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.
Overview
We are, primarily, a healthcare services company focused
on the fertility marketplace and dedicated to expanding access to assisted reproductive technology (“ART”) care to patients
in need. Our principal commercial strategy is focused on building, acquiring and operating fertility clinics, including “INVO Centers”
dedicated primarily to offering the intravaginal culture (“IVC”) procedure enabled by our INVOcell® medical device (“INVOcell”)
and US-based, profitable in vitro fertilization (“IVF”) clinics. As of the date of this filing, we have two operational INVO
Centers and one IVF clinic in the United States. We also continue to engage in the sale and distribution of our INVOcell technology solution
into third-party owned and operated fertility clinics.
In October 2024, we acquired a 100% interest in Naya
Therapeutics, Inc. (“NAYA Therapeutics” or “NTI”), a clinical-stage oncology and autoimmune technology company.
As further described below, we recently announced our strategic decision to separate from this wholly owned subsidiary, rather than attempt
to integrate with our existing operations. With this separation, we will return to an exclusive focus on the fertility marketplace, change
our name and ticker symbol to “INVO Fertility, Inc.” and “IVF”, respectively, and retain a minority interest in
NAYA Therapeutics.
Fertility Clinics
On August 10, 2023, we consummated the first
acquisition of an existing IVF clinic, the Wisconsin Fertility Institute (“WFI”). As an established and profitable
clinic, the closing of the WFI acquisition more than tripled our annual revenue and became a major part of our clinic-based
operations. The acquisition accelerated our transformation from a medical device company to a healthcare services company and
immediately added scale and a significant source of positive cash flow to our operations. The acquisition of profitable IVF clinics
complements our efforts to build new INVO Centers, and we expect to continue this strategy to accelerate overall growth.
On March 10 and June 28, 2021, we established
joint ventures to open INVO Centers in Birmingham, Alabama, and Atlanta, Georgia, respectively. We established these clinics to
increase use of the INVOcell, to accelerate the growth and awareness of the IVC procedure and to expand the availability of
statistical data supporting its use. These clinics also enabled us to expand our revenue per fertility cycle from hundreds of
dollars (from the sale of each INVOcell device) to thousands of dollars, and to significantly advance our path to profitability. We
believe a dedicated INVO Centers requires less investment than a traditional IVF clinic and are operationally efficient, making them
ideal for underserved secondary markets. We plan on opening additional, wholly owned INVO Centers in the coming years.
INVOcell Device
Our proprietary technology, INVOcell®, is an
innovative medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body.
This treatment solution is the world’s first intravaginal culture technique for the incubation of oocytes and sperm during fertilization
and early embryo development and provides patients with a natural, intimate, and affordable experience. As reflected in available data,
we believe the IVC procedure can deliver comparable results at a lower cost than traditional IVF and is a significantly more effective
treatment than intrauterine insemination (“IUI”).
Unlike IVF, where the oocytes and sperm develop into
embryos in an expensive laboratory incubator, the INVOcell allows fertilization and early embryo development to take place in the woman’s
body. The IVC procedure can provide many benefits, including the following:
● Provide a natural, stable incubation environment;
● Offer a more personal, intimate experience in creating a baby; and
● Reduce the risk of errors and wrong embryo transfers.
In both current utilization of the INVOcell, and in
clinical studies, the IVC procedure has demonstrated equivalent pregnancy success and live birth rates as IVF.
While INVOcell remains part of our efforts, our commercial
and corporate development strategy within the fertility market has expanded to focus more broadly on providing ART services through our
emphasis on operating clinics.
NAYA Therapeutics
On October 11, 2024, we acquired NAYA
Therapeutics with the intent to expand our business activities beyond fertility and to create a healthcare portfolio company initially focused on a
commercial-stage fertility business combined with a unique clinical-stage oncology and autoimmune technology business.
In April 2025, not having received sufficient shareholder
support for key elements of the NAYA Therapeutics transaction at a shareholder meeting scheduled for March 10, 2025 (further detail available
below under Recent Developments – 2024 Annual Meeting), upon advice of counsel and of our proxy solicitation firm, as well general feedback
from stakeholders, we elected to re-focus exclusively on our fertility business. As such, we recently changed our name to “INVO
Fertility, Inc.” and expect to divest a majority interest in NAYA Therapeutics and change our ticker symbol “IVF,”.
This planned divestiture is subject to completing definitive transaction documents and key closing conditions, including receipt of necessary
approvals. We anticipate completing the transaction during the second quarter of 2025.
We
remain enthusiastic about its prospects and will retain a minority stake in NAYA Therapeutics, which we hope to monetize in the future
through value appreciation that could be generated from the clinical development of its bifunctional antibodies. We intend to retain
this minority stake in NTI as an asset on our balance sheet.
NAYA Therapeutics is advancing a portfolio of highly-competitive clinical
candidates including NY-303, a first-in-class GPC3 x NKp46 bifunctional antibody for the treatment of hepatocellular carcinoma (HCC) with
a unique mode of action targeting non-responders to the current immunotherapy standard of care (approximately 70% of the current treatable
market) cleared to enroll patients in a Phase 1/2a monotherapy trial in 2025, NY-500, an AI-Optimized bifunctional antibody aiming to
be the first PD1 x VEGF therapeutic to market in HCC, and NY-338, a CD38 x NKp46 bifunctional antibody for the treatment of multiple
myeloma with a differentiated safety and efficacy profile.
