely basis, we may be required to significantly curtail, delay or be unable to expand our operations or otherwise capitalize
on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Even if we can raise
additional funding, we may be required to do so on terms that are dilutive to you.
The capital markets have
been unpredictable in the past for unprofitable companies such as ours. In addition, it is generally difficult for development stage companies
to raise capital under current market conditions. The amount of capital that a company such as ours is able to raise often depends on
variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If we
are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are
not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued
viability will be materially adversely affected.
Risks Related to the Acquisition
of NAYA Therapeutics
NAYA Therapeutics has a limited operating history
and has no products approved for commercial sale, which may make it difficult for you to evaluate the success of NAYA Therapeutics business
to date and to assess its future viability.
NAYA Therapeutics is a clinical stage biotechnology
company with a limited operating history upon which we can evaluate NAYA Therapeutics business and prospects. Although the management
of NAYA Therapeutics and its service providers have substantial experience in successfully conducting and completing clinical trials,
including large-scale, pivotal clinical trials, obtain marketing approval, manufacturing a clinical or commercial scale product or arranging
for a third party to do so on our behalf or conduct sales and marketing activities necessary for successful product commercialization,
there is no guarantee that NAYA may be able to successfully advance its pipeline. Typically, it takes about three to six years to develop
a new biological drug from the time it enters Phase I clinical trials to when it is approved for treating patients, but in many cases
it may take longer. Predictions about NAYA Therapeutics future success or viability are highly dependent on sufficient timely financing
and the ability of our leadership to execute its development plans and scale-up efficiently its operations.
Risks Related to the Acquisition of Wisconsin Fertility
Institute
We may not be able
to successfully manage Wisconsin Fertility Institute and to achieve the benefits expected to result from the acquisition.
The acquisition of WFI may
present challenges to management, including the integration of our operations and personnel and that of WFI, continued management of the
clinic and special risks, including possible unanticipated liabilities, unanticipated integration costs and diversion of management attention.
We cannot assure you that
we will successfully integrate or profitably manage WFI’s businesses. Even if we are able to integrate and profitably manage WFI’s
business, we cannot assure you that our business will achieve sales levels, profitability, efficiencies or synergies that justify the
acquisition or that the acquisition will result in increased earnings for us in any future period.
If we fail to make
the required $7.5 million in additional payments required in our acquisition of WFI, our business would be adversely affected.
Following closing of
our acquisition of the WFI, we are required to make additional annual payments of approximately $2.5 million each year, for a total
of $7.5 million, through 2026, which payments are secured by the sellers having a lien on the assets purchased to acquire WFI. We
have not made the first annual payment, and we are currently in negotiations with the sellers of WFI to restructure the terms of the
acquisition, including payment terms, and otherwise resolve this payment. If we do not resolve this payment with the sellers of WFI
or otherwise negotiate new terms, including payment terms, or if we default on our additional payment obligations to the sellers of
WFI, such sellers could exercise their rights and remedies under acquisition agreements, which could include foreclosing on the
assets sold to us to acquire WFI. Any such action would have a material adverse effect on our business and prospects.
We may incur additional
debt financing to provide the cash proceeds necessary to acquire WFI. If we were unable to service any such debt, our business would be
adversely affected.
In order to finance our acquisition
of WFI, we secured debt financing and may look to raise additional debt proceeds. The current debt financing requires us to pledge all
or substantially all of our assets as collateral. If we were unable to satisfy any such debt obligation or fail to pay such debt obligations
in a timely fashion, we would be in default under such debt financing agreement and such lender could exercise its rights and remedies
under such debt financing agreements, which could include seizing all of our assets. Any such action would have a material adverse effect
on our business and prospects.
Risks Relating to Our Business
Our business has posted
net operating losses, has a limited operating history, and needs additional capital to grow and finance its operations.
From the inception of our consolidated subsidiary
BioXcell Inc. on January 5, 2007, through December 31, 2024, we had an accumulated net loss of $67.2 million. We have a limited
operating history and are essentially an early-stage operation. We will continue to be dependent on having access to additional new capital
and/or generating positive operating cash flow primarily through the growth of our clinics, the development of new INVO Centers and the
acquisition of additional IVF clinics, in order to finance the growth of our operations. Continued net operating losses together
with limited working capital make investing in our common stock a high-risk proposal. Our limited operating history may make it difficult
for management to provide effective insight into future activities, marketing costs, and customer acquisition and retention. This could
lead to us missing targets for the achievement of profitability, which could negatively affect the value of your investment.
We are subject to risks
associated with doing business globally.
