UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(
CURRENT REPORT
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EXPLANATORY NOTE
INVO Bioscience, Inc. (the “Company”) is filing this Form 8-K/A (“Amendment No 2”) to its Current Report on Form 8-K/A as originally filed with the Securities and Exchange Commission on March 20, 2023 and amended by the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on March 20, 2023 (collectively, the “Original Filing”), solely to provide updated audited combined financial statements of WFRSA and FLOW as of and for the years ended December 31, 2022, unaudited combined financial statements of WFRSA and FLOW as of March 31, 2023 and for the three months ended March 31, 2023 and 2022, unaudited combined pro forma Balance Sheet and Statement of Operations of WFRSA and FLOW for the three month period ended March 31, 2023, and unaudited combined pro forma Statement of Operations of WFRSA and FLOW for the fiscal years ended December 31, 2021 and 2022. No other changes have been made from the Original Filing.
| Item 1.01 | Entry into a Material Definitive Agreement. |
On March 16, 2023, INVO Bioscience Inc., a Nevada corporation (“INVO”), through Wood Violet Fertility LLC, a Delaware limited liability company (“Buyer”) and wholly owned subsidiary of INVO Centers LLC, a Delaware company wholly-owned by INVO, entered into binding purchase agreements to acquire Wisconsin Fertility Institute (the “Clinic”) for a combined purchase price of $10 million.
The purchase price is payable in four installments of $2.5 million each (which payments may be offset by assumption of certain Clinic liabilities, payable at closing and on each of the subsequent three anniversaries of closing. The sellers have the option to take all or a portion of the final three installments in shares of INVO common stock valued at $6.25, $9.09, and $14.29, for the second, third, and final installments, respectively.
The Clinic is comprised of (a) a medical practice, Wisconsin Fertility and Reproductive Surgery Associates, S.C., a Wisconsin professional service corporation d/b/a Wisconsin Fertility Institute (“WFRSA”), and (b) a laboratory services company, Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”). WFRSA owns, operates and manages the Clinic’s fertility practice that provides direct treatment to patients focused on fertility, gynecology and obstetrics care and surgical procedures, and employs physicians and other healthcare providers to deliver such services and procedures. FLOW provides WFRSA with related laboratory services.
As described in greater detail in this Form 8-K and its exhibits, INVO is purchasing the non-medical assets of WFRSA and one hundred percent of FLOW’s membership interests. As reflected in the WFRSA purchase agreement, the Buyer and WFRSA will enter into a management services agreement pursuant to which WFRSA will outsource all its non-medical activities to the Buyer.
The Clinic’s audited financial statements for the years ended December 31, 2022 and 2021, attached hereto as an exhibit, reflect revenue of approximately $5.3 million and $5.7 million, respectively, and net income of approximately $1.7 million and $2.3 million respectively.
Asset Purchase Agreement
On March 16, 2023, Buyer entered into an Asset Purchase Agreement (the “APA”) with WFRSA and The Elizabeth Pritts Revocable Living Trust (the “Seller,” together with the WFRSA, the “Seller Parties”) pursuant to which Buyer agreed to acquire the Purchased Assets (as defined in the APA) related to WFRSA’s business. Buyer also agreed to assume certain liabilities of WFRSA as set forth in the APA. Certain non-clinical assets, properties and rights of WFRSA shall be excluded from the Purchased Assets including patient lists, charts, records and ledgers, all contracts with Payors (as defined in the APA); all Health Care Permits (as defined in the APA).
The Buyer will deliver to WFRSA an amount equal to (all capitalized terms as defined in the APA) the Closing Payment at closing consisting of $500,000 less Target Closing Date Debt less the Holdback Amount of $280,000. Buyer has agreed to make the following Post-Closing Additional Payments of $500,000 on each of the first three anniversaries of closing provided that Seller may elect to receive shares of INVO common stock in lieu of such cash payments as follows: (i) 80,000 shares of INVO common stock on the first additional payment date; (ii) 55,000 shares of INVO common stock on the second additional payment date and (iii) 35,000 shares of INVO common stock on the third additional payment date. The Additional Payments are secured by Seller having a subordinated lien on the Purchased Assets.
The APA contains a purchase price adjustment whereby (all capitalized terms as defined in the APA) if the Post Closing Adjustment Amount is a positive number, then Buyer shall pay to Seller an amount equal to the Post-Closing Adjustment Amount and if the Post-Closing Adjustment Amount is a negative number, then Seller shall pay to Buyer an amount equal to the absolute value of the Post-Closing Adjustment Amount, which amount will be first set off from the Holdback Amount. The Post-Closing Adjustment Amount shall be an amount equal to (i) the Closing Accounts Receivable minus the Target Accounts Receivable plus (ii) the Closing Supplies Value minus the Target Closing Supplies Value plus (iii) the Target Closing Date Debt minus the Closing Date Debt plus (iv) The Target Operating Escrow Account minus the Closing Operating Expense Amount plus (v) the Target Prepaid Amounts minus the Closing Prepaid Amounts.
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The Seller Parties agreed to a five (5) year non-compete and non-solicitation provisions under the APA.
The APA is subject to certain closing conditions, including performance of all obligations under the APA and no material adverse effect.
We expect to close the transaction contemplated in the APA in the second calendar quarter of 2023.
The paragraphs above describe certain of the material terms of the APA. Such description is not a complete description of the material terms of the APA and is qualified in its entirety by reference to the APA which are included as Exhibit 10.1 to this Current Report on Form 8-K.