Operations
Our critical management and leadership functions
are carried out by our management team. In the Fertility Clinic segment, each clinic is separately staffed with the people necessary
to manage daily activities, while most administrative tasks are centralized and handled by the INVO corporate staff. With respect to
the INVOcell Device segment, we have contracted out the manufacturing, assembly, packaging, and labeling to a medical manufacturing
company, sterilization of the device to a sterilization specialist, and storage and shipping to a third part logistics company. In
the Therapeutics Segment, we have a separate staff dedicated to the development of our intellectual property.
Wisconsin Fertility Institute
On August 10, 2023, we consummated the first
acquisition of an existing IVF clinic, WFI. As an established and profitable clinic, WFI has a full staff, including a reproductive
and endocrinology and infertility medical doctor (“REI”), an OBGYN trained to provide fertility treatment and full
complement of medical, laboratory and administration staff. In June 2024, we replaced WFI’s REI with an REI that had previously worked at the clinic and was well acquainted
with its staff and procedures. WFI’s staff
manages most day-to-day activities, which, except for medical matters, is overseen by our VP operations. Upon closing the
acquisition, our corporate staff assumed finance, accounting, human resources and other overhead responsibilities.
Alabama JV
On March 10, 2021, our wholly owned subsidiary, INVO Centers, LLC (“INVO
CTR”) formed a joint venture with HRCFG, LLC (“HRCFG”) to establish an INVO Center in Birmingham, Alabama. The name
of the joint venture is HRCFG INVO, LLC (the “Alabama JV”). The responsibilities of HRCFG’s principals include providing
clinical practice expertise, performing recruitment functions, providing all necessary training, and providing day-to-day management of
the INVO Center. Our responsibilities include providing funding to the Alabama JV and being the exclusive provider of the INVOcell. We
also perform all required, industry-specific compliance and accreditation functions, and product documentation for product registration.
The Birmingham INVO Center opened to patients on August 9, 2021.
Georgia JV Agreement
On June 28, 2021, INVO CTR formed a joint venture with Bloom Fertility,
LLC (“Bloom”) to establish an INVO Center in Atlanta, Georgia. The name of the joint venture is Bloom INVO LLC (the “Georgia
JV”). The responsibilities of Bloom include providing all medical services required for the operation of the INVO Center. Our responsibilities
include providing funding to the Georgia JV, lab services, quality management, and being the exclusive provider of the INVOcell. We also
perform all required, industry specific compliance and accreditation functions, and product documentation for product registration. The
Atlanta INVO Center opened to patients on September 7, 2021.
INVOcell
To date, we have completed a series of important steps in the successful
development and manufacturing of the INVOcell:
NAYA Therapeutics
On October 11, 2024, we acquired NAYA Therapeutics, which has its own staff
of experts, advisors and management with a long history in the development of biotechnology assets. The operational approach is based
on a diversified intellectual property portfolio that is managed through early stages of development before partnering with large pharmaceutical
companies for clinical trial completion and commercialization.
Market Opportunity
Fertility Clinics and INVOcell Device
The global ART marketplace is a large and
growing, multi-billion-dollar industry across the world as increased infertility rates, greater patient awareness and improving
financial incentives, such as insurance and governmental assistance, continue to drive demand. According to the European Society for
Human Reproduction 2024 ART Fact Sheet, one in six couples worldwide experience fertility challenges. Additionally, the worldwide
market remains vastly underserved as a high percentage of patients in need of care continue to go untreated each year for many
reasons, but key among them are capacity constraints and cost barriers. There have been large increases in the use of IVF, with
current estimates of approximately 4 million ART cycles performed globally each year, producing around 1 million babies.
Regrettably, this only amounts to less than 5% of the infertile couples worldwide being treated and less than 2% of such couples
having a child though IVF. The industry remains capacity constrained which creates challenges in providing access to care for the
volume of patients in need. A survey by “Resolve: The National Infertility Association,” indicates the two main reasons
couples do not use IVF is cost and geographical availability (and/or capacity).
In the United States, infertility affects an estimated
10%-15% of the couples of childbearing-age, according to the American Society of Reproductive Medicine (2017). According to the Centers
for Disease Control (“CDC”), there are approximately 6.7 million women with impaired fertility. Based on 2022 data from the
CDC’s National ART Surveillance System, approximately 435,000 IVF cycles were performed across ~500 IVF centers, leaving the U.S.
with a large, underserved patient population, similar to most markets around the world.
Our corporate development strategy is aimed at taking
advantage of the fertility market’s imbalance between supply and demand. We have identified a number of locations in the United
States with attractive demographics and fertility service levels that would be ideal for the opening of new INVO Centers. Similarly, we
have identified several profitable US-based IVF practices suitable for acquisition.
NAYA Therapeutics
According to international market research firm, Research
and Markets, the global bispecific antibodies market is projected to witness over 40% compound annual growth rate and reach over $80 billion
by 2030.
The development of bispecific antibodies began when
scientists recognized the potential of monoclonal antibodies. This marked the start of a new era in therapeutics in the late 1990s. Bispecific
antibodies offer multiple benefits, including dual targeting of different antigens, improved specificity, enhanced targeting ability,
reduced dose-limiting toxicities, and the potential for drug-drug or drug-to-protein conjugates. These antibodies provide diversity by
targeting two different tumor and/or immune cell antigens or epitopes simultaneously.
NAYA Therapeutics’ addressable market is significant.