Our operations, both inside
and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs
of various jurisdictions and geographies. Our operations outside the United States are subject to special risks and restrictions, including,
without limitation: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local
political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements
and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental
practices or policies affecting U.S. companies doing business abroad, including the U.S. Foreign Corrupt Practices Act and the trade sanctions
laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. Acts of terror or war
may impair our ability to operate in particular countries or regions and may impede the flow of goods and services between countries.
Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported
products in their local currency, or sell at competitive prices, and we may be unable to collect receivables from such customers. Further,
changes in exchange rates may affect our net earnings, the book value of our assets outside the United States and our stockholders’
equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect on our business,
financial condition or results of operations.
Failure to comply with
the United States Foreign Corrupt Practices Act or similar laws could subject us to penalties and other adverse consequences.
We are subject to the United
States Foreign Corrupt Practices Act, which generally prohibits United States companies, including their suppliers, distributors and other
commercial partners, from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining
business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the countries in which
we distribute products. We have adopted formal policies and procedures designed to facilitate compliance with these laws. If our employees
or other agents, including our distributors or suppliers, are found to have engaged in such practices, we could suffer severe penalties
and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
We are subject to significant
domestic and international governmental regulation.
Our business is heavily regulated
domestically in the United States and internationally. In the United States the FDA, and other federal, state and local authorities, implement
various regulations that subject us to civil and criminal penalties, including cessation of operations and recall of products distributed,
in the event we fail to comply. Any such actions could severely curtail our sales and business reputation. In addition, additional restrictive
laws, regulations or interpretations could be adopted, making compliance with such regulations more difficult or expensive. While we devote
substantial resources to ensure our compliance with laws and regulations, we cannot completely eliminate the risk that we may be found
non-compliant with applicable legal and regulatory requirements.
We believe that the healthcare
industry will continue to be subject to increased regulation as well as political and legal action, as future proposals to reform the
health care system are considered by the U.S. Congress and state legislatures. We do not know of, nor do we have any control over, future
changes to health care laws and regulations which may have a significant impact on our business.
We are subject to risks
relating to federal and state healthcare fraud, waste, and abuse laws.
We may be subject to healthcare
fraud, waste, and abuse regulation and enforcement by the federal government and the governments in the states and foreign countries in
which we might conduct our business. Such federal laws generally apply only to entities or individuals that provide items or services
for which payment may be made under a federal healthcare program. These laws are subject to extensive and increasing enforcement by numerous
federal, state, and local government agencies including the Office of Inspector General, the Department of Justice, the Centers for Medicare
& Medicaid Services, and various state authorities. The healthcare laws and regulations that may affect our ability to operate include
the following:
At present, our products and services are not reimbursable under any federal
healthcare program. If, however, that changes in the future and it were determined that we were not in compliance with these federal fraud,
waste, and abuse laws, we would be subject to liability.
Also, as noted above, many
states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in scope and may apply regardless
of payor, in addition to items and services reimbursed under Medicaid and other state programs. We may be subject to such laws in Alabama
and Georgia due to our joint venture operations in those states. The Georgia State False Medicaid Claims Act (Ga. Code Ann. §§
49-4-168 – 49-4-168.6), Georgia Medical Assistance Act false statements provision (Ga. Code Ann. §§ 49-4-140 – 49-4-157),
and Alabama Medicaid false statements statute (Ala. Code § 22-1-11(a)) contain prohibitions that are analogous to the federal False
Claims Act. Alabama law also includes an anti-kickback provision (Ala. Code § 22-1-11(c)) that is analogous to the federal AKS.
The Georgia Patient Self-Referral
Act of 1993 (Ga. Code Ann. §§ 43-1B-1 – 43-1B-8) contains prohibitions on self-referral that are similar to those under
the Stark Law, however, the Georgia law applies to additional classes of providers, including pharmacists, and is not limited to items
or services reimbursable by a federal healthcare program. The Georgia law prohibits health care providers or entities regulated by the
law from presenting any claim for payment to any individual, third-party payer, or other entity for a service furnished pursuant to a
prohibited referral.
If we are found in violation
of applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results
of operations, financial condition, cash flows, reputation and stock price, including:
● suspension or termination of our participation in federal healthcare programs;
● termination of various relationships or contracts related to our business; and
Responding to lawsuits and
other proceedings as well as defending ourselves in such matters would require management’s attention and cause us to incur significant
legal expense. It is also possible that criminal proceedings may be initiated against us or individuals in our business in connection
with investigations by the federal government.
Additionally, to the extent
that our product is sold or our services are provided in a foreign country, we may be subject to similar foreign laws.
We are subject to the
requirements of the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical
Health Act of 2009 (“HITECH Act”), and related implementing regulations (together, “HIPAA”), and failure to comply,
including through a breach of protected health information (“PHI”) could materially harm our business.