Membership Interest Purchase Agreement
On March 16, 2023, Buyer entered into a Membership Interest Purchase Agreement (the “MIPA”) with FLOW, IVF Science, LLC, a Wisconsin limited liability company (“IVF Science”), owned by Wael Megid, Ph.D. (“Dr. Megid”), and Dr. Elizabeth Pritts as trustee for the Elizabeth Pritts Revocable List Trust, a Trust created under the laws of the State of Wisconsin (each, a “Selling Member” and collectively, the “Selling Members”). Under the MIPA, the Selling Members agreed to sell to Buyer 100% of the Membership Interests of FLOW for a purchase price equal to (all capitalized terms as defined in the MIPA) the Initial Purchase Price, which is equal to (i) two million dollars ($2,000,000) minus (ii) the Closing Indebtedness minus (iii) any Transaction Expenses minus (iv) the Holdback Amount of $70,000. In addition to the Initial Closing Payment, Purchaser has agreed to pay to the Selling Members additional payments of $2,000,000 within 90-days of each of the first three anniversaries of closing provided that Selling Members may elect to receive shares of INVO common stock in lieu of such cash payments as follows: (i) 320,000 shares of INVO common stock on the first additional payment date; (ii) 220,000 shares of INVO common stock on the second additional payment date and (iii) 140,000 shares of INVO common stock on the third additional payment date. These additional payments are secured by the Selling Members having a lien on the assets of FLOW.
The MIPA contains (all capitalized terms as defined in the MIPA) a Post-Closing Purchase Price Adjustment whereby if the Post-Closing Adjustment Amount is a positive number then Purchaser shall pay Seller’s Representative for distribution to the Selling Members an amount equal to the Post-Closing Adjustment Amount and if the Post-Closing Adjustment Amount is a negative number, then the Selling Members shall pay to Purchaser an amount equal to the absolute value of the Post-Closing Adjustment Amount which amount will be first set off against the Holdback Amount. The Post-Closing Adjustment Amount will be determined based upon the actual Net Working Capital, the Closing Indebtedness, the Transaction Expenses, and any difference to the Estimated Net Working Capital, Estimated Closing Indebtedness, and Estimated Transaction Expenses.
The Selling Members agreed to a five (5) year non-compete and non-solicitation provisions under the MIPA.
The MIPA is subject to certain closing conditions, including performance of all obligations under the MIPA.
The MIPA provides IVF Science, upon written notice from Dr. Megid (to be given no later than March 30, 2023), an option to contribute and exchange its pro rata membership interest in FLOW for an equivalent membership interest in Buyer, in lieu of IVF Science pro rata share of the purchase price payable to the Selling Members. Upon receipt of such notice, Buyer, IVF Science and Dr Megid agree to negotiate in good faith over a period of thirty days such contribution and exchange transaction; provided, however, if the parties are unable to agree upon the terms of such transaction, IVF Science’s pro rata membership interest in FLOW will be purchased by Buyer as contemplated in the MIPA.
We expect to close the transaction contemplated in the MIPA in the second calendar quarter of 2023.
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The paragraphs above describe certain of the material terms of the MIPA. Such description is not a complete description of the material terms of the MIPA and is qualified in its entirety by reference to the MIPA which are included as Exhibit 10.2 to this Current Report on Form 8-K.
| Item 9.01 | Financial Statements and Exhibits |
| (a) | Financial Statements of Business Acquired. |
The following combined financial statements of Wisconsin Fertility and Reproductive Surgery Associates, S.C., a Wisconsin professional service corporation d/b/t Wisconsin Fertility Institute (“WFRSA”) and Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”) are being filed as exhibits to this Current Report on Form 8-K:
(i) The audited combined financial statements of WFRSA and FLOW as of and for the years ended December 31, 2022 and 2021 and related notes, attached as Exhibit 99.4.
(ii) The unaudited combined financial statements of WFRSA and FLOW as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 and related notes, attached as Exhibit 99.5.
| (b) | Pro Forma Financial Information* |
(i) The unaudited combined pro forma Balance Sheet and Statement of Operations of WFRSA and FLOW for the three month period ended March 31, 2023; and
(ii) The unaudited combined pro forma Statement of Operations of WFRSA and FLOW for the fiscal years ended December 31, 2021 and 2022.
*Attached as Exhibit 99.6
(d) Exhibits.
*Previously filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: June 21, 2023 | INVO BIOSCIENCE, INC. |
| /s/ Steven Shum | |
| Steven Shum | |
| Chief Executive Officer |
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Exhibit 99.4
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
AUDITED COMBINED FINANCIAL STATEMENTS
As of and for the years ended December 31, 2022 and 2021 with Report of Independent Registered Public Accounting Firm.
TABLE OF CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
Fertility Labs of Wisconsin, LLC and Wisconsin Fertility and Reproductive Surgery Associates, S.C.
Opinion on the Combined Financial Statements
We have audited the accompanying combined balance sheets of Fertility Labs of Wisconsin, LLC and Wisconsin Fertility and Reproductive Surgery Associates, S.C. (the Companies) as of December 31, 2022 and 2021, and the related combined statements of operations, members’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Companies as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These combined financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on the Companies’ combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud. The Companies are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the combined financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the combined financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the combined financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As discussed in the notes to the combined financial statements, the Companies recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue from clinical and lab services is recognized based on the date the service is performed.
Auditing management’s evaluation of the service revenue from its agreements with patients involves significant judgment based on the estimates of the revenue recorded and their subsequent true-up once payment is received.
To evaluate the appropriateness and accuracy of the revenue recorded by management, we evaluated management’s assessment of the revenue recorded based on the Companies’ service agreements.