According to a Delveinsight July 2023 report on the multiple myeloma, the global market size in 2022 for multiple myeloma treatments was
$20 billion and is expected to continue to grow significantly with the introduction of new products. The current market leader, CD38 targeting
monoclonal antibody, Darzalex (daratumumab) reached $8 billion in global sales in 2022.
Market growth is supported by the FDA’s
recent approvals for bispecific antibodies, including BCMA targeting CARVYKTITM, TECVAYLITM in 2022 and GPRC5D targeting
Talvey in 2023 from Johnson & Johnson. The new BCMA targeting bispecific antibody from Pfizer, Elrexfio, was approved in August
2023. Additional bispecific antibodies from Abbvie, Regeneron and Roche are in early stage of clinical development. There also are
several other GPC3-targeting antibodies or cell therapies being developed by AstraZeneca, Takeda, Legend Biotech, and Adicet Bio in
collaboration with Regeneron.
According to Polaris Market Research, the market
size for liver cancer treatment was $2.44 billion in 2022 and is expected to grow a compounded annual growth rate of 20% to reach
$10.48 billion in 2030. Market growth is supported by increased incidence and the 2022 approval of a new standard of care,
Merck’s Keytruda and a combination of two biological drugs commercialized by Genentech Roche, Telecentriq and Avastatin.
Competitive Advantages
INVOcell Device and INVO Centers
Over the past several years, the principal focus
of our commercial efforts has shifted from the distribution of our INVOcell device to the provision of fertility clinic services
through our INVO Centers and IVF clinic acquisition. For the most part, our clinical activities have been focused on secondary
markets where there is a greater imbalance between the need for ART treatment and the number of cycles available. Combined with our
ability to offer a wider range of advanced fertility care, including IVC, IVF and IUI, at multiple price points, our clinics have
the opportunity for differentiation from our competitors. As with our INVOcell technology, we continuously look for new solutions
that can create greater efficiency and effectiveness in the provision of fertility cycles and support our efforts to democratize
fertility care.
While a smaller part of our current business, we continue
to believe that our INVOcell device, and the IVC procedure it enables, can play a key role in making advanced fertility care more affordable
and accessible. We continue to engage with sympathetic third-party clinics that share our same vision and that use our one-of-a-kind INVOcell
device.
Unlike IVF, where the oocytes and sperm develop into
embryos in a laboratory incubator, the INVOcell allows fertilization and early embryo development to take place in the woman’s body.
We believe that the IVC procedure can provide the following benefits:
● A natural and stable incubation environment;
● A more personal, intimate experience in creating a baby; and
● A reduced risk of errors and wrong embryo transfers.
In both current utilization of the INVOcell, and in
clinical studies, the IVC procedure has demonstrated equivalent pregnancy success and live birth rates as IVF and generally may be offered
at a significant discount to IVF cycles.
NAYA Therapeutics
Given the rapid growth of the bispecific antibody
market, the competition has increased significantly. There are many companies developing bispecific antibodies including Amgen, AstraZeneca,
Johnson & Johnson, Merus, Pfizer, Sanofi, Xencor, Zymeworks. We believe that NAYA is uniquely positioned to capitalize on the growing
demand for multifunctional antibodies as the current and next generation of therapies demonstrate increased efficacy and safety over the
legacy monoclonal antibodies, which are currently dominating the oncology and auto-immune disease market. NAYA Therapeutics’ NY-338,
is, to the best of our knowledge, the first CD38-targeting NK engager to enter clinical trials, and the first bispecific antibody to target
both NKp46 to redirect NK cells and CD38, with the potential to demonstrate both efficacy and safety advantages. We aim to differentiate
ourselves from the companies and products as the first company to enter clinic trials with a GPC3 targeting NK engager bispecific antibody.
Sales and Marketing
Fertility Clinics
Our two INVO Centers and our Wisconsin IVF clinic
employ various strategies to build awareness for their services and/or to maintain and grow patient flow and fertility cycle volume. The
principal source of patient flow comes through OBGYN referrals and patient word of mouth. Our clinical staff maintain relationships with
the local OBGYN community and organize virtual and in person events to showcase our centers’ services, fertility treatment effectiveness
statistics and quality of our clinical personnel. We also conduct regular social and other media campaigns to attract new patients and
to build awareness.
At the corporate level, we seek to build general awareness
for our clinical activities and IVC procedure results with a view to drive patients to our centers and to grow demand for our INVOcell
device. These efforts also support our ongoing work to open new INVO Centers and to acquire additional IVF clinics.
The acquisition of existing IVF clinics requires less
sales and marketing effort compared to opening new INVO Centers, as they have established patient flows that can be built upon. When entering
a new market with an INVO Center, we leverage the experience developed in establishing our Alabama and Georgia joint ventures. We employ
fine-tuned strategies to secure patient flow levels that can enable new INVO Centers to become profitable and contribute economically
to our overall business as soon as possible. Primarily, our INVO Centers seek to employ local, reputable physicians with strong ties to
the OBGYN community.
INVOcell Device
Historically, our approach to marketing INVOcell was
focused on identifying partners within targeted geographic regions that we believe could best support our efforts to expand access to
advanced fertility treatment using the INVOcell and IVC procedure for the large number of underserved infertile people around the world.
Those efforts resulted in the execution of a series of distribution agreements with partners across the globe. More recently, as we shifted
our focus to opening INVO Centers and acquiring IVF clinics, which activities have been centered in the US, and as a result of the limited
traction experienced in international markets, proactive marketing efforts for the INVOcell have been limited to the United States. In
our domestic market, we distribute the INVOcell directly to a number of third-party IVF clinics and we remain open to pursuing foreign
markets that present a realistic opportunity for incremental revenue on a profitable basis.