HIPAA established comprehensive
federal protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or “Covered
Entities”: (1) health plans, (2) health care clearing houses, and (3) health care providers who conduct certain health care transactions
electronically. The HIPAA standards also apply to Covered Entities’ “Business Associates.” Covered Entities and their
Business Associates must have in place administrative, physical, and technical standards to guard against the misuse of individually identifiable
health information. The HITECH Act promotes the adoption and meaningful use of health information technology. The HITECH Act addresses
the privacy and security concerns associated with the electronic transmission of health information, in part, through several provisions
that strengthen the civil and criminal enforcement of the HIPAA rules. These laws may impact our business in the future. NAYA is currently
a Business Associate of various Covered Entities. Failure to comply with these confidentiality requirements, including via a breach of
PHI, may result in penalties and sanctions.
In the ordinary course of
our business, we may use, collect, and store sensitive data, including PHI. We face risks relative to protecting this critical information,
including loss of access risk, inappropriate disclosure risk, inappropriate modification risk, and the risk of being unable to adequately
monitor our controls. Our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due
to employee error, malfeasance or other disruptions. Any such breach or interruption could compromise our networks and the information
stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, disclosure or other loss
of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such
as HIPAA, and regulatory penalties. There is no guarantee that we can continue to protect our systems from breach. Unauthorized access,
loss, or dissemination could also disrupt our operations.
The U.S. Office of Civil
Rights in the Department of Health and Human Services enforces the HIPAA privacy and security rules and may impose penalties for failure
to comply with requirements of HIPAA. Penalties vary significantly depending on factors such as whether failure to comply was due to willful
neglect. These penalties include civil monetary penalties of $100 to $50,000 per violation, up to an annual cap of $1,500,000 for identical
violations. A person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a
criminal penalty of up to $50,000 per violation and up to one-year imprisonment. The criminal penalties increase to $100,000 per violation
and up to five-years imprisonment if the wrongful conduct involves false pretenses, and to $250,000 per violation and up to 10-years imprisonment
if the wrongful conduct involves the intent to sell, transfer, or use identifiable health information for commercial advantage, personal
gain, or malicious harm. The U.S. Department of Justice is responsible for criminal prosecutions under HIPAA. Furthermore, in the event
of a breach as defined by HIPAA, there are reporting requirements to the Office of Civil Rights under the HIPAA regulations as well as
to affected individuals, and there may also be additional reporting requirements to other state and federal regulators, including the
Federal Trade Commission, and to the media. Issuing such notifications can be costly, time and resource intensive, and can generate significant
negative publicity. Breaches of HIPAA may also constitute contractual violations, including violation of our Business
Associate contracts with Covered Entities from which we receive PHI, that could lead to contractual damages or terminations.
We may not be able
to develop or continue our business if we fail to retain key personnel.
We substantially rely upon
the efforts and abilities of our executive management and directors. The loss of any of our executive officers and/or directors services
could potentially have a material adverse effect on our business, operations, revenues and/or prospects. If one or more of these persons
were to become unable or unwilling to continue in their present positions, we may not be able to replace them readily or timely, if at
all. We do not maintain key man life insurance on the lives of any of our executive management or directors.
Currency exchange rate
fluctuations may affect the results of our operations.
We may distribute our INVOcell
product internationally with all sales, domestic and international, in U.S. dollars. As a result, our operations could be impacted by
fluctuations in currency exchange rates, although we expect to mitigate such risk by invoicing only in U.S. dollars. In spite of this,
our operations may still be negatively impacted by foreign currency exchange rates in the event the U.S. dollar strengthens and the local
currency where the product is being sold weakens. In the event such international patients are unable to afford the associated increase
costs, international doctors and clinics may not be able to offer the INVOcell and IVC procedure. As we expand our international footprint
with joint ventures, these joint ventures will likely have a functional currency based on their location and as a result, if we are required
to consolidate these financial results it may create currency fluctuations. Additionally, as an international business we may be susceptible
to adverse foreign currency fluctuations unconnected to the U.S. dollar.
We are subject to risks
in connection with changes in international, national, and local economic and market conditions.
Our business is subject to
risks in connection with changes in international, national and local economic and market conditions, including the effects of global
financial crises, effects of terrorist acts, war and global pandemics. Such economic changes could negatively impact infertile people’s
ability to pay for fertility treatment around the world.
We could experience additional
risks associated with international sales, including:
● political and economic instability;
● export controls;
● changes in international legal and regulatory requirements;
● changes in tax laws, duties and tariffs.