/s/ M&K CPAS, PLLC
M&K CPAS, PLLC
We have served as the Company’s auditor since 2022
Houston, TX
June 21, 2023
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WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
AUDITED COMBINED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 787,297 | $ | 627,949 | ||||
| Accounts receivable, net | 144,246 | 136,588 | ||||||
| Total current assets | 931,543 | 764,537 | ||||||
| Property and equipment, net | 76,119 | 66,261 | ||||||
| Lease right of use | 966,487 | - | ||||||
| Total assets | $ | 1,974,149 | $ | 830,798 | ||||
| LIABILITIES AND MEMBERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 173,046 | $ | 22,926 | ||||
| Accrued liabilities | 112,176 | 75,605 | ||||||
| Distribution payable | 533,690 | 426,734 | ||||||
| Deferred revenue | 423,208 | 394,066 | ||||||
| Lease liability, current portion | 215,805 | - | ||||||
| Total current liabilities | 1,457,925 | 919,331 | ||||||
| Lease liability, net of current portion | 762,703 | - | ||||||
| Total liabilities | 2,220,628 | 919,331 | ||||||
| Members’ deficit | ||||||||
| Members’ deficit - beginning | (88,533 | ) | (429,537 | ) | ||||
| Members’ deficit - current year | (157,946 | ) | 341,004 | |||||
| Total members’ deficit | (246,479 | ) | (88,533 | ) | ||||
| Total liabilities and members’ deficit | $ | 1,974,149 | $ | 830,798 | ||||
The accompanying notes are an integral part of these combined financial statements.
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WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
AUDITED COMBINED STATEMENTS OF OPERATIONS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | 5,379,675 | $ | 5,676,804 | ||||
| Cost of revenue | 2,284,922 | 2,335,774 | ||||||
| Gross profit | 3,094,753 | 3,341,030 | ||||||
| Operating expenses | 1,411,012 | 1,216,069 | ||||||
| Income from operations | 1,683,741 | 2,124,961 | ||||||
| Other income (expense): | ||||||||
| Other income | 904 | 182,719 | ||||||
| Interest expense | (238 | ) | (360 | ) | ||||
| Total other income (expense) | 666 | 182,359 | ||||||
| Net income | $ | 1,684,407 | $ | 2,307,320 | ||||
The accompanying notes are an integral part of these combined financial statements.
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WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
AUDITED COMBINED STATEMENTS OF MEMBERS’ DEFICIT
| Balance at January 1, 2021 | $ | (429,537 | ) | |
| Member capital distribution | (1,966,316 | ) | ||
| Net income | 2,307,320 | |||
| Balance at December 31, 2021 | $ | (88,533 | ) | |
| Member capital distribution | (1,842,353 | ) | ||
| Net income | 1,684,407 | |||
| Balance at December 31, 2022 | $ | (246,479 | ) |
The accompanying notes are an integral part of these combined financial statements.
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WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
AUDITED COMBINED STATEMENTS OF CASH FLOWS
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 1,684,407 | $ | 2,307,320 | ||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Extinguishment of debt | - | (181,600 | ) | |||||
| Depreciation and amortization | 13,953 | 6,660 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (7,658 | ) | 28,390 | |||||
| Prepaid expenses and other current assets | - | 5,000 | ||||||
| Accounts payable | 150,120 | 5,228 | ||||||
| Accrued liabilities | 36,571 | (12,593 | ) | |||||
| Deferred revenue | 29,142 | (26,209 | ) | |||||
| Leasehold liability | 12,021 | - | ||||||
| Net cash provided by operating activities | 1,918,556 | 2,132,196 | ||||||
| Cash from investing activities: | ||||||||
| Payments to acquire property, plant, and equipment | (23,811 | ) | (63,390 | ) | ||||
| Net cash used in investing activities | (23,811 | ) | (63,390 | ) | ||||
| Cash from financing activities: | ||||||||
| Member capital distribution | (1,735,397 | ) | (1,902,950 | ) | ||||
| Net cash used in financing activities | (1,735,397 | ) | (1,902,950 | ) | ||||
| Increase (decrease) in cash | 159,348 | 165,856 | ||||||
| Cash at beginning of period | 627,949 | 462,093 | ||||||
| Cash at end of period | $ | 787,297 | $ | 627,949 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 238 | $ | 360 | ||||
| Supplemental disclosure of non-cash transactions: | ||||||||
| Recognition of right of use asset and lease liability | $ | 1,185,824 | - | |||||
The accompanying notes are an integral part of these combined financial statements.
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WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Description of Business
These audited combined financial statements include the following business entities: Wisconsin Fertility and Reproductive Surgery Associates, S.C. (“WFRSA”), a clinic that provides fertility services and advanced gynecology care and Fertility Labs of Wisconsin, LLC (“FLOW”), a limited liability company that provides lab services exclusively to WFRSA (the “Companies”).
Basis of Presentation
The Companies’ accounting and financial reporting policies conform to accounting principles generally accepted in the United States (“U.S. GAAP”).
Use of Estimates
In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reported period. Actual results could differ from those estimates. The more significant estimates and assumptions by management include among others: useful life of property and equipment, collectability of accounts receivable and accrued liabilities.
Cash and Cash Equivalents
For financial statement presentation purposes, the Companies consider time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Companies had no cash equivalents at December 31, 2022 or December 31, 2021.
Accounts Receivables and Allowances for Doubtful Accounts
The allowance for doubtful accounts is based on the Companies’ assessment of the collectability of customer accounts and the aging of the related invoices and represents the Companies’ best estimate of probable credit losses in its existing trade accounts receivable. The Companies regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts is included in accounts receivables, net on the Companies’ combined balance sheet. The Companies’ allowance for doubtful accounts balance was $0 and $33,372 as of December 31, 2022 and December 31, 2021 respectively.
Property and Equipment
The Companies record property and equipment at cost. Property and equipment is depreciated using the straight-line method over the estimated economic lives of the assets, which are from 3 to 10 years. The Companies capitalize the expenditures for major renewals and improvements that extend the useful lives of property and equipment. Expenditures for maintenance and repairs are charged to expense as incurred. The Companies review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by a comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
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Fair Value of Financial Instruments
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The Companies had no assets or liabilities which were measured at fair value on a nonrecurring basis during the reporting periods.
Income Taxes
The Companies are limited liability companies and do not incur federal taxes. For federal tax purposes, the earnings and losses of the Companies are included in the members’ federal personal income tax returns and are taxed based on their personal tax strategies. Therefore, there is no provision or liability for federal income taxes reflected in the accompanying financial statements. Beginning in 2022 the members elected to have state income taxes paid by the Companies on the members’ behalf. This expense is included in the Companies operating expenses. In 2023 the Companies will recognize quarterly tax estimates for state income taxes.
