10-K/A: NAYA Biosciences Restates Financials Due to Lease Accounting Error, Reports Full Year 2023 Results
Sentiment:
Annual Results
NAYA Biosciences restated its financial statements for multiple periods due to an error in calculating lease discount rates, while also reporting its full year 2023 results including a significant increase in clinic revenue and a net loss.
Capital raiseThe company is dependent on raising additional capital through debt and equity financings.The company will seek debt and/or equity financing, which may not be available on reasonable terms.The company has entered into a purchase agreement with Triton Funds LP to sell up to 1,000,000 shares of common stock for up to $850,000.The company has entered into a purchase agreement with FirstFire Global Opportunities Fund, LLC for a promissory note, warrants, and shares of common stock for $250,000.The company has entered into a Standard Merchant Cash Advance Agreement for $265,000.
Worse than expectedThe company's financial results were worse than expected due to a significant net loss and a going concern qualification from its auditors.
Summary
- NAYA Biosciences has restated its financial statements for the years 2021, 2022 and 2023, as well as interim periods, due to an error in the discount rates used for lease accounting.
- The company incorrectly used the applicable federal rate instead of its incremental borrowing rate, impacting the valuation of right-of-use assets and lease liabilities.
- The restatement did not affect revenue, operating results, earnings per share, or net equity, and did not impact the company's business plan, operations, regulatory requirements, or management compensation.
- For the year ended December 31, 2023, NAYA Biosciences reported total revenue of $3.02 million, including $2.86 million from clinic revenue and $0.16 million from product revenue.
- The company incurred a net loss of $8.03 million for 2023, compared to a net loss of $10.89 million in 2022.
- Operating expenses totaled $9.79 million in 2023, including $1.93 million in cost of revenue and $7.49 million in selling, general, and administrative expenses.
- The company's cash balance at the end of 2023 was $232,424, compared to $90,135 at the end of 2022.
- NAYA Biosciences acquired the Wisconsin Fertility Institute in August 2023 for $10 million, with $2.5 million paid at closing and the remainder to be paid in installments.
- The company has a going concern qualification from its auditors due to net losses and a net capital deficiency, raising substantial doubt about its ability to continue as a going concern.
Sentiment
Score: 4
Explanation: The document presents a mixed picture. While there is revenue growth and strategic acquisitions, the restatement of financials, significant net loss, and going concern qualification raise serious concerns. The need for additional capital and the ineffective internal controls further contribute to a negative sentiment.
Positives
- Clinic revenue saw a substantial increase, reaching $2.86 million in 2023.
- The net loss decreased from $10.89 million in 2022 to $8.03 million in 2023.
- The acquisition of the Wisconsin Fertility Institute expands the company's operations.
- The company secured $5.7 million from the sale of common stock in 2023.
Negatives
- The company had to restate its financial statements due to a significant accounting error.
- The company incurred a net loss of $8.03 million in 2023.
- The company's auditors have expressed substantial doubt about its ability to continue as a going concern.
- The company has a net capital deficiency.
Risks
- The company's ability to continue as a going concern is in doubt due to net losses and a net capital deficiency.
- The company is dependent on raising additional capital through debt and equity financings.
- The company may not be able to secure additional funding on reasonable terms.
- The company faces risks related to changes in economic conditions, legislative or regulatory changes, interest rates, and competition.
- The company's internal controls over financial reporting were deemed ineffective due to material weaknesses.
Future Outlook
The company plans to grow the Wisconsin Fertility Institute and pursue additional IVF clinic acquisitions. It will need to raise additional funding to meet its liquidity needs and execute its business strategy.
Management Comments
- Management's plans include growing the Wisconsin Fertility Institute and pursuing additional IVF clinic acquisitions.
- Management acknowledges the need to raise additional funding to meet liquidity needs and execute the business strategy.
Industry Context
The company operates in the assisted reproductive technology (ART) market, focusing on making fertility care more accessible. The acquisition of IVF clinics and the expansion of INVO Centers are part of a strategy to grow market share in this sector.
Comparison to Industry Standards
- The company's revenue growth in clinic services is a positive sign, but the overall net loss and going concern qualification are concerning when compared to established players in the fertility industry.
- The acquisition of the Wisconsin Fertility Institute is a strategic move to expand operations, similar to other companies in the sector that grow through acquisitions.
- The company's reliance on external funding is a common trait among smaller, growth-focused companies in the biotech and healthcare services sectors, but the going concern qualification is a significant deviation from industry norms for established companies.
