INVO Bioscience, Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by INVO Bioscience, Inc. (trading symbol: INVO) on June 22, 2020. The filing details a material definitive agreement involving a private placement of secured convertible notes and unit purchase options, as well as the approval of a loan under the U.S. Small Business Administration's Paycheck Protection Program (PPP).
Key Financial Metrics and Capital Structure
- Private Placement Proceeds: The company received gross cash proceeds of $988,640 in the "Second Closing" on June 22, 2020. Combined with the "Initial Closing" on May 15, 2020 ($2,105,000 total, including $143,640 from debt cancellation), the total gross proceeds were approximately $3.09 million.
- Net Proceeds: Approximately $2.65 million in net proceeds were received from both closings after deducting placement agent fees and investor counsel costs.
- Debt Repayment: $413,456 of the proceeds were immediately used to repay prior outstanding indebtedness ($335,000 principal and $78,456 accrued interest) carrying a 9% interest rate.
- New Debt Instrument: Secured convertible notes with an aggregate original principal of $988,640 were issued. These notes accrue interest at 10% per annum and mature on December 19, 2021.
- PPP Loan: The company was approved for a PPP loan of $157,620. This loan bears 1% interest, matures in 18 months, and is potentially 100% forgivable based on program criteria.
- Equity Instruments: Investors received Unit Purchase Options to purchase 137,421 units at $5.00 per unit. Each unit consists of one share of common stock and a 5-year warrant to purchase one share at $6.00.
Material Changes and Transaction Details
The primary material change is the entry into a private placement agreement to raise capital. The notes are convertible at an initial fixed price of $3.60 per share, subject to anti-dilution adjustments. A "ratchet" provision allows holders to convert into shares issued in a subsequent equity financing at a 10% discount to the new price. The notes are secured by proceeds from a $3,000,000 milestone payment expected from Ferring International Center S.A. under a 2018 Distribution Agreement.
The company paid an aggregate cash fee of $216,000 (8% of a portion of proceeds) to the placement agent, Tribal Capital Markets, LLC, and issued the agent warrants to purchase 10,800 shares at $3.60.
Outlook, Risks, and Contingencies
- Use of Proceeds: Remaining proceeds after debt repayment are designated for working capital and general corporate purposes.
- Registration Rights: The company agreed to file a registration statement (Form S-3 or S-1) within 30 days of closing to cover the resale of shares issuable upon conversion of notes and exercise of options/warrants.
- Conversion Limitations: Conversion is restricted if it would result in a holder beneficially owning more than 9.99% of outstanding shares.
- Default Risks: The notes contain customary triggering events, including failure to make payments or bankruptcy, which allow holders to demand immediate redemption in cash.
- PPP Contingency: The $157,620 PPP loan is subject to completion of documentation and forgiveness criteria.
Investor Verification Checklist
- Verify the status of the $3,000,000 milestone payment from Ferring International Center S.A., which serves as collateral for the new notes.
- Confirm the filing of the Registration Statement (Form S-3 or S-1) within the required 30-day window to ensure liquidity for note holders.
- Review the specific terms of the "Subsequent Equity Financing" conversion provision to understand potential dilution impacts.
- Monitor the company's ability to meet the criteria for 100% forgiveness of the $157,620 PPP loan.
- Assess the company's cash burn rate against the remaining net proceeds allocated for working capital.