Concentration of Credit Risk
Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (“FDIC”) limits. The Companies had cash balances in excess of FDIC limits at December 31, 2022 and December 31, 2021.
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Revenue Recognition
The Companies recognize revenue on arrangements in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services ASC 606 requires companies to assess their contracts to determine the timing and amount of revenue to recognize under the new revenue standard. The model has a five-step approach:
| 1. | Identify the contract with the customer. |
| 2. | Identify the performance obligations in the contract. |
| 3. | Determine the total transaction price. |
| 4. | Allocate the total transaction price to each performance obligation in the contract. |
| 5. | Recognize as revenue when (or as) each performance obligation is satisfied. |
Revenue generated from clinical and lab services is recognized at the time the service is performed. The Companies’ performance obligations related to the delivery of services to patients are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue.
A portion of the Companies’ service revenue is reimbursed by third party insurance payors. Payments for services rendered to the Companies’ patients are generally less than billed charges. The Companies monitor revenue and receivables from these sources and record an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.
Patient service revenue is presented net of an estimated provision for contractual adjustments and write offs. adjustments result from the difference between the physician rates for services performed and the reimbursements by third-party insurance payors for such services. Collection of patient service revenue the Companies expect to receive is normally a function of providing complete and correct billing information to third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing. Third-party insurance payors account for approximately 15% of the Companies’ revenue.
For patient fees that are not covered by third party insurance payors, the Companies require patients to pay for services prior to the services being rendered. The Companies record these prepayments as deferred revenue until the services are rendered. Once services are rendered the Companies recognize the revenue in accordance with ASC 606.
As of December 31, 2022 and 2021 the Companies had $423,208 and $394,066 of deferred revenue, respectively.
Advertising Expense
The Companies expense advertising costs as incurred. These costs are included in the operating costs for the Companies on the statement of operations. For the years ended December 31, 2022 and 2021 the Companies incurred in advertising costs $8,083 and $10,827 respectively.
Recently Adopted Accounting Pronouncements
Leases (Topic 842). In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For private companies the new standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Companies adopted the standard effective January 1, 2022.
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Note 2 – Property and Equipment
Property and equipment consists of the following:
December 31, 2022 | December 31, 2021 | |||||||
| Furniture and equipment | $ | 34,595 | 10,784 | |||||
| Leasehold improvements | 63,389 | 63,389 | ||||||
| Less: accumulated depreciation | (21,865 | ) | (7,912 | ) | ||||
| Total equipment, net | $ | 76,119 | 66,261 | |||||
During the years ended December 31, 2022, and 2021, the Companies recorded depreciation expense of $13,953 and $6,660 respectively.
Note 3 – Leases
The Companies have an operating lease agreement in place for its office. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2022, the Companies are 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. Per the terms of ASU 2016-02, the Companies can use its implicit interest rate, if known, or applicable federal rate otherwise. Since the Companies’ implicit interest rate was not readily determinable, the Companies utilized the applicable federal rate, as of the commencement of the lease. Lease renewal options included in any lease are considered in the lease term if it is reasonably certain the Companies will exercise the option to renew. The Companies’ operating lease agreements do not contain any material restrictive covenants.
As of December 31, 2022, the Companies’ lease components included in the combined balance sheet were as follows:
| Lease component | Balance sheet classification | December 31, 2022 | ||||
| Assets | ||||||
| ROU assets – operating lease | Other assets | $ | 966,487 | |||
| Total ROU assets | $ | 966,487 | ||||
| Liabilities | ||||||
| Current operating lease liability | Current liabilities | $ | 215,805 | |||
| Long-term operating lease liability | Other liabilities | 762,703 | ||||
| Total lease liabilities | $ | 978,508 | ||||
Future minimum lease payments as of December 31, 2022 were as follows:
| 2023 | 227,804 | |||
| 2024 | 233,499 | |||
| 2025 | 239,337 | |||
| 2026 | 245,320 | |||
| 2027 | 61,706 | |||
| Total future minimum lease payments | $ | 1,007,666 | ||
| Less: Interest | (29,158 | ) | ||
| Total operating lease liabilities | $ | 978,508 |
Note 4 – Members’ Distributions
Members’ distributions totaling $1,842,353 and $1,966,316 were paid out during the years ended December 31, 2022 and 2021, respectively. Distributions payable to the members totaled $533,690 and $426,734 at December 31, 2022 and 2021, respectively.
Note 5 – Commitments and Contingencies
Insurance
The Companies’ insurance coverage is carried with third-party insurers and includes: (i) general liability insurance covering third-party exposures; (ii) statutory workers’ compensation insurance; (iv) excess liability insurance above the established primary limits for general liability and automobile liability insurance; (v) property insurance, which covers the replacement value of real and personal property and includes business interruption; and (vi) malpractice insurance covering our physicians for acts related to our business activities. All coverage is subject to certain limits and deductibles, the terms and conditions of which are common for companies with similar types of operations.
Legal Matters
The Companies are not currently subject to any material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business, or legal proceedings it considered immaterial may in the future become material. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and can divert management resources.
Note 6 – Subsequent Events
On March 16, 2023, INVO Bioscience Inc., a Nevada corporation (“INVO”), through Wood Violet Fertility LLC, a Delaware limited liability company (“Buyer”) and wholly-owned subsidiary of INVO Centers LLC, a Delaware company wholly-owned by INVO, entered into an Asset Purchase Agreement (the “APA”) with WFRSA and The Elizabeth Pritts Revocable Living Trust (the “Seller,” together with WFRSA, the “Seller Parties”) pursuant to which Buyer agreed to acquire the Purchased Assets (as defined in the APA) related to WFRSA’s business. Buyer also agreed to assume certain liabilities of WFRSA as set forth in the APA. Certain non-clinical assets, properties and rights of WFRSA shall be excluded from the Purchased Assets including patient lists, charts, records and ledgers, all contracts with Payors (as defined in the APA); all Health Care Permits (as defined in the APA).