Any of these factors could
have a material adverse effect on our business, results of operations and financial condition. From 2011 through 2023, we sold products
in certain international markets mainly through independent distributors. Although we are not actively pursuing international sales, they
could became more meaningful in the future. In the event a distributor fails to meet annual sales goals, we may be required to obtain
a replacement distributor, which may be costly and difficult to identify. Additionally, a change in our distributors may increase costs,
and create a disruption in our operations resulting in a loss of revenue.
Changes in the healthcare
industry may require us to decrease the selling price for our products or could result in a reduction in the available market size.
Governmental and private
sector initiatives in the U.S. and abroad involving trends toward managed healthcare and cost containment could place an emphasis on our
ability to deliver more cost-effective medical therapies. The development of other cost-effective devices could eventually adversely affect
the prices and/or sales of our products. Companies in the healthcare industry are subject to various existing and proposed laws and regulations,
in both domestic and international markets, regulating healthcare pricing and profitability. Additionally, there have been third-party
payer initiatives to challenge the prices associated with medical products, which if successful, could affect our ability to sell products
on a competitive basis in the future.
In the United States, there
has been a trend of consolidation among healthcare facilities and purchasers of medical devices, allowing such purchasers to limit the
number of suppliers from whom they purchase medical products. As result, it is unknown whether such purchasers will decide to stop purchasing
our products or demand discounts on our prices. Any pressure to reduce our product prices in response to these industry trends and the
decrease in market size could adversely affect our anticipated revenue and profitability of our sales, creating a material adverse effect
on our business.
If we are unable to
effectively adapt to changes in the healthcare industry, our business may be harmed.
Federal, state, and local
legislative bodies frequently pass legislation and promulgate regulations relating to healthcare reform or that affect the healthcare
industry. As has been the trend in recent years, it is reasonable to assume that there will continue to be increased government oversight
and regulation of the healthcare industry in the future. We cannot predict the ultimate content, timing, or effect of any new healthcare
legislation or regulations, nor is it possible at this time to estimate the impact of potential new legislation or regulations on our
business. It is possible that future legislation enacted by Congress or state legislatures, or regulations promulgated by regulatory authorities
at the federal or state level, could adversely affect our business. It is also possible that the changes to federal healthcare program
reimbursements to providers who purchase our products or use our services may serve as precedent to possible changes in other payors’
reimbursement policies in a manner adverse to us. Similarly, changes in private payor reimbursements could lead to adverse changes in
federal healthcare programs, which could have a material adverse effect on our business, financial condition, cash flows, and results
of operations.
There can be no assurance
that we will be able to successfully address changes in the current regulatory environment. Some of the healthcare laws and regulations
applicable to us are subject to limited or evolving interpretations, and a review of our business or operations by a court, law enforcement,
or a regulatory authority might result in a determination that could have a material adverse effect on us. Furthermore, the healthcare
laws and regulations applicable to us may be amended or interpreted in a manner that could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
Recent economic trends
could adversely affect our financial performance.
Economic downturns and declines
in consumption in the healthcare market may affect the levels of both our sales and profitability. If a downturn in economic conditions
occurs, or if there is deterioration in financial markets and major economies, our financial performance could be adversely affected.
The tightening of credit in financial markets may adversely affect the ability of our customers and suppliers to obtain financing, which
could result in a decrease in, or deferrals or cancellations of, the sale of our products and services. In addition, weakening economic
conditions may result in a decline in spending for ART and fertility assistance that could adversely affect our business operations and
liquidity. We are unable to predict the likely duration and severity of any disruption in the domestic and global financial markets.
Social media platforms
present risks and challenges.
The unauthorized use of certain
social media vehicles could result in the improper collection and/or dissemination of personally identifiable information causing brand
damage and various legal implications. In addition, negative or inaccurate social media posts or comments about us on any social networking
site could damage our brand, reputation, and goodwill.
We are susceptible to cybersecurity breaches
and cyber-related fraud.
We depend on information technology (“IT”)
systems, networks, and services, encompassing internet sites, data hosting and processing facilities, as well as hardware (including laptops
and mobile devices), along with software and technical applications and platforms. Some of these are overseen, hosted, supplied, and/or
utilized by third parties or their vendors, supporting us in the administration of our business.
The escalation of IT security threats and the increasing
sophistication of cyber-crime pose a potential hazard to the security of our IT systems, networks, and services, as well as to the confidentiality,
availability, and integrity of our data. Should the IT systems, networks, or service providers we rely on encounter malfunctions or if
we experience a loss or disclosure of sensitive information due to various causes such as catastrophic events, power outages, or security
breaches, and our business continuity plans fail to address these issues promptly, we could face disruptions in managing operations. This
may result in reputational, competitive, and/or business harm, potentially adversely impacting our business operations and financial condition.