NAYA Therapeutics
Given the early stage of development for NAYA Therapeutics’
technologies, our focus is entirely on clinical activities. Our strategy is to partner with large pharmaceutical companies for the commercialization
of FDA-approved solutions.
Recent
Developments
On
April 14, 2025, we changed our corporate name to INVO Fertility, Inc., pursuant to an Amendment to Articles of Incorporation filed with
the Nevada Secretary of State on April 14, 2025 (the “Name Change”). Pursuant to Nevada law, a stockholder vote was not necessary
to effectuate the Name Change.
We
also announced that we intend for our common stock to cease trading under the ticker symbol “NAYA” and begin trading under
our new ticker symbol, “IVF”, on the Nasdaq Capital Market, on April 28, 2025.
Reverse Split
On March 18, 2025, we filed
a certificate of change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to effectuate a 1-for-12
reverse stock split (the “Reverse Stock Split”) of our shares of common stock, par value $0.0001 per share (“Common
Stock”). The Reverse Stock Split became effective at 12:01 a.m., Eastern Time, on Tuesday, March 18, 2025, and our Common
Stock began trading on a split-adjusted basis when The Nasdaq Stock Market (“Nasdaq”) opened on March 18, 2025.
When the Reverse Stock Split
became effective, every 12 shares of Common Stock issued and outstanding were automatically reclassified and combined into one share of
Common Stock, without any change in the par value per share, and a proportionate adjustment was made to our authorized
shares of Common Stock such that the Company now has 4,166,667 shares of authorized Common Stock. In addition, a proportionate adjustment
has been made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options and
warrants to purchase shares of Common Stock and the number of shares reserved for issuance pursuant to our equity incentive compensation
plans. No fractional shares of Common Stock were issued in connection with the Reverse Stock Split. Stockholders who otherwise would have
been entitled to receive fractional shares of Common Stock had their holdings rounded up to the next whole share.
2024 Annual Meeting
On February 11, 2025, we
filed a definitive proxy statement (the “February Proxy”) in connection with our annual meeting of stockholders (the “2024
ASM”). The 2024 ASM was scheduled for March 10, 2025, at 12 pm Eastern Time, and had a record date of January 24, 2025.
The February Proxy
included standard proposals (the “Standard Proposals”) for stockholders (i) to elect five new directors (the “New
Board Slate”) to our board of directors (the “Board”) and (i) to ratify the appointment of M&K CPAS, PLLC as
our independent registered public accounting firm for the fiscal year ended December 31, 2024. The Standard Proposals customarily
would have been voted on at a stockholder meeting in calendar year 2024. We opted to delay holding our 2024 annual stockholder
meeting until 2025 to hold a single meeting that would cover both the Standard Proposals and a number of special proposals (the
“Special Proposals”) requesting that the stockholders approve (i) the issuance, in accordance with Nasdaq Listing Rule
5635(a), of Common Stock, upon conversion of our outstanding Series C-1 and C-2 Non-Voting Convertible Preferred
Stock, upon conversion of an outstanding 7.0% Senior Secured Convertible Debenture in the principal balance of $3,934,146 due
December 11, 2025 (the “Debenture”), and upon settlement of restricted stock units and exercise of stock options issued
in exchange for restricted stock units and stock options that were previously granted to certain directors, employees, and
consultants of the NAYA Therapeutics, (ii) an amendment to our Second Amended and Restated 2019 Stock Incentive Plan to increase the
number of shares of Common Stock available for issuance thereunder to an amount of 8,200,000 (pre-reverse split), equal to
approximately 15% of the total of the total issued and outstanding stock, including shares issued upon conversion of our Series C-1
and C-2 Non-Voting Convertible Preferred Stock, and (iii) an amendment to our Amended and Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock from 50,000,000 to 100,000,000 after a reverse split of our Common Stock
approved by the Board at a ratio ranging from any whole number between 1-for-2 and 1-for-20, as determined by the Board in its
discretion, subject to the Board’s authority to abandon such reverse stock split.
While Standard Proposals
received sufficient votes for approval, several Special Proposals did not garner the necessary votes required for approval. Upon advice
of counsel and our proxy solicitation firm, the Board approved the postponement of the 2024 ASM to April 9, 2025, the fixing of a new
record date on March 10, 2025, and the filing of a new definitive proxy statement (the “March Proxy”).
As a result of this postponement
and of the new record date, all votes cast by stockholders with respect to the proposals included in the February Proxy became null and
void. The March Proxy was delivered with a new proxy card pursuant to which stockholders were asked to vote again on the Standard Proposals.
The 2024 ASM was held
solely to cover the Standard Proposals and to regain compliance under Nasdaq Rules 5620(a) and 5801(s)(2)(G) that require companies
listed on Nasdaq to hold an annual meeting of stockholders within twelve months of the fiscal year’s end (the “ASM
Rule”). Pursuant to the previously disclosed notice received from the staff (the “Staff”) of The Nasdaq Stock
Market LLC, we had until February 25, 2025, to submit a plan to regain compliance under the ASM Rule. We submitted a plan to the
Staff in a timely fashion and, on February 28, 2025, the Staff notified us that we were granted an extension until June 30, 2025, to
regain compliance with the ASM Rule.