The Buyer will deliver to WFRSA an amount equal to (all capitalized terms as defined in the APA) the Closing Payment at closing consisting of $500,000 less Target Closing Date Debt less the Holdback Amount of $280,000. Buyer has agreed to make the following Post-Closing Additional Payments of $500,000 on each of the first three anniversaries of closing provided that Seller may elect to receive shares of INVO common stock in lieu of such cash payments as follows: (i) 80,000 shares of INVO common stock on the first additional payment date; (ii) 55,000 shares of INVO common stock on the second additional payment date and (iii) 35,000 shares of INVO common stock on the third additional payment date. The Additional Payments are secured by Seller having a subordinated lien on the Purchased Assets.
On March 16, 2023, Buyer entered into a Membership Interest Purchase Agreement (the “MIPA”) with FLOW, IVF Science, LLC, a Wisconsin limited liability company owned by Wael Megid, Ph.D., and Dr. Elizabeth Pritts as trustee for the Elizabeth Pritts Revocable List Trust, a Trust created under the laws of the State of Wisconsin (each, a “Selling Member” and collectively, the “Selling Members”). Under the MIPA the Selling Members agreed to sell to Buyer 100% of the Membership Interests of FLOW for a purchase price equal to (all capitalized terms as defined in the MIPA) the Initial Purchase Price, which is equal to (i) two million dollars ($2,000,000) minus (ii) the Closing Indebtedness minus (iii) any Transaction Expenses minus (iv) the Holdback Amount of $70,000. In addition to the Initial Closing Payment, Purchaser has agreed to pay to the Selling Members additional payments of $2,000,000 within 90-days of each of the first three anniversaries of closing provided that Selling Members may elect to receive shares of INVO common stock in lieu of such cash payments as follows: (i) 320,000 shares of INVO common stock on the first additional payment date; (ii) 220,000 shares of INVO common stock on the second additional payment date and (iii) 140,000 shares of INVO common stock on the third additional payment date. These additional payments are secured by the Selling Members having a lien on the assets of FLOW.
| 11 |
Exhibit 99.5
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
UNAUDITED COMBINED FINANCIAL STATEMENTS
As of March 31, 2023 and for the three months ended March 31, 2023 and 2022 (unaudited).
TABLE OF CONTENTS
| Page | |
| COMBINED FINANCIAL STATEMENTS | |
| Combined Balance Sheets | 3 |
| Combined Statements of Operations | 4 |
| Combined Statements of Member’s Deficit | 5 |
| Combined Statements of Cash Flows | 6 |
| Notes to Combined Financial Statements | 7 |
| 2 |
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
COMBINED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 169,361 | $ | 787,297 | ||||
| Accounts receivable, net | 119,559 | 144,246 | ||||||
| Prepaid expenses and other current assets | 526 | - | ||||||
| Total current assets | 289,446 | 931,543 | ||||||
| Property and equipment, net | 71,763 | 76,119 | ||||||
| Lease right of use | 911,201 | 966,487 | ||||||
| Total assets | $ | 1,272,410 | $ | 1,974,149 | ||||
| LIABILITIES AND MEMBERS’ DEFECIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 53,130 | $ | 173,046 | ||||
| Accrued liabilities | 43,819 | 112,176 | ||||||
| Distributions payable | 171,981 | 533,690 | ||||||
| Deferred revenue | 132,703 | 423,208 | ||||||
| Lease liability, current portion | 217,958 | 215,805 | ||||||
| Total current liabilities | 619,591 | 1,457,925 | ||||||
| Lease liability, net of current portion | 707,929 | 762,703 | ||||||
| Total liabilities | 1,327,520 | 2,220,628 | ||||||
| Members’ deficit | ||||||||
| Members’ deficit- beginning | (246,479 | ) | (88,533 | ) | ||||
| Members’ deficit- current year | 191,369 | (157,946 | ) | |||||
| Total members’ deficit | (55,110 | ) | (246,479 | ) | ||||
| Total liabilities and members’ deficit | $ | 1,272,410 | $ | 1,974,149 | ||||
The accompanying notes are an integral part of these combined financial statements.
| 3 |
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
| For the Three Months | ||||||||
| Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 1,339,967 | $ | 1,575,153 | ||||
| Cost of revenue | 509,725 | 664,459 | ||||||
| Gross profit | 830,242 | 910,694 | ||||||
| Operating expenses | 367,791 | 322,289 | ||||||
| Income from operations | 462,451 | 588,405 | ||||||
| Other income (expense): | ||||||||
| Interest expense | - | (108 | ) | |||||
| Total other income (expense) | - | (108 | ) | |||||
| Net income | $ | 462,451 | $ | 588,297 | ||||
The accompanying notes are an integral part of these combined financial statements.
| 4 |
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
UNAUDITED COMBINED STATEMENTS OF MEMBERS’ DEFICIT
| Balance at January 1, 2022 | $ | (88,533 | ) | |
| Member capital distribution | (652,276 | ) | ||
| Net income – three months ended March 31, 2022 | 588,297 | |||
| Balance at March 31, 2022 | (152,512 | ) | ||
| Balance at January 1, 2023 | $ | (246,479 | ) | |
| Member capital distribution | (271,082 | ) | ||
| Net income – three months ended March 31, 2023 | 462,451 | |||
| Balance at March 31, 2023 | $ | (55,110 | ) |
The accompanying notes are an integral part of these combined financial statements.