Furthermore, such incidents could lead to the unauthorized disclosure of critical confidential information, causing financial and reputational
damage due to the loss or misappropriation of confidential information belonging to us, our partners, employees, customers, suppliers,
or consumers. In such scenarios, significant financial and other resources might be required to rectify the damage caused by a security
breach or to repair and replace networks and IT systems.
In addition, in the ordinary
course of our business, we may use, collect, and store sensitive data, including personal health information. We face risks relative to
protecting this critical information, including loss of access risk, inappropriate disclosure risk, inappropriate modification risk, and
the risk of being unable to adequately monitor our controls. Our information technology and infrastructure may be vulnerable to attacks
by hackers or viruses or breached due to employee error, malfeasance, or other disruptions. Any such breach or interruption could compromise
our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such
access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy
of personal information, such as HIPAA, and regulatory penalties. There is no guarantee that we can continue to protect our systems from
breach. Unauthorized access, loss, or dissemination could also disrupt our operations.
Risks Related to Our Fertility
Business
Our existing INVO Centers
were established as joint ventures with medical partners. Future INVO Centers may also be established as joint ventures. These joint ventures
will be important to our business. If we are unable to maintain any of these joint ventures, or if they are not successful, our business
could be adversely affected.
We have established, and
plan to establish additional, entered into, and may enter into additional, joint ventures for the operation of our INVO Centers. Our existing
and any future joint ventures may have a number of risks, including that our joint venture partners:
● may not perform their obligations as expected;
● may dispute the amounts of payments owed;
Additionally, if one of our
joint venture partners seeks to terminate its agreement with us, we may find it difficult to attract new joint venture partners and the
perception of our INVO Centers in the business and financial communities could be adversely affected.
Our fertility business
is subject to significant competition.
The fertility industry is
highly competitive and characterized by well entrenched and long-standing practices as well as technological improvements and advancements.
New ART services, devices and techniques may be developed that may render the INVOcell obsolete. Competition in the areas of fertility
and ART services is largely based on pregnancy rates and other patient outcomes. Accordingly, the ability of our business to compete is
largely dependent on our ability to achieve adequate pregnancy rates and patient satisfaction levels. Our business operates in highly
competitive areas that are subject to change. New health care providers and medical technology companies entering the market may reduce
our and our INVO Centers’ market share, patient volume and growth rates, and could force us to alter our planned pricing and INVO
Center service offerings. Additionally, increased competitive pressures may require us to commit more resources to our and our INVO Centers’
marketing efforts, thereby increasing our cost structure and affecting our ability to achieve, or the timing of achieving, profitability.
There can be no assurance that we will not be able to compete effectively, nor can there be any assurance that additional competitors
will not enter the market. Such competition may make it more difficult for us to enter into additional contracts with fertility clinics
or open profitable INVO Centers.
We need to manage growth
in our fertility operations, and we may not be successful in implementing our growth strategy.
In order to maximize potential
growth in our current and potential markets, we may need to expand the scope of our services in the medical device/bioscience industry.
As a result, we plan to continue to improve our INVOcell technology, operating procedures and management information systems. We will
also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately
prevent us from generating revenues at the levels we expect.
Many factors including, but
not limited to, increased competition from similar businesses, unexpected costs, costs associated with marketing efforts and maintaining
a strong client base may interfere with our ability to expand successfully. Our inability to implement our internal strategy successfully
may have a negative impact on our growth, future financial condition, results of operations and/or cash flows.
We may not be successful
at managing clinics.
Our management team has limited
experience in managing fertility clinics. We seek to retain experienced personnel to provide clinical practice expertise, perform recruitment
functions, provide necessary training, and provide day-to-day management of our clinics. We may not be successful in retaining such personnel,
integrating such personnel into our operations, or otherwise successfully manage clinics that we have acquired or may acquire in the future.
We face potential liability
as a provider of a medical device. These risks may be heightened in the area of artificial reproduction.
The provision of medical
devices entails the substantial risk of potential tort injury claims. We currently utilize product liability insurance to provide coverage
against potential tort injury claims, as well as customary insurance protection for our INVO Centers. However, there can be no assurance
such coverage will provide adequate protection against any potential claims. Furthermore, any claim asserted against us could generate
costly legal fees, consume management’s time and resources, and adversely affect our reputation and business, regardless of the
merit or eventual outcome of such claim.
There are inherent risks
specific to the provision of fertility and ART services. For example, the long-term effects on women of the administration of fertility
medication, integral to most fertility and ART services, are of concern to certain physicians and others who fear the medication may prove
to be carcinogenic or cause other medical problems. Additionally, any ban or other limitation imposed by the FDA or other foreign regulatory
department on fertility medication and services could have a material adverse effect on our business. Any such action would likely adversely
affect the value of your investment.
If we fail to maintain
adequate quality standards for our products, our reputation and business may be adversely affected and harmed.