The Standard Proposals in
the March Proxy included (a) the re-election of existing directors to the Board (as would have been submitted for approval had the 2024
ASM been held in calendar year 2024, and in lieu of the New Board Slate included in the February Proxy), and (b) ratification of M&K
CPAs LLC as our independent registered public accounting firm for the fiscal year ending December 31, 2024.
At the 2024 ASM, the stockholders
approved the Standard Proposals in the March Proxy.
Nasdaq
On January 10, 2025, we received
notice (the “Notice”) from the Staff advising us that we no longer complied with the ASM Rule, as we did not hold an annual meeting of stockholders in
the fiscal year ended December 31, 2024. The Notice had no immediate effect on the listing of our common stock.
Pursuant to the Notice,
Nasdaq gave us 45 calendar days, or until February 24, 2025, to submit a plan to regain compliance. On February 24, 2025, we wrote
to the Staff to present our plan to hold the 2024 ASM and, on February 28, 2025, we were granted our request for an extension until
June 30, 2025. Having held the 2024 ASM on April 9, 2025, we have completed the required action to regain compliance with the ASM
Rule and, on April 15, 2025, we received confirmation from the Staff that we have regained compliance under the ASM Rule.
On September 18, 2024, we
received a letter from the Staff indicating that we failed to maintain a minimum closing bid price of $1.00 per share for the prior 34
consecutive days and, as such, no longer satisfied Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Rule”). In accordance
with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a grace period of 180 calendar days, or until March 17, 2025, to regain compliance
with the Minimum Bid Rule.
On March 18, 2025, we effected
a 1-for-12 reverse stock split (the “March 2025 Reverse Split”) in an effort to evidence compliance with the Minimum Bid Rule.
To regain compliance with the Minimum Bid Rule, an issuer must evidence a closing bid price of at least $1.00 per share for a minimum
of 10, but generally not more than 20, consecutive trading days.
On March 25, 2025, we were
notified by the Staff that because we did not evidence compliance with the Minimum Bid Rule by March 17, 2025, the Staff determined that
our securities should be delisted from Nasdaq.
As of the close of business
on March 31, 2025, we evidenced a closing bid price of at least $1.00 per share for 10 consecutive business days and, on March 31, 2025,
the Staff determined that we had regained compliance with the Minimum Bid Rule. Accordingly, our securities are no longer subject to delisting
under the Minimum Bid Rule and the listing matter has been closed.
PublicOffering
On January 14, 2025, we
consummated a public offering (the “January 2025 Offering”) of 1,134,598 units (“Units”), each consisting of
either one share of Common Stock, or one pre-funded warrant to purchase one share of Common Stock (the “January 2025
PFWs”) in lieu thereof, and one warrant to purchase one share of Common Stock at an offering price of $8.40 per Unit (the “January 2025 Warrants”). The
January 2025 Warrants are exercisable from and after the date of their issuance and expire on the five-year anniversary of such date, at an
exercise price of $8.40 per share of Common Stock. Each January 2025 PFW is immediately exercisable at an exercise price of
$0.0012 per share and may be exercised at any time until all of the January 2025 PFWs are exercised in full. In connection with
the January 2025 Offering, we entered into a securities purchase agreement (the “January 2025 SPA”) with certain
institutional investors who purchased Units in this January 2025 Offering.
The securities issued in
the January 2025 Offering were offered pursuant to our registration statement on Form S-1, as amended (File No. 333-283872) (the “January
2025 S-1”), initially filed by us with the Securities and Exchange Commission (the “SEC”) under the Securities Act of
1933, as amended (the “Securities Act”), on December 17, 2024 and declared effective on January 13, 2025.
We closed the January 2025
Offering on January 14, 2015, raising gross proceeds of approximately $9.5 million before deducting placement agent fees and other offering
expenses payable.
The stated intention for
net proceed utilization included (i) up to $2,500,000 to fund the second installment of the purchase price for the WFI; (ii) $4,000,000 to redeem 4,000 shares of our Series C-2 preferred stock with a stated value of $4,000,000; (iii) up to $1,950,000
towards outstanding debt obligations that were payable prior to or upon completion of the January 2025 Offering and that we did not otherwise
restructure or refinance, and (iv) the balance for clinical trials, product development, marketing, strengthening the corporate management
team, working capital, and general corporate purposes.
Also in connection with the
January 2025 Offering, on January 13, 2025, we entered into a placement agency agreement (the “January 2025 PAA”) with Maxim
Group LLC (“Maxim”), pursuant to which (i) Maxim agreed to act as lead placement agent on a “best efforts”
basis in connection with the January 2025 Offering, and (ii) we agreed to pay Maxim an aggregate fee equal to 6.5% of the gross proceeds
raised in the January 2025 Offering (or 5.0% in the case of certain investors) and warrants to purchase up to 62,197 shares of Common
Stock at an exercise price of $10.50 per share (the “Maxim January 2025 Warrants”). The Maxim January 2025 Warrants are exercisable
at any time after the six-month anniversary of the closing date, from time to time, in whole or in part, until five (5) years from the
commencement of sales of the securities in the January 2025 Offering. Additionally, we reimbursed Maxim for certain expenses and legal
fees up to $90,000.
The January 2025 PAA
and the January 2025 SPA contain customary representations, warranties and agreements made by us, customary conditions to closing,
indemnification obligations by us, Maxim or the investors, as the case may be and other obligations of the parties.