| 5 |
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 462,451 | $ | 588,297 | ||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 4,356 | 7,336 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 24,687 | (4,279 | ) | |||||
| Prepaid expenses and other current assets | (526 | ) | - | |||||
| Accounts payable | (119,916 | ) | 7,028 | |||||
| Accrued liabilities | (68,357 | ) | (10,868 | ) | ||||
| Deferred revenue | (290,505 | ) | (22,013 | ) | ||||
| Leasehold liability | 2,665 | 4,028 | ||||||
| Net cash provided by operating activities | 14,855 | 569,529 | ||||||
| Cash from investing activities: | ||||||||
| Net cash used in investing activities | - | - | ||||||
| Cash from financing activities: | ||||||||
| Member capital distribution | (632,791 | ) | (426,736 | ) | ||||
| Net cash used in financing activities | (632,791 | ) | (426,736 | ) | ||||
| Increase (decrease) in cash | (617,936 | ) | 142,793 | |||||
| Cash at beginning of period | 787,297 | 627,949 | ||||||
| Cash at end of period | $ | 169,361 | $ | 770,742 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 238 | $ | 108 | ||||
| Supplemental disclosure of non-cash transactions: | ||||||||
| Recognition of right of use asset and lease liability | $ | - | $ | 1,185,824 | ||||
The accompanying notes are an integral part of these combined financial statements.
| 6 |
WISCONSIN FERTILITY AND REPRODUCTIVE SURGERY ASSOCIATES, S.C.
AND FERTILITY LABS OF WISCONSIN, LLC
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Description of Business
The unaudited combined financial statements for Wisconsin Fertility Institute include the following business operations: Wisconsin Fertility and Reproductive Surgery Associates, S.C. (“WFRSA”), a clinic that provides fertility services and advanced gynecology care and Fertility Labs of Wisconsin, LLC (“FLOW”), a limited liability company that provides lab services exclusively to WFRSA (the “Companies”).
Basis of Presentation
The Companies’ accounting and financial reporting policies conform to accounting principles generally accepted in the United States (“U.S. GAAP”).
Use of Estimates
In preparing financial statements in conformity with U.S GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reported period. Actual results could differ from those estimates. The more significant estimates and assumptions by management include among others: useful life of property and equipment, collectability of accounts receivable and accrued liabilities.
Cash and Cash Equivalents
For financial statement presentation purposes, the Companies consider time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Companies had no cash equivalents at March 31, 2023.
Accounts Receivables and Allowances for Doubtful Accounts
The allowance for doubtful accounts is based on the Companies’ assessment of the collectability of customer accounts and the aging of the related invoices and represents the Companies’ best estimate of probable credit losses in its existing trade accounts receivable. The Companies regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts is included in accounts receivables, net on the Companies’ balance sheet. The Companies’ allowance for doubtful accounts balance was $0 and $134,630 as of March 31, 2023 and March 31, 2022 respectively.
| 7 |
Property and Equipment
The Companies record property and equipment at cost. Property and equipment is depreciated using the straight-line method over the estimated economic lives of the assets, which are from 3 to 10 years. The Companies capitalize the expenditures for major renewals and improvements that extend the useful lives of property and equipment. Expenditures for maintenance and repairs are charged to expense as incurred. The Companies review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by a comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The Companies had no assets or liabilities which were measured at fair value on a nonrecurring basis during the reporting periods.
Income Taxes
The Companies are limited liability companies and do not incur federal taxes. For tax purposes, the earnings and losses of the Companies are included in the members’ personal income tax returns and are taxed based on their personal tax strategies. Therefore, there is no provision or liability for federal income taxes reflected in the accompanying financial statements. Beginning in 2022 the members elected to have state income taxes paid by the Companies on the members’ behalf. This expense is included in the Companies operating expenses. In 2023 the Companies will recognize quarterly tax estimates for state income taxes.
Concentration of Credit Risk
Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (“FDIC”) limits. The Companies had cash balances in excess of FDIC limits at March 31, 2023.
| 8 |
Revenue Recognition
The Companies recognizes revenue on arrangements in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services ASC 606 requires companies to assess their contracts to determine the timing and amount of revenue to recognize under the new revenue standard. The model has a five-step approach:
| 1. | Identify the contract with the customer. |
| 2. | Identify the performance obligations in the contract. |
| 3. | Determine the total transaction price. |
| 4. | Allocate the total transaction price to each performance obligation in the contract. |
| 5. | Recognize as revenue when (or as) each performance obligation is satisfied. |
Revenue generated from clinical and lab services is recognized at the time the service is performed. The Companies’ performance obligations related to the delivery of services to patients are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue.
A portion of the Companies’ service revenue is reimbursed by third party insurance payors. Payments for services rendered to the Companies’ patients are generally less than billed charges. The Companies monitor revenue and receivables from these sources and record an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.
Patient service revenue is presented net of an estimated provision for contractual adjustments and write offs. adjustments result from the difference between the physician rates for services performed and the reimbursements by third-party insurance payors for such services. Collection of patient service revenue the Companies expect to receive is normally a function of providing complete and correct billing information to third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing. Third-party insurance payors account for approximately 15% of the Companies’ revenue.
For patient fees that are not covered by third party insurance payors, the Companies require patients to pay for services prior to the services being rendered. The Companies record these prepayments as deferred revenue until the services are rendered. Once services are rendered the Companies recognize the revenue in accordance with ASC 606.
As of March 31, 2023 and December 31, 2022 the Companies had $132,703 and $423,208 of deferred revenue, respectively.
Advertising Expense
The Companies expense advertising costs as incurred. These costs are included in the operating costs for the Companies on the statement of operations. For the three months ended March 31, 2023 and 2022 the Companies incurred in advertising costs $1,030 and $2,934 respectively.
Recently Adopted Accounting Pronouncements
Leases (Topic 842). In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For private companies the new standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
The Companies adopted the standard effective January 1, 2022. The standard allows a number of optional practical expedients to use for transition. The Companies chose the certain practical expedients allowed under the transition guidance which permitted us to not to reassess any existing or expired contracts to determine if they contain embedded leases, to not to reassess our lease classification on existing leases, to account for lease and non-lease components as a single lease component for equipment leases, and whether initial direct costs previously capitalized would qualify for capitalization under FASB ASC 842. The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. The Companies have elected the short-term lease recognition for all leases that qualify, which means that we do not recognize a ROU asset and lease liability for any lease with a term of twelve months or less. See Note 3 for more details.
