8-K: INVO Fertility Settles Pritts Lawsuit, Raises $400K Equity

INVO Fertility, Inc. has finalized a $6.01 million settlement with Dr. Elizabeth Pritts and raised $400,000 through an unregistered sale of Series C-2 Convertible Preferred Stock.

Summary

• Finalized a settlement agreement with Dr. Elizabeth Pritts and the Elizabeth Pritts Revocable Living Trust for an aggregate amount of $6,010,000.
• The settlement resolves a lawsuit filed on May 7, 2025, alleging breach of contract, tortious interference, and unjust enrichment related to the acquisition of Wisconsin Fertility Institute.
• An initial payment of $1,000,000 has already been made as part of the settlement.
• Remaining settlement payments are scheduled as follows: $755,000 due September 30, 2025; $755,000 due December 31, 2025; $1,000,000 due March 31, 2026; $2,000,000 due June 30, 2026; and $500,000 due December 31, 2026.
• Wood Violet Fertility LLC will use 25% of all gross funding proceeds exceeding $2,000,000 raised within any six-month period to accelerate the scheduled settlement payments in chronological order.
• An institutional investor, an existing holder of Series C-2 Convertible Preferred Stock, exercised its Additional Investment Right to acquire 400 shares of C-2 Preferred Stock for $400,000 in cash on September 30, 2025.
• As a result of the equity exercise, the conversion price on the C-2 Preferred Stock adjusted to $0.7141 per share.
• The C-2 Preferred shares were issued without registration under the Securities Act, relying on exemptions provided by Section 4(a)(2) and/or Rule 506.
• All employment, consulting, and similar agreements with Dr. Pritts have been terminated, and restrictive covenants (confidentiality, non-compete, non-solicit) are no longer in effect.
• The parties agreed that no additional amounts are due regarding purchase price adjustments and holdback amounts from the original acquisition agreements.
• A consent judgment will be entered to resolve the complaint, but only upon any breach of the Settlement Agreement.

Sentiment

Score: 6

Explanation: The resolution of a significant lawsuit is positive, removing uncertainty. However, the substantial cash payout and ongoing need for funding to accelerate payments temper the positive sentiment. The equity raise provides immediate cash but also potential future dilution.

Positives

• Resolution of a significant legal dispute with Dr. Elizabeth Pritts, removing uncertainty and potential ongoing litigation costs.
• Termination of restrictive covenants with Dr. Pritts, potentially allowing her to pursue other ventures without legal entanglement with INVO.
• The $400,000 capital raise provides additional cash liquidity for the company.
• The settlement clarifies and finalizes financial obligations related to the Wisconsin Fertility Institute acquisition.

Negatives

• A substantial cash payout of $6.01 million over approximately 15 months, which will impact the company's cash flow.
• The capital raise involves the issuance of Series C-2 Convertible Preferred Stock, which could lead to future dilution for common shareholders upon conversion.
• The adjustment of the C-2 Preferred conversion price to $0.7141 per share might indicate a lower valuation or more favorable terms for the preferred investor.

Risks

• The company's ability to meet the scheduled settlement payments, especially the larger amounts due in 2026, depends on future cash flow and funding.
• A consent judgment will be entered upon any breach of the Settlement Agreement, which could lead to further legal and financial repercussions.
• Reliance on future funding (debt, bonds, equity) to accelerate settlement payments, indicating potential ongoing capital needs.
• Potential dilution for common shareholders from the conversion of Series C-2 Convertible Preferred Stock.

Future Outlook

The company is obligated to make scheduled settlement payments totaling $5.01 million through December 2026. It plans to utilize 25% of gross funding proceeds exceeding $2 million within any six-month period to accelerate these payments, indicating a reliance on future capital raises to manage its obligations.

Management Comments

• Steven Shum, Chief Executive Officer, signed the report on behalf of INVO Fertility, Inc.

Industry Context

The fertility services industry is experiencing growth, but companies like INVO Fertility, Inc. face challenges related to acquisitions, integration, and managing legal disputes. This settlement resolves a significant post-acquisition legal challenge, allowing the company to focus on operational growth, though it incurs a substantial financial obligation.

Corporate Governance

Legal Proceedings

• A lawsuit was filed by Dr. Elizabeth Pritts and the Elizabeth Pritts Revocable Living Trust against INVO Fertility, Inc. and its subsidiaries on May 7, 2025, in the Circuit Court of Wisconsin, Dane County (Case No. 2025CV001552).
• The complaint asserted causes of action for breach of contract, breach of implied covenant of good faith and fair dealing, tortious interference with contract, and unjust enrichment, arising from the acquisition of Wisconsin Fertility Institute.
• The parties entered into a binding term sheet on May 14, 2025, and subsequently a final Settlement and Mutual Release Agreement on September 30, 2025, to resolve all disputes.
• A consent judgment will be jointly filed and entered only upon any breach of the Settlement Agreement.

Stakeholder Impact

• Shareholders: Potential dilution from the conversion of Series C-2 Preferred Stock; reduced uncertainty from resolved litigation; significant cash outflow for settlement payments.
• Creditors: The settlement payments represent a significant liability that will need to be managed, potentially impacting the company's credit profile.
• Employees: Termination of Dr. Pritts's employment and consulting agreements.
• Customers/Patients: No direct impact mentioned, but resolution of internal disputes can lead to more stable operations.

Next Steps

• Make scheduled settlement payments to Dr. Pritts through December 31, 2026.
• Potentially raise additional funding to accelerate settlement payments.
• Cooperate with Dr. Pritts regarding the filing of Pritts 2023 FLOW Stub Returns.
• Prepare and file federal and state tax returns for FLOW for the period commencing August 10, 2023.

Key Dates

Recommendation

While the resolution of a significant lawsuit removes a cloud of uncertainty and potential ongoing legal costs, the substantial cash outflow for the settlement payments and the potential for future dilution from the preferred stock issuance present headwinds. The company's reliance on future funding to accelerate payments suggests ongoing liquidity management challenges. The immediate cash injection is positive, but the overall financial impact warrants a cautious 'hold' stance until there is clearer visibility on operational performance and sustainable funding strategies.

Keywords

INVO Fertility, IVF, Settlement Agreement, Dr. Elizabeth Pritts, Legal Dispute, Equity Raise, Series C-2 Preferred Stock, Unregistered Sale, Wisconsin Fertility Institute, Corporate Governance, Financial Reporting, Fertility Services