INVO Bioscience, Inc. Form 8-K Summary
Business Context and Reporting Period
Date of Report: August 10, 2023
Company: INVO Bioscience, Inc. (Nasdaq: INVO)
Event: Completion of the acquisition of the Wisconsin Fertility Institute ("Clinic") and entry into material definitive agreements.
INVO Bioscience, Inc. consummated the acquisition of the Clinic through its wholly-owned subsidiary, Wood Violet Fertility LLC. The Clinic consists of Wisconsin Fertility and Reproductive Surgery Associates, S.C. ("WFRSA"), a medical practice, and Fertility Labs of Wisconsin, LLC ("FLOW"), a laboratory services company. INVO purchased the non-medical assets of WFRSA and 100% of FLOW's membership interests.
Key Financial Metrics and Transaction Terms
Acquisition Consideration: Total purchase price of $10 million.
- Closing Payment: $2.5 million paid on closing (net $2.15 million after a $350,000 holdback).
- Assumed Debt: Assumption of an inter-company loan owed by WFRSA in the amount of $528,756.
- Deferred Payments: Three remaining installments of $2.5 million each, payable on the subsequent three anniversaries of closing.
- Stock Option: Sellers may elect to receive INVO common stock for the deferred installments at fixed valuations of $125.00, $181.80, and $285.80 per share for the second, third, and final installments, respectively.
Key Compensation Agreements:
- Physician (Dr. Elizabeth Pritts): Annual compensation of $450,000 plus malpractice insurance; 3-year term with a 2-year non-compete.
- Laboratory Director (Dr. Wael Megid): Initial annual compensation of $275,000 plus a guaranteed bonus of $100,000 annually for the first three years (total $300,000); 7-year term.
- Management Services: Fees equal to the Net Pre-Tax Income of the Provider attributable to Wisconsin operations.
- Lease: Annual base rent of $219,989.16 for 9,680 square feet, increasing 3% annually.
Material Changes and Agreements
The filing details the execution of several material agreements effective August 10, 2023:
- Asset Purchase Agreement (APA) & Membership Interest Purchase Agreement (MIPA): Govern the transfer of assets and equity interests.
- Management Services Agreement (MSA): WFRSA outsources non-medical activities to INVO for an initial 10-year term. INVO receives fees equal to the practice's Net Pre-Tax Income.
- Security Agreement: WFRSA granted INVO a security interest in all of WFRSA's assets (collateral) to secure obligations under the MSA.
- Directed Equity Transfer Agreement: Restricts the transfer of membership interests in WFRSA. Upon specific triggering events (e.g., death, retirement, breach), interests must be transferred to a designee for a nominal price of $100.
- Commercial Lease: INVO leased the clinic premises in Middleton, Wisconsin, for a 10-year term.
Outlook, Risks, and Contingencies
Management Commentary: The acquisition expands INVO's footprint in fertility treatment and laboratory services. The structure includes a Management Services Agreement where INVO captures the Net Pre-Tax Income of the acquired practice.
Risks and Contingencies:
- Security Interest: INVO holds a security interest in all assets of WFRSA. Default events include failure to pay management fees, insolvency, or breach of the MSA.
- Equity Restrictions: The Directed Equity Transfer Agreement limits the liquidity of the seller's equity and mandates transfer to INVO-designated parties upon specific events, ensuring continuity of the enterprise.
- Termination Rights: The MSA and employment agreements contain specific termination clauses related to license revocation, exclusion from federal healthcare programs, and material breaches.
Financial Statements: The filing references audited combined financial statements for WFRSA and FLOW for years ended Dec 31, 2021 and 2022, and unaudited statements for periods ended Sept 30, 2022, and March 31, 2023, filed as exhibits. Pro forma financial information is also included.
Investor Verification Checklist
- Verify the exact valuation of INVO stock on the dates of the deferred payment elections to assess potential dilution.
- Review the audited financial statements (Exhibit 99.2) and unaudited statements (Exhibit 99.3) of WFRSA and FLOW to assess historical profitability and revenue trends.
- Examine the Pro Forma Financial Information (Exhibit 99.4) to understand the immediate impact on INVO's consolidated balance sheet and operations.
- Confirm the specific terms of the "Net Pre-Tax Income" calculation in the Management Services Agreement to evaluate future cash flow implications.
- Assess the risks associated with the Security Agreement and the potential for INVO to take possession of WFRSA assets in the event of a default.