Pursuant to the terms of
the January 2025 SPAs and January 2025 PAA, we agreed that for a period of up to ninety (90) days from the closing of the January 2025
Offering, that neither we nor any subsidiary may (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance
of any shares of Common Stock or Common Stock equivalents or (ii) file any registration statement or prospectus, or any amendment or supplement
thereto, in each case, subject to certain exceptions. We also agreed not to effect or enter into an agreement to effect any issuance of
Common Stock or Common Stock equivalents involving a Variable Rate Transaction, as defined in the January 2025 SPA, for a period of up
to twelve (12) months following the closing of the January 2025 Offering, subject to certain exceptions.
On January 14, 2025, we
entered into a warrant agency agreement (the “January 2025 WAA”), with Transfer Online, Inc. appointing Transfer Online,
Inc. as warrant agent for the January 2025 Warrants.
In connection with the January
2025 Offering, on January 13, 2025, we entered into a Class C-2 Preferred Stock Redemption Agreement (the “FNL C-2 Redemption Agreement”)
with Five Narrow Lane, LP (“FNL”), pursuant to which we agreed to purchase and acquire from FNL 4,000 shares of our Series
C-2 Convertible Preferred Stock (the “C-2 Preferred Stock”) for $4,000,000. Accrued dividends of $104,444.44, plus any other
accrued payments under the Certificate of Designations for the C-2 Preferred Stock, remain outstanding.
Results of Operations
During fiscal 2024, we focused on making further operational
improvements to our fertility business while at the same time working to close an acquisition designed to diversify the overall company
and add an entirely new business segment.
With respect to our fertility operations, we believe
we made excellent progress at expanding revenue and driving down certain costs, the combination of which resulted in strong improvement
to our adjusted-EBITDA.
These gains were made possible largely by the
performance of our Wisconsin clinic, our first acquisition of an existing IVF practice, that we acquired in 2023. This Madison,
Wisconsin-based fertility center generates strong revenue and profits, and more than tripled our topline revenue. We plan to use
this first acquisition and the stronger foundation it provided to our fertility operations to pursue additional acquisitions of
established and profitable IVF clinics. We also plan on continuing to actively pursue the opening of new INVO Centers as wholly
owned subsidiaries in order to accelerate our growth objectives.
Although we anticipate our clinic operations will
dominate our commercial efforts and revenue, we also will continue to work on expanding the distribution of the INVOcell to third party
fertility clinics.
We expect to continue to benefit from the ongoing
growth in the ART market, which is experiencing a number of tailwinds, including 1) the large under-served potential patient population,
2) increasing infertility rates around the world 3) growing awareness and education of fertility treatment options, 4) a growing acceptance
of fertility treatment, 5) improvements in procedure techniques and hence improvements in pregnancy success rates, and 6) generally improving
insurance (private and public) reimbursement trends.
With
respect to our other key 2024 initiative, we completed the acquisition of NAYA Therapeutics in October. The original goal behind this
transaction was to expand our business activities beyond fertility and to create a healthcare portfolio
company initially focused on a commercial-stage fertility business combined with a unique clinical-stage oncology and autoimmune technology
business.
In
April 2025, not having received sufficient shareholder support for key elements of the NAYA Therapeutics transaction at a
shareholder meeting scheduled for March 10, 2025 (further detail available above under Recent Developments – 2024 Annual Meeting),
upon advice of counsel and of our proxy solicitation firm, as well as the hurdles to be overcome to receive shareholder approval, we
elected to re-focus exclusively on our fertility business. This change in strategy involved a decision to divest, via an exchange
agreement, a majority interest in NAYA Therapeutics and changing our name and ticker symbol to “INVO Fertility, Inc.”
and “IVF”, respectively. We expect to complete this separation and divestiture in the second quarter of
2025.
We remain enthusiastic about its prospects and will
retain a minority stake in NAYA Therapeutics, which we hope to monetize in the future through value appreciation that could be generated
from the clinical development of its bifunctional antibodies.
Our
revised corporate structure is intended to enable both businesses to focus on their respective opportunities and operations, with
the existing management team and our Board set to lead the public company moving forward. NAYA Therapeutics will return to being a
privately held biotechnology company led by its team and a separate board.
Comparison of the years ended December 31, 2024
and 2023
Revenues
Revenue for the years ended December 31, 2024 and
2023 was $6.5 million and $3.0 million, respectively. Of the $6.6 million in revenue for 2024, $6.5 million was related to clinic
revenue from the consolidated Georgia JV and WFI. The increase of approximately $3.5 million, or approximately 117%, was primarily related
to revenue from the full year inclusion of WFI.
Cost of Revenue
Cost of revenue for the years ended December 31, 2024
and 2023 was $3.7 million and $1.9 million, respectively. The increase in our cost of revenue was primarily related to the full year inclusion of WFI.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses for the
years ended December 31, 2024 and 2023 were $9.1 million and $7.5 million, respectively, of which $1.6 million and $1.3 million, respectively,
was for non-cash, stock-based compensation expense. The increase of approximately $1.6 million or 22% was primarily the result of approximately
$1.8 million in increased professional services expenses and was partially offset by approximately $0.6 million in decreased in personnel
expenses.
Research and Development Expenses
R&D
expenses were $0.5 million and $0.2 million, for the years ended December 31, 2024 and 2023, respectively. The increase of approximately
$0.3 million was primarily related to NAYA Therapeutics R&D.
Loss from equity investment
Gain from equity investments for the year ended December
31, 2024, was $0.01 million, compared to a loss of $0.06 million for the year ended December 31, 2023.