- The restatement of financials due to lease accounting errors is not typical for well-established companies and indicates a need for improved internal controls.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Operating Officer and Vice President of Business Development | Michael J. Campbell | 2024-11-15 | Retirement and termination of employment agreement |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Reverse Stock Split | The company completed a 1-for-20 reverse stock split of its outstanding common stock. | 2023-07-28 | Reduced the number of outstanding shares and increased the per-share price. |
| Increase in Authorized Shares | The company increased the number of authorized shares of common stock from 6,250,000 to 50,000,000. | 2023-10-13 | Increased the company's ability to raise capital through equity offerings. |
Legal Proceedings
- The company is not currently subject to any material legal proceedings.
Related Party Transactions
- The company received $700,000 through the issuance of demand notes from related parties in the fourth quarter of 2022.
- The company received an additional $100,000 through the issuance of a demand note from JAG Multi Investments LLC on July 10, 2023.
- As of December 31, 2023, the company owed accounts payable to related parties totaling $228,907.
Stakeholder Impact
- Shareholders face the risk of losing most or all of their investment if the company cannot continue as a going concern.
- Employees may be affected by potential cost-cutting measures or restructuring if the company faces financial difficulties.
- Customers may experience disruptions in service if the company's financial instability impacts operations.
- Suppliers and creditors face the risk of non-payment if the company's financial situation deteriorates.
Next Steps
- The company plans to grow the Wisconsin Fertility Institute and pursue additional IVF clinic acquisitions.
- The company will seek debt and/or equity financing to meet its liquidity needs.
- The company will hold a meeting of its stockholders to, among other things, approve the issuance of the Companys common stock issuable upon conversion of the Series C-1 Preferred and Series C-2 Preferred.
Key Dates
| Date | Description |
|---|---|
| 2019-10-31 | Date of the Two Thousand Nineteen Stock Incentive Plan |
| 2020-09-24 | INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC and Security Health LLC to commercialize the IVC procedure in Mexico. |
| 2021-03-10 | INVO CTR entered into a limited liability company agreement with HRCFG, LLC to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. |
| 2021-06-28 | INVO Centers LLC entered into a limited liability company operating agreement with Bloom Fertility, LLC to establish a joint venture entity, formed as Bloom INVO LLC. |
| 2022-10-01 | Date of the first related party demand note with JAG Multi Investments LLC. |
| 2023-01-01 | Start of the fiscal year 2023. |
| 2023-02-03 | Date of the February 2023 Equity Purchase Agreement and February 2023 Convertible Debentures. |
| 2023-03-23 | Date of the March 2023 Registered Direct Offering. |
| 2023-06-28 | The Companys board of directors approved a reverse stock split of the Companys common stock at a ratio of 1-for-20. |
| 2023-07-28 | Effective date of the 1-for-20 reverse stock split. |
| 2023-08-04 | Date of the August 2023 Public Offering. |
| 2023-08-10 | Date of the acquisition of the Wisconsin Fertility Institute. |
| 2023-09-29 | Date of the Revenue Loan and Security Agreement. |
| 2023-10-13 | Shareholders of the Company approved an increase to the number of authorized shares of the Companys common stock from 6,250,000 shares to 50,000,000 shares. |
| 2023-10-22 | Date of the Merger Agreement with NAYA Therapeutics, Inc. |
| 2023-11-19 | Date of the Share Exchange Agreement with Cytovia Therapeutics Holdings, Inc. |
| 2023-12-27 | Date of the second amendment to the Merger Agreement. |
| 2023-12-29 | Date of the Preferred Series A SPA with Legacy NAYA. |
| 2023-12-31 | End of the fiscal year 2023. |
| 2024-01-04 | Closing of the first tranche of the private offering of Series A Preferred Stock. |
| 2024-02-16 | Date of the fourth tranche of the private offering of Series A Preferred Stock. |
| 2024-02-26 | Date of the Future Receipts Agreement. |
| 2024-03-27 | Date of the Triton Purchase Agreement. |
| 2024-04-05 | Date of the FirstFire Purchase Agreement. |
| 2024-04-15 | Closing of additional shares of Series A Preferred Stock. |
| 2024-04-19 | Date of the Tampa Lease Assignment. |
| 2024-05-01 | Effective date of the third amendment to the Merger Agreement and the SPA Amendment. |
| 2024-09-12 | Effective date of the fourth amendment to the Merger Agreement. |
| 2024-09-25 | Date of the Standard Merchant Cash Advance Agreement. |
| 2024-10-11 | Date of the Amended and Restated Agreement and Plan of Merger and consummation of the Merger. |
| 2024-10-14 | Date of the Certificate of Designation of Series C-1 and C-2 Convertible Preferred Stock. |
| 2024-10-15 | Date of the Name Change. |
| 2024-11-15 | Effective date of the departure of Michael J. Campbell. |
| 2024-11-19 | Date of this Amendment No. 3 to Form 10-K. |
Keywords
restatement, lease accounting, financial results, revenue, net loss, acquisition, going concern, internal controls, NAYA Biosciences, INVO Bioscience, fertility, INVOcell, Wisconsin Fertility Institute
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