The most significant impact of adopting the standard was the recognition of ROU assets and lease liabilities for operating leases on the Companies’ consolidated balance sheet but it did not have an impact on the Companies’ consolidated statements of operations or consolidated statements of cash flows. The Companies did not have a cumulative effect on adoption prior to January 1, 2022.
Note 2 – Property and Equipment
Property and equipment consists of the following:
March 31, 2023 | December 31, 2022 | |||||||
| Furniture and equipment | $ | 34,595 | $ | 34,595 | ||||
| Leasehold improvements | 63,389 | 63,389 | ||||||
| Less: accumulated depreciation | (26,221 | ) | (21,865 | ) | ||||
| Total equipment, net | $ | 71,763 | $ | 76,119 | ||||
| 9 |
During the three months ended March 31, 2023, and 2022, the Companies recorded depreciation expense of $4,356 and $7,336.
Note 3 – Leases
The Companies have an operating lease agreement in place for its office. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2022, the Companies are 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. Per the terms of ASU 2016-02, the Companies can use its implicit interest rate, if known, or applicable federal rate otherwise. Since the Companies’ implicit interest rate was not readily determinable, the Companies utilized the applicable federal rate, as of the commencement of the lease. Lease renewal options included in any lease are considered in the lease term if it is reasonably certain the Companies will exercise the option to renew. The Companies’ operating lease agreements do not contain any material restrictive covenants.
As of March 31, 2023, the Companies’ lease components included in the combined balance sheet were as follows:
| Lease component | Balance sheet classification | March 31, 2023 | ||||
| Assets | ||||||
| ROU assets – operating lease | Other assets | $ | 911,201 | |||
| Total ROU assets | $ | 911,201 | ||||
| Liabilities | ||||||
| Current operating lease liability | Current liabilities | $ | 217,958 | |||
| Long-term operating lease liability | Other liabilities | 707,929 | ||||
| Total lease liabilities | $ | 925,887 | ||||
Future minimum lease payments as of March 31, 2023 were as follows:
| 2023 | 171,901 | |||
| 2024 | 233,499 | |||
| 2025 | 239,337 | |||
| 2026 | 245,320 | |||
| 2027 | 61,706 | |||
| Total future minimum lease payments | $ | 951,763 | ||
| Less: Interest | (25,876 | ) | ||
| Total operating lease liabilities | $ | 925,887 |
| 10 |
Note 4 – Members’ Distributions
Members’ distributions totaling $271,082 and $652,276 were paid out during the three months ended March 31, 2023 and 2022, respectively. Distributions payable to the members totaled $171,981 and $652,274 at March 31, 2023 and 2022, respectively.
Note 5 – Commitments and Contingencies
Insurance
The Companies’ insurance coverage is carried with third-party insurers and includes: (i) general liability insurance covering third-party exposures; (ii) statutory workers’ compensation insurance; (iv) excess liability insurance above the established primary limits for general liability and automobile liability insurance; (v) property insurance, which covers the replacement value of real and personal property and includes business interruption; and (vi) malpractice insurance covering our physicians for acts related to our business activities. All coverage is subject to certain limits and deductibles, the terms and conditions of which are common for companies with similar types of operations.
Legal Matters
The Companies are not currently subject to any material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business, or legal proceedings it considered immaterial may in the future become material. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and can divert management resources.
Note 6 – Subsequent Events
The Companies have evaluated all other subsequent events from the balance sheet date through the date the financial statements were issued and has determined there are no additional events required to be disclosed.
| 11 |
Exhibit 99.6
INVO BIOSCIENCE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On March 16, 2023, INVO Bioscience Inc., a Nevada corporation (“INVO”), through Wood Violet Fertility LLC, a Delaware limited liability company (“Buyer”) and wholly owned subsidiary of INVO Centers LLC, a Delaware company wholly-owned by INVO, entered into binding purchase agreements to acquire Wisconsin Fertility Institute (the “Clinic”) for a combined purchase price of $10 million (the “WFI Acquisition”).
The purchase price is payable in four installments of $2.5 million each, payable at closing and on each of the subsequent three anniversaries of closing. The sellers have the option to take all or a portion of the final three installments in shares of INVO common stock valued at $6.25, $9.09, and $14.29, for the second, third, and final installments, respectively.
The Clinic is comprised of (a) a medical practice, Wisconsin Fertility and Reproductive Surgery Associates, S.C., a Wisconsin professional service corporation d/b/a Wisconsin Fertility Institute (“WFRSA”), and (b) a laboratory services company, Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”). WFRSA owns, operates and manages the Clinic’s fertility practice that provides direct treatment to patients focused on fertility, gynecology and obstetrics care and surgical procedures, and employs physicians and other healthcare providers to deliver such services and procedures. FLOW provides WFRSA with related laboratory services.
As described in greater detail in the Current Report on Form 8-K (the “Report”) to which these pro forma condensed combined financial statements are an exhibit, INVO is purchasing the non-medical assets of WFRSA and one hundred percent of FLOW’s membership interests.
On March 16, 2023, Buyer entered into an Asset Purchase Agreement (the “APA”) with WFRSA and The Elizabeth Pritts Revocable Living Trust (the “Seller,” together with the WFRSA, the “Seller Parties”) pursuant to which Buyer agreed to acquire the Purchased Assets (as defined in the APA) related to WFRSA’s business. Buyer also agreed to assume certain liabilities of WFRSA as set forth in the APA. Certain non-clinical assets, properties and rights of WFRSA shall be excluded from the Purchased Assets including patient lists, charts, records and ledgers, all contracts with Payors (as defined in the APA); all Health Care Permits (as defined in the APA).