Loss on disposal of fixed assets
Loss on disposal of fixed assets for the years ended
December 31, 2024 and 2023, was $0.5 million and $0, respectively.
Gain on lease termination
Gain on lease termination for the years ended December
31, 2024 and 2023, was $0.1 million and $0, respectively.
Loss from debt extinguishment
Loss from debt extinguishment for the years ended
December 31, 2024 and 2023, was $0.04 million and $0.2, respectively.
Interest Expense and Financing Fees
Interest expense and financing fees for the years
ended December 31, 2024 and 2023 were $1.1 million and $0.9 million, respectively. The increase of approximately $0.2 million, or approximately
14%, was primarily non-cash and due to the debt discount, debt issuance cost, and interest on convertible notes.
Income Taxes
As of December 31, 2024, we had unused federal net
operating loss carryforwards (“NOLs”) of $44.4 million. These losses expire in various amounts at varying times beginning
in 2029 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.
We recorded a valuation allowance against our deferred
tax assets at December 31, 2024 and 2023 totaling $7.3 million and $11.1 million, respectively.
Liquidity and Capital Resources
For the years ending December 31, 2024, and 2023,
we had net losses of approximately $9.1 million and $8.0 million, respectively. Approximately $4.3 million of the net loss was related
to non-cash expenses for the year ended December 31, 2024, compared to $2.8 million for the year ended December 31, 2023. We had negative
working capital of approximately $16.6 million as of December 31, 2024, compared to negative working capital of approximately $6.7 million
as of December 31, 2023. As of December 31, 2024, we had stockholder’s equity of approximately $12.7 million compared to a stockholder’s
equity of approximately $0.9 million as of December 31, 2023. Cash used in operations for the year of 2024 was approximately $3.0 million,
compared to approximately $4.8 million for the year of 2023.
We have been dependent on raising capital through
debt and equity financings to secure the cash required to fund our operating expenses and investing activities. During 2024, we received
proceeds of approximately $1.3 million from notes, net proceeds of approximately $1.6 million from the sale of preferred
stock, net proceeds of approximately $0.9 million from the exercise of warrants, and net proceeds of approximately $0.2 million for the sale of our common stock.
During 2023, we received proceeds of $3.2 million from notes and net proceeds of approximately $5.8 million for the sale of our common
stock. Over the next 12 months, our plan includes growing WFI and pursuing additional IVF clinic acquisitions.
Until we can generate a sufficient amount of cash from operations, we will need to raise additional funding to meet our liquidity needs
and to execute our business strategy. As in the past, we will seek debt and/or equity financing, which may not be available on reasonable
terms, if at all.
Although our audited consolidated financial statements
for the year ended December 31, 2024 were prepared under the assumption that we would continue operations as a going concern, the report
of our independent registered public accounting firm that accompanies our consolidated financial statements for the year ended December
31, 2024 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going
concern, based on the consolidated financial statements at that time. Specifically, as noted above, we have incurred significant operating
losses and we expect to continue to incur significant expenses and operating losses as we continue to acquire existing IVF clinics and
the commercialization of our INVOcell solution. Prior losses and expected future losses have had, and will continue to have, an adverse
effect on our financial condition. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment
in us.
Cash Flows
The following table shows a summary of our cash flows
for the year ended December 31:
Cash (used in) provided by:
Cash Flows from Operating Activities
As of December 31, 2024, we had approximately $0.7
million in cash compared to approximately $0.2 million as of December 31, 2023. Net cash used in operating activities in 2024 was approximately
$3.0 million, compared to approximately $4.8 million for the same period in 2023. The decrease in net cash used in operations was primarily
due to the increase in accounts payable at year end.
Cash Flows from Investing Activities
During the year ended December 31, 2024, cash provided by investing activities of approximately $0.4 million was primarily related to the cash acquired in the NTI acquisition. During the year ended
December 31, 2023, cash used in investing activities of approximately $2.5 million was primarily related to the acquisition of WFI.
Cash Flows from Financing Activities
During the year ended December 31, 2024, cash
provided by financing activities of approximately $3.1 million was related to proceeds from notes payable, the sale of preferred
stock, and proceeds from warrant exercises. During the year ended December 31, 2023, cash provided by financing activities of approximately $7.4 million was related to
proceeds from notes and from the sale of common stock.
Financing Activities
On
December 29, 2023, we entered into a securities purchase agreement (the “SPA”) with NAYA Therapeutics for NAYA’s purchase
of 1,000,000 shares of the Company’s Series A Preferred Stock at a purchase price of $5.00 per share. The parties agreed that NAYA
Therapeutics’ purchases will be made in tranches in accordance with the Minimum Interim Pipe Schedule (as defined in the SPA).
The SPA contains customary representations, warranties and covenants of the Company and NAYA Therapeutics. From January 4, 2024 thru
September 16, 2024, the parties closed on a total of 327,780 shares of Series A Preferred Stock for gross proceeds of $1,643,904.
On
March 27, 2024, we entered into a purchase agreement (the “Triton Purchase Agreement”) with Triton Funds LP (“Triton”),
pursuant to which we agreed to sell, and Triton agreed to purchase, upon our request in one or more transactions, up to 83,334 shares
of our common stock providing aggregate gross proceeds to us of up to $850,000. Triton will purchase the shares of common stock under
the Triton Purchase Agreement at the price of $10.20 per share. Between March 27, 2024 and April 16, 2024, Triton purchased a total of
21,667 shares of common stock for net proceeds of $165,131. The Triton Purchase Agreement expired on December 31, 2024.