Our customers are expecting
that our products and services will perform as marketed and in accordance with industrial standards. For our INVOcell device, we rely
on third-party manufacturing companies and their packaging processes in connection with the production of our products. Our key suppliers,
which are located in the U.S. and include NextPhase Medical Devices and Casco Bay Molding, and have been steadfast partners since our
company first began and can provide us with virtually an unlimited capability to support our growth objectives, with all manufacturing
performed in the New England region of the U.S. However, a failure to maintain product quality standards in accordance with our customers’
expectations could result in the loss of demand for our products. Additionally, delays or quality lapses in our production lines could
result in substantial economic losses to us. Although we believe that our current quality control procedures adequately address these
risks, there can be no assurance that we will not experience occasional or systemic quality lapses in our manufacturing and service operations.
Currently, we have limited manufacturing capabilities as we rely on a single manufacturing provider regarding our production process.
In the event our manufacturer is unable to produce an adequate supply of products at appropriate quality levels, our growth could be limited,
and our business may be harmed. If we experience significant or prolonged disturbance in our quality standards, our business and reputation
may be harmed, which may result in the loss of customers, our inability to participate in future customer product opportunities and reduced
revenue and earnings.
We heavily rely on
third party package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our
ability to import or export materials, increase our costs and negatively affect our ability to achieve and maintain profitability.
We ship our products to our
customers through known independent package delivery companies, such as FedEx and UPS. If any third party package delivery providers experience
a significant disruption such that any of our products, components or raw materials cannot be delivered in a timely fashion or such that
we incur additional shipping costs that we are unable to recoup, our costs may increase and our relationships with certain customers may
be adversely affected. In particular, if our third-party package delivery providers increase prices and we are not able to find comparable
alternatives or adjust our delivery network, our profitability could be adversely affected.
We will need additional,
qualified personnel in order to expand our fertility business. Without additional personnel, we will not be able to expand our fertility
business.
Expanding our fertility business
requires increasing the number of persons engaged in activities for the sale, marketing, administration and delivery of our products as
well as clinical training personnel for proper IVC procedure training. Our ability to attract and hire personnel to fulfil these efforts
is dependent on our ability to attract and retain potential employees with the proper background and training matching the skills required
for the positions. In addition, we may not be able to attract personnel who will be able to successfully implement our business operations
and growth strategy in the manner that we currently anticipate.
Risks Related to the Fertility
Industry
The FDA regulatory
review process for medical devices is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory
clearances and approvals could prevent us from commercializing our products.
Unless an exemption applies,
each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval
of a premarket approval, or issuance of a de novo classification order. The FDA clearance, de novo classification, and approval processes
for medical devices are expensive, uncertain and time-consuming.
Future modifications to the
INVOcell that was classified through de novo may require a 510(k) clearance. We may make minor changes to the INVOcell without seeking
clearance for the modifications if we determine such clearances are not necessary and document the basis for that conclusion. However,
the FDA may disagree with our determination or may require additional information, including clinical data, to be submitted before a determination
is made, in which case we may be required to delay the introduction and marketing of our modified products, redesign our products, conduct
clinical trials to support any modifications, or we may be subject to enforcement actions. In addition, the FDA may not clear such modified
INVOcell for the indications that are necessary or desirable for successful commercialization.
There is no assurance that
we will be able to obtain the necessary clearances on a timely basis or at all. Further, the FDA may change its policies, adopt additional
regulations or revise existing regulations, or take other actions which may impact our ability to modify the INVOcell on a timely basis,
and may prevent or delay clearance of future products. Delays in receipt of, or failure to obtain clearances for any product modifications
or future products we may develop would result in delayed or no realization of revenue from such products and the viability of our INVO
Centers, and in substantial additional costs, which could decrease our profitability.
In addition, we are required
to continue to comply with applicable FDA and other regulatory requirements following de novo classification or clearance. The failure
to comply with existing or future regulatory requirements could have a material adverse effect on our business.
Improper marketing
and promotion or off-label use of our product could lead to investigations and enforcement by governmental bodies including product recalls
or market withdrawal, may harm our reputation and business, and could result in product liability suits.
If the FDA or any foreign
regulatory entity determines that our promotional materials or training constitute promotion of an off-label use, it could request that
we modify our training or promotional materials or subject us to regulatory or enforcement actions. These enforcement actions could include,
for example, a warning letter or untitled letter, injunction, seizure, civil fine or criminal penalties. We cannot, however, prevent a
physician from using the INVOcell off-label, when in the physician’s independent professional medical judgement, he or she deems
it appropriate. There may be increased risk of injury to patients if physicians attempt to use the INVOcell off-label, or the INVOcell
may not be as effective, which could harm our reputation.
