INVO Fertility, Inc. Leases Disclosure
Note 9 – Leases
The Company has various operating lease agreements in place for its office and joint ventures. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2019, the Company is required to report a right-of-use asset and corresponding liability to report the present value of the total lease payments, with appropriate interest calculation. Historically, the Company utilized the applicable federal rate as of the commencement of the lease; however the Company has determined that utilization of the applicable federal rate was not its comparable incremental borrowing rate. The Company has since calculated the incremental borrowing rate for each lease by developing a synthetic credit rating for the Company as of the commencement date of each lease, adjusting the synthetic credit rating to reflect the collateralized nature of the incremental borrowing rate, the Company’s borrowing rate under other debt facilities, and the market spread between secured and unsecured borrowings, and based on the adjusted synthetic rating and the various terms of the leases, selected the incremental borrowing rate based on the commencement date, duration of the lease, and a corresponding weight-adjusted corporate yield curve. Lease renewal options included in any lease are considered in the lease term if it is reasonably certain the Company will exercise the option to renew. The Company’s operating lease agreements do not contain any material restrictive covenants.
As of December 31, 2024, the Company’s lease components included in the consolidated balance sheet were as follows:
| Lease component | Balance sheet classification | December 31, 2024 | ||||
| Assets | ||||||
| ROU assets - operating lease | Other assets | $ | 2,283,784 | |||
| Total ROU assets | $ | 2,283,784 | ||||
| Liabilities | ||||||
| Current operating lease liability | Current liabilities | $ | 239,125 | |||
| Long-term operating lease liability | Other liabilities | 2,189,555 | ||||
| Total lease liabilities | $ | 2,428,680 | ||||
Future minimum lease payments as of December 31, 2024 were as follows:
| 2025 | 505,957 | |||
| 2026 | 518,972 | |||
| 2027 | 489,807 | |||
| 2028 | 379,172 | |||
| 2029 and beyond | 1,950,149 | |||
| Total future minimum lease payments | $ | 3,844,057 | ||
| Less: Interest | (1,415,377 | ) | ||
| Total operating lease liabilities | $ | 2,428,680 |
For the years ended December 31, 2024 and 2023, the weighted average remaining lease term for operating leases was 95 months and 143 months, respectively. For the years ended December 31, 2024 and 2023, the weighted average discount rate for operating leases was 12.1% and 13.8%, respectively. The Company paid approximately $0.4 million in cash for operating lease amounts included in the measurement of lease liabilities for the year ended December 31, 2024 and approximately $0.3 million for the year ended December 31, 2023. The Company did not have any finance leases as of December 31, 2024.
For the year ended December 31, 2024, the Company recognized a gain on lease termination of $94,551 related to the termination of the lease associated with the Tampa Project.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.