Business Context and Reporting Period
This Form 8-K, dated June 28, 2021, reports a material definitive agreement entered into by INVO Bioscience, Inc. (the "Registrant") and its wholly-owned subsidiary, INVO Centers, LLC ("INVO"). The filing details the formation of a joint venture with Bloom Fertility, LLC to establish a fertility clinic in Atlanta, Georgia, utilizing INVO Technologies.
Key Financial Metrics and Transaction Structure
The filing outlines the capitalization and financial commitments for the new joint venture entity, "Bloom INVO LLC" (the "Company"), rather than reporting consolidated financial results for the Registrant.
- Equity Contributions: INVO committed up to $800,000 in cash for start-up operations in exchange for 800 Units (40% ownership). Bloom Fertility committed physician services valued at up to $1,200,000 over 24 months in exchange for 1,200 Units (60% ownership).
- Debt Financing: INVO committed to provide a "Build-Out Loan" of up to $600,000 for clinic construction. The loan accrues interest at 3.25% per annum with a maturity of five years.
- Cash Flow Distribution: Net Available Distributions are split 60% to Bloom Fertility and 40% to INVO. However, until the Build-Out Loan is repaid, 50% of distributions must be used for loan repayment. If the loan is not repaid by maturity, 100% of distributions are directed to loan repayment.
- Lease Obligations: The Company entered a sublease for 6,080 square feet in Atlanta with base rent of $80,012.80 annually, increasing by 2% yearly, for a term ending October 31, 2027. INVO Bioscience guaranteed this sublease.
Material Changes
The primary material change is the expansion of INVO's business model from a device supplier to an operator of a fertility clinic through a joint venture. This represents a shift in operational scope and introduces new revenue streams via management services and equity distributions, alongside new liabilities in the form of the guaranteed sublease and intercompany loan.
Outlook, Management Commentary, and Risks
Management Commentary: The joint venture is designed to assist Bloom Fertility in establishing a clinic offering INVO Technologies. INVO will provide exclusive supply of INVOcell devices and comprehensive management services, while Bloom Fertility provides professional medical services.
Risks and Contingencies:
- Guarantee Liability: INVO Bioscience has executed a guarantee for the joint venture's sublease, creating a potential contingent liability.
- Capital Commitment: INVO is obligated to contribute up to $800,000 over 24 months and provide up to $600,000 in debt financing.
- Operational Control: While INVO appoints 2 of 5 Board Managers, Bloom Fertility appoints 3. Fundamental decisions require approval from both parties.
- Intellectual Property: The agreement includes complex IP sublicensing arrangements, granting the JV rights to INVO's technology and granting INVO Bioscience rights to new IP developed by the JV.
Investor Verification Checklist
- Verify the status of the $800,000 equity contribution and $600,000 debt commitment from INVO to the joint venture.
- Review the full text of the Sublease and Guarantee of Sublease (Exhibit 10.7 and 10.8) to understand the extent of INVO Bioscience's contingent liability.
- Monitor the vesting schedule of Bloom Fertility's $1,200,000 physician service contribution to ensure it aligns with the 24-month period.
- Assess the impact of the 50% cash flow diversion for loan repayment on the projected return on investment for INVO's equity stake.
- Confirm the regulatory approval status for the new clinic location in Atlanta, Georgia.