If we fail to comply
with the FDA’s Quality System Regulation (“QSR”) or comparable EU requirements, the FDA or EU competent
authorities could take various enforcement actions, including suspending our FDA clearance to market, withdrawal of our EU CE Certificate
or halting our manufacturing operations, and our business would suffer.
In the United States, as
a manufacturer of a medical device, we are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR covers the
methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and distribution
of medical devices. The FDA enforces the QSR through periodic inspections and unannounced “for cause” inspections. Outside
the United States, our products and operations are also required to comply with national requirements where the product is sold and also
standards set by industrial standards bodies, such as the International Organization for Standardization. Foreign regulatory bodies may
evaluate our products or the testing that our products undergo against these standards. The specific standards, types of evaluation and
scope of review differ among foreign regulatory bodies. Our failure to comply with FDA or foreign regulatory agency requirements, or failure
to take satisfactory and prompt corrective action in response to an adverse inspection, could result in enforcement actions, including
a warning letter, adverse publicity, a shutdown of or restrictions on our manufacturing operations, a recall or seizure of our products,
fines, injunctions, civil or criminal penalties, or other sanctions, any of which could cause our business and operating results to suffer.
We are subject to continuing
regulation by the FDA, and failure to comply may materially harm our business.
We are subject to Medical
Device Reporting (“MDR”) regulations, which require us to report to the FDA if we become aware of information that reasonably
suggests our product may have caused or contributed to a death or serious injury or has malfunctioned and the device or a similar device
we market would likely cause or contribute to a death or serious injury if the malfunction were to recur. We may fail to report adverse
events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable
adverse event. If we fail to comply with our medical device reporting obligations, the FDA could issue warning letters or untitled letters,
take administrative actions, commence criminal prosecution, impose civil monetary penalties, request or require a product recall, seize
our products, or delay the clearance of our future products. We must report corrections and removals to the FDA where the correction or
removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug, and Cosmetic
Act, or FDCA, caused by the device that may present a risk to health.
Our failure to comply with
these or other applicable regulatory requirements could result in enforcement actions by the FDA which may include untitled letters, warning
letters, fines, injunctions, consent decrees and civil penalties; customer notifications or repair, replacement or refunds; and criminal
prosecution.
Our products are generally
subject to regulatory requirements in foreign countries in which we sell those products. We will be required to expend significant resources
to obtain regulatory approvals or clearances of our products, and there may be delays and uncertainty in obtaining those approvals or
clearances.
In order to sell our products
in foreign countries, generally we must obtain regulatory approvals and comply with the regulations of those countries. These regulations,
including the requirements for approvals or clearances and the time required for regulatory review, vary from country-to-country.
The EU requires that manufacturers
certify compliance of medical devices with Council Directive (93/42/EEC) (“MDD”), as amended, and affix the CE mark before
selling such devices in member countries of the EU or European Economic Area (“EEA”). The CE mark is an international symbol
of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the
authorization to affix the CE mark to products, a manufacturer must certify that its product complies with the applicable directive, which
may include a requirement to obtain certification that its processes and products meet certain European quality standards.
In May 2017, the EU adopted
Regulation (EU) 2017/745 (“MDR”), which will repeal and replace the MDD with effect from May 26, 2021. Under transitional
provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2021, may continue to be placed on the
market for the remaining validity of the certificate, until May 27, 2024, at the latest as long as there have been no significant changes
made to the product. After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be
placed on the market in the EU (or EEA). The MDR includes increasingly stringent requirements in multiple areas, such as pre-market clinical
evidence (some of which are now in effect), review of high-risk devices, labeling and post-market surveillance. Under the MDR, pre-market
clinical data will now be required to obtain CE Mark approval for high-risk, new and modified medical devices. We believe these new requirements
have the potential to be expensive and time-consuming to implement and maintain.
Complying with and obtaining
regulatory approval in foreign countries, including compliance with the MDR, have caused and will likely continue to cause us to experience
more uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse
impact on our net sales, market share and operating profits from our international operations.
If third-party payers
do not provide adequate coverage and reimbursement for INVOcell and the IVC procedure, we may be unable to generate significant revenue.
Our success in marketing
and commercializing INVOcell and the IVC procedure may depend in part on whether private health insurers and other payer organizations
provide adequate coverage and reimbursement. If physicians or insurers do not find our clinical data compelling or wish to wait for additional
studies, they may choose not to use or provide coverage and reimbursement for INVOcell and the IVC procedure. We cannot provide assurance
that data we or others may generate in the future will be consistent with that observed in our existing clinical studies, or that our
current or future published clinical evidence will be sufficient to obtain adequate coverage and reimbursement for our products. Moreover,
if we cannot obtain adequate coverage for and reimbursement of the cost of our products, we cannot provide assurance that patients will
be willing to incur the full cost of INVOcell and the IVC procedure.
