10-Q/A: NAYA Biosciences Restates Financials for Lease Accounting Error, Reports Q2 2024 Results

NAYA Biosciences has amended its Q2 2024 report to restate previous financial statements due to an error in lease accounting, while also reporting a net loss for the quarter.

Summary

• NAYA Biosciences has filed an amendment to its quarterly report for the period ended June 30, 2024, to restate its financial statements for the periods ending March 31, 2024, and June 30, 2024.
• The restatement corrects the discount rates used for the valuation of the right-of-use asset and corresponding lease liability, where the company had previously used the applicable federal rate instead of its incremental borrowing rate.
• This error impacted the company's assets and liabilities but did not affect revenue, results of operations, earnings per share, or net equity.
• For the three months ended June 30, 2024, NAYA reported a net loss of $2,245,170, compared to a net loss of $2,240,511 for the same period in 2023.
• Clinic revenue for the three months ended June 30, 2024, was $1,807,921, a significant increase from $254,364 in the same period of 2023.
• Total revenue for the three months ended June 30, 2024, was $1,836,597, compared to $315,902 in the same period of 2023.
• The company's total assets were $17,754,698 as of June 30, 2024, down from $18,505,916 at the end of 2023.
• The company's total liabilities were $16,391,182 as of June 30, 2024, down from $17,613,091 at the end of 2023.
• The company had 4,935,728 shares of common stock outstanding as of November 19, 2024.

Sentiment

Score: 4

Explanation: The document presents mixed signals. While there's significant revenue growth, the net loss, restatement, and going concern issues raise concerns. The company's reliance on external funding and the material weakness in internal controls contribute to a negative sentiment.

Positives

• Clinic revenue saw a substantial increase, reaching $1,807,921 for the three months ended June 30, 2024, compared to $254,364 in the same period of 2023.
• Total revenue increased significantly to $1,836,597 for the three months ended June 30, 2024, from $315,902 in the same period of 2023.
• The company's total liabilities decreased to $16,391,182 as of June 30, 2024, from $17,613,091 at the end of 2023.

Negatives

• The company reported a net loss of $2,245,170 for the three months ended June 30, 2024.
• The company's total assets decreased to $17,754,698 as of June 30, 2024, from $18,505,916 at the end of 2023.
• The company identified a material weakness in internal control over financial reporting due to the lease accounting error.

Risks

• The company has incurred significant operating losses and expects to continue to do so as it ramps up commercialization and develops new INVO Centers.
• The company is dependent on raising capital from debt and equity financings to meet its cash needs.
• There is a risk that the company may not be able to raise additional funding on reasonable terms, if at all.
• The company's independent auditor has expressed substantial doubt about the company's ability to continue as a going concern.
• The company's disclosure controls and procedures were deemed not effective as of June 30, 2024, due to the restatement of financial statements.

Future Outlook

The company plans to grow the Wisconsin Fertility Institute and pursue additional IVF clinic acquisitions. The company will need to raise additional funding to meet its liquidity needs and execute its business strategy.

Management Comments

• The company's management has concluded that its disclosure controls and procedures were not effective as of June 30, 2024, due to the events that led to the restatements of the financial statements.
• Management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects the company's financial position, results of operations, and cash flows for the period presented.

Industry Context

The company operates in the healthcare services sector, specifically focusing on fertility care. The company's strategy includes operating fertility-focused clinics and selling its INVOcell technology. The company's performance is influenced by the demand for fertility treatments and the competitive landscape of the fertility services industry.

Comparison to Industry Standards

• The company's significant increase in clinic revenue suggests a positive trend in its core business operations, which is a key metric for companies in the fertility services industry.
• The company's net loss, while concerning, is not uncommon for companies in the growth phase, particularly those making acquisitions and expanding their operations.
• The restatement of financial statements due to a lease accounting error highlights the importance of robust internal controls, which is a common challenge for companies of this size.
• The company's reliance on debt and equity financing is typical for companies in the healthcare sector that are pursuing growth strategies, but it also indicates a higher risk profile compared to more established companies with stable cash flows.
• The company's acquisition of the Wisconsin Fertility Institute is a strategic move to expand its clinic network, which is a common strategy in the fertility services industry.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently subject to any material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business.

Related Party Transactions

• The company issued a series of demand promissory notes in the aggregate principal amount of $550,000 to a related party, JAG, a company in which the company's Chief Financial Officer is a beneficiary.
• The company issued demand promissory notes in the aggregate principal amount of $220,000, of which $100,000 was received from its Chief Executive Officer and $100,000 was received from an entity controlled by its Chief Financial Officer.
• As of June 30, 2024, the company owed accounts payable to related parties totaling $227,321, primarily related to unpaid employee expense reimbursements and unpaid board fees, and accrued compensation of $375,422, primarily related to deferred wages and accrued paid time off.

Stakeholder Impact

• Shareholders face the risk of losing their investment if the company cannot continue as a going concern.
• Employees may be affected by the company's financial instability and potential restructuring.
• Customers may experience changes in service quality or availability due to the company's financial challenges.
• Suppliers and creditors face the risk of non-payment or delayed payments due to the company's liquidity issues.

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 funding to meet its liquidity needs.
• The company will continue to monitor the closing bid price of its common stock and consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.
• The company is required to hold a meeting of its stockholders to, among other things, (i) ratify the Merger Agreement and the transactions contemplated thereby, including the Merger, (ii) approve the increase in the amount of authorized shares under the Company’s Second Amended and Restated 2019 Stock Incentive Plan, (iii) approve the issuance of the Company’s common stock issuable upon conversion of the Series C-1 Preferred and Series C-2 Preferred, and (iv) approve an amendment to the Company’s articles of incorporation to (1) increase the number of shares of the Company’s authorized common stock to 100,000,000 shares, and (2) effectuate a reverse stock split of the Company’s common stock at a ratio ranging from any whole number between 1-for-2 and 1-for-20, as determined by the Company’s board of directors in its discretion.

Key Dates

Keywords

NAYA Biosciences, financial restatement, lease accounting, clinic revenue, net loss, financial results, INVOcell, IVF clinics, going concern, material weakness