On
April 5, 2024, we entered into a purchase agreement with FirstFire Global Opportunities Fund, LLC (“FirstFire”), pursuant
to which FirstFire agreed to purchase, and we agreed to issue and sell, (i) a promissory note with an aggregate principal amount of $275,000,
which is convertible into shares of our common stock, according to the terms, conditions, and limitations outlined in the note (the “FirstFire
Note”), (ii) a warrant to purchase 19,098 shares of the our common stock at an exercise price of $14.40 per share, (iii) a warrant
to purchase 41,667 shares of common stock at an exercise price of $0.01 issued to FirstFire, and (iv) 4,167 shares of common stock, for
a purchase price of $250,000. Carter, Terry, & Company, Inc. acted as placement agent for the transaction, for which it received
a cash fee of $25,000 and 972 restricted shares of our common stock. $190,000 of the FirstFire Note was converted to common stock on
October 14, 2024 and the remaining balance was paid on January 16, 2025.
In
April 2024, we issued 67,250 shares of common stock for net proceeds of $900,611 upon the exercise of warrants.
On
September 25, 2024, we entered into a Standard Merchant Cash Advance Agreement with Cedar Advance LLC (“Cedar”) under which
Cedar purchased $384,250 of our receivables for a gross purchase price of $265,000 (the “Initial Advance”). We received net
proceeds of $251,750. Until the purchase price is repaid, we agreed to pay Cedar $9,606.00 per week.
We
closed a public offering on January 13, 2025, raising gross proceeds of approximately $9.5 million before deducting placement agent fees
and other offering expenses payable by us. The stated intention for net proceed utilization included (i) $2,500,000 to fund the second
installment of the WFI purchase price ; (ii) $4,000,000 to redeem 4,000 shares of our Series C-2 preferred stock with a stated value
of $4,000,000; (iii) up to $1,950,000 towards outstanding debt obligations that were payable prior to or upon completion of the January
2025 Offering and that we did not otherwise restructure or refinance, and (iv) the balance for clinical trials, product development,
marketing, strengthening the corporate management team, working capital, and general corporate purposes.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition
presented in this section is based upon our audited consolidated financial statements, which have been prepared in accordance with generally
accepted accounting principles in the United States. During the preparation of the financial statements, we are required to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate, based on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, our results, which allows us to form a basis for making judgments on the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates based on variance with
our assumptions and conditions. A summary of significant accounting policies is included below. Management believes that the application
of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and
financial condition.
See Note 1 of the Notes to Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our
consolidated financial statements.
Stock Based Compensation
We account for stock-based compensation under the
provisions of ASC 718-10 Share-Based Payment. This statement requires us to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the
employee is required to provide service or performance goals in exchange for the award, which is usually immediate but sometimes over
a vesting period. Warrants granted to non-employees are recorded as an expense over the requisite service period based on the grant date
and the estimated fair value of the grant, which is determined using the Black-Scholes option pricing model.
Revenue Recognition
We recognize revenue on arrangements in accordance
with ASC 606, Revenue from Contracts with Customers. The core principle of ASC 606 is to recognize revenues when promised goods or services
are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or
services ASC 606 requires companies to assess their contracts to determine the timing and amount of revenue to recognize under the new
revenue standard. The model has a five-step approach:
1. Identify the contract with the customer.
2. Identify the performance obligations in the contract.
3. Determine the total transaction price.
5. Recognize as revenue when (or as) each performance obligation is satisfied.
Variable Interest Entities
Our consolidated financial statements include the
accounts of INVO Fertility, Inc., its wholly owned subsidiaries, and variable interest entities (“VIE”), where we are the
primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary
beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that
most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits
of the VIE that could potentially be significant to the VIE. We reconsider whether an entity is still a VIE only upon certain triggering
events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary.
Equity Method Investments
Investments in unconsolidated affiliates in which
we exert significant influence but do not control or otherwise consolidate are accounted for using the equity method. Equity method investments
are initially recorded at cost. These investments are included in investment in joint ventures in the accompanying consolidated balance
sheets. Our share of the profits and losses from these investments is reported in loss from equity method investment in the accompanying
consolidated statements of operations. Management monitors its investments for other-than-temporary impairment by considering factors
such as current economic and market conditions and the operating performance of the investees and records reductions in carrying values
when necessary.
Business Acquisitions
We account for all business acquisitions at fair value
and expenses acquisition costs as they are incurred. Any identifiable assets acquired and liabilities assumed are recognized and measured
at their respective fair values on the acquisition date. If information about facts and circumstances existing as of the acquisition date
is incomplete at the end of the reporting period in which a business acquisition occurs, we will report provisional amounts for the items
for which the accounting is incomplete. The measurement period ends once we receive sufficient information to finalize the fair values;
however, the period will not exceed one year from the acquisition date. Any adjustments to provisional amounts that are identified during
the measurement period are recognized in the reporting period in which the adjustment amounts are determined.
Recent Accounting Pronouncements
None.
Item 7A. Quantitative and Qualitative Disclosure
about Market Risks
We are a smaller reporting company as defined by Rule
12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary
Data
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 2738) F-1
Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of INVO Fertility, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of INVO Fertility,
Inc. (former name: NAYA Biosciences, Inc. and INVO Bioscience, Inc.) (the Company) as of December 31, 2024 and 2023, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024,