Third-party payers, whether
foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs.
In addition, in the United States, no uniform policy of coverage and reimbursement for INVOcell and the procedure exists among third-party
payers. Therefore, coverage and reimbursement for INVOcell and the IVC procedure may differ significantly from payer to payer. In addition,
payers continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures.
As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific
and clinical support for the use of INVOcell and the IVC procedure to each payer separately, with no assurance that coverage and adequate
reimbursement will be obtained or maintained if obtained.
Reimbursement systems in
international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained
on a country-by-country basis. In many international markets, a product must be approved for reimbursement before it can be approved for
sale in that country. Further, many international markets have government-managed healthcare systems that control reimbursement for new
devices and procedures. In most markets, there are private insurance systems as well as government-managed systems. If sufficient and
timely coverage and reimbursement is not available for our current or future products, in either the United States or internationally,
the demand for our products and our revenues may be adversely affected.
We may be subject to risks related to changes
in laws regarding abortion, which can affect how a fertility clinic must treat and handle embryos
In June 2022, the U.S. Supreme Court in Dobbs v.
Jackson Women’s Health Organization overturned Roe v. Wade by holding that there is no constitutional right to abortion.
This ended federal legalization on abortion, bringing the matter back to individual states to determine. Soon after the decision was handed
down, several U.S. states adopted laws that drastically limited the availability of abortion, with a number of other states working on
or proposing similar restrictions. While we believe these actions are more targeted toward abortions during pregnancy, certain laws may
also impact embryos and how excess embryos are handled or implicate fertility procedures and travel reimbursement programs, which may
decrease the demand for, or availability of, certain fertility services. Although President Biden issued executive orders and federal
agencies have issued guidance intended to protect access to reproductive healthcare services, the enactment of certain state laws restricting
abortion care and other changes in laws, or in interpretation of laws through court decisions, affecting fertility benefits may conflict
with, and ultimately limit, the covered benefits offered by a company to its employees and the types of fertility treatment services available
at provider clinics. We cannot predict the timing or impact of any future rulemaking, executive orders, court decisions or other changes
in the law, or in how such laws, once enacted, would be interpreted and enforced. This may negatively impact fertility clinics and their
patients operating in those states with more restrictive laws.
Risks Related to Our Therapeutics Business and
Industry
Our ability to develop proprietary technology
platforms and products and our future growth depend on retaining NAYA Therapeutics’ key personnel and recruiting additional qualified
personnel.
NAYA Therapeutics is highly dependent on its co-founder,
Chairman and Chief Executive Officer, Dr. Daniel Teper, who may terminate his current employment with us at any time. The loss of the
services of Dr. Teper could impede the achievement of our therapeutics research, development and commercialization objectives.
Recruiting and retaining other senior executives,
qualified scientific and clinical personnel and, if we progress the development of any of our product candidates, commercialization, manufacturing
and sales and marketing personnel, will be critical to our success. The loss of the services of NAYA Therapeutics’ key employees
could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully
implement our business strategy. Furthermore, replacing key employees may be difficult and may take an extended period of time because
of the limited number of individuals in NAYA Therapeutics industry with the breadth of skills and experience required to successfully
lead, develop, gain regulatory approval of and commercialize our product candidates. Competition to hire from this limited pool is intense,
and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors,
to assist in formulating our research and development and commercialization strategy. Our consultants and advisors may have commitments
under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract
and retain high-quality personnel, our ability to pursue our growth strategy will be limited.
The regulatory processes that will govern the
approval of our product candidates are complex and changes in regulatory requirements could result in delays or discontinuation of development
or unexpected costs in obtaining regulatory approval.
Because we are developing novel cellular product candidates
that are unique biological entities, the regulatory requirements that it will be subject to are not entirely clear. Regulatory requirements
governing gene therapy products and cell therapy products have changed frequently and may continue to change in the future. Moreover,
there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of existing gene therapy products and cell
therapy products. Although the FDA and comparable foreign authorities decides whether individual therapy protocols may proceed, related
review processes and determinations by other reviewing bodies can impede or delay the initiation of a clinical study, even if the FDA
or comparable foreign authorities have reviewed the study and approved its initiation. Conversely, the FDA or comparable foreign authorities
can place an IND application or equivalent foreign application or part of the application on clinical hold even if such other entities
have provided a favorable review. Furthermore, each clinical trial must be reviewed and approved by an independent IRB or EC at or servicing
each institution at which a clinical trial will be conducted. In addition, adverse developments in clinical trials of gene or cell therapy