The Buyer will deliver to WFRSA an amount equal to (all capitalized terms as defined in the APA) the Closing Payment at closing consisting of $500,000 less Target Closing Date Debt less the Holdback Amount of $280,000. Buyer has agreed to make the following Post-Closing Additional Payments of $500,000 on each of the first three anniversaries of closing provided that Seller may elect to receive shares of INVO common stock in lieu of such cash payments as follows: (i) 80,000 shares of INVO common stock on the first additional payment date; (ii) 55,000 shares of INVO common stock on the second additional payment date and (iii) 35,000 shares of INVO common stock on the third additional payment date. The Additional Payments are secured by Seller having a subordinated lien on the Purchased Assets.
On March 16, 2023, Buyer entered into a Membership Interest Purchase Agreement (the “MIPA”) with FLOW, IVF Science, LLC, a Wisconsin limited liability company, owned by Wael Megid, Ph.D., and Dr. Elizabeth Pritts as trustee for the Elizabeth Pritts Revocable List Trust, a Trust created under the laws of the State of Wisconsin (each, a “Selling Member” and collectively, the “Selling Members”). Under the MIPA, the Selling Members agreed to sell to Buyer 100% of the Membership Interests of FLOW for a purchase price equal to (all capitalized terms as defined in the MIPA) the Initial Purchase Price, which is equal to (i) two million dollars ($2,000,000) minus (ii) the Closing Indebtedness minus (iii) any Transaction Expenses minus (iv) the Holdback Amount of $70,000. In addition to the Initial Closing Payment, Purchaser has agreed to pay to the Selling Members additional payments of $2,000,000 within 90-days of each of the first three anniversaries of closing provided that Selling Members may elect to receive shares of INVO common stock in lieu of such cash payments as follows: (i) 320,000 shares of INVO common stock on the first additional payment date; (ii) 220,000 shares of INVO common stock on the second additional payment date and (iii) 140,000 shares of INVO common stock on the third additional payment date. These additional payments are secured by the Selling Members having a lien on the assets of FLOW.
The following unaudited pro forma condensed combined financial statements are based on the INVO’s historical consolidated financial statements and the historical combined financial statements of WFRSA and FLOW (the “Companies”) as adjusted to give effect to the WFI Acquisition and related financing transactions. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022 and the year ended December 31, 2021 give effect to these transactions as if they had occurred on January 1, 2021. The unaudited pro forma condensed combined balance sheet as of September 30, 2022 gives effect to these transactions as if they had occurred on September 30, 2022.
The unaudited pro forma combined balance sheet and unaudited combined statement of operations are presented for informational purposes only and do not purport to be indicative of the combined financial condition that would have resulted if the acquisition would have occurred on January 1, 2021.
The unaudited pro forma condensed combined financial statements should be read together with INVO’s historical financial statements, which are included in INVO’s latest Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, and the Companies’ historical financial statements, which are included in the Report.
INVO BIOSCIENCE, INC.
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
AS OF MARCH 31, 2023
| INVO | WFI | Pro Forma | Pro Forma | |||||||||||||
| March 31, 2023 | March 31, 2023 | Adjustments | Balances | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash | $ | 2,188,245 | $ | 169,361 | $ | - | $ | 2,357,606 | ||||||||
| Accounts receivable, net | 99,720 | 119,559 | - | 219,279 | ||||||||||||
| Inventory | 270,919 | - | - | 270,919 | ||||||||||||
| Prepaid expenses and other current assets | 250,878 | 526 | - | 251,404 | ||||||||||||
| Total current assets | 2,809,762 | 289,446 | - | 3,099,208 | ||||||||||||
| Property and equipment, net | 417,642 | 71,763 | - | 489,405 | ||||||||||||
| Goodwill | - | - | 10,055,110 | (a) | 10,055,110 | |||||||||||
| Investment in joint ventures | 1,173,577 | - | - | 1,173,577 | ||||||||||||
| Lease right of use | 1,750,175 | 911,201 | - | 2,661,376 | ||||||||||||
| Total assets | $ | 6,151,156 | $ | 1,272,410 | $ | 10,055,110 | $ | 17,478,676 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 1,847,208 | $ | 96,949 | $ | - | 1,944,157 | |||||||||
| Accrued compensation | 1,220,682 | - | - | 1,220,682 | ||||||||||||
| Notes payable | 331,321 | - | - | 331,321 | ||||||||||||
| Notes payable, related party | 770,000 | - | - | 770,000 | ||||||||||||
| Deferred revenue, current portion | 46,746 | 132,703 | - | 179,449 | ||||||||||||
| Distributions payable | - | 171,981 | - | 171,981 | ||||||||||||
| Lease liability, current portion | 234,050 | 217,958 | - | 452,008 | ||||||||||||
| Total current liabilities | 4,450,007 | 619,591 | - | 5,069,598 | ||||||||||||
| Deferred tax liability | 1,949 | - | - | 1,949 | ||||||||||||
| Long-term liability | - | - | 7,500,000 | (b) | 7,500,000 | |||||||||||
| Lease liability, net of current portion | 1,610,734 | 707,929 | - | 2,318,663 | ||||||||||||
| Total liabilities | 6,062,690 | 1,327,520 | 7,500,000 | 14,890,210 | ||||||||||||
| Stockholders’ equity | ||||||||||||||||
| Common stock | 1,397 | - | 1,250 | (c) | 2,647 | |||||||||||
| Additional paid-in capital | 52,421,481 | - | 2,498,750 | (c) | 54,920,231 | |||||||||||
| Accumulated deficit | (52,334,412 | ) | - | - | (52,334,412 | ) | ||||||||||
| Members’ capital - beginning | - | (246,479 | ) | 246,479 | - | |||||||||||
| Members’ capital - current year | - | 191,369 | (191,369 | ) | - | |||||||||||
| Total stockholders’ equity | 88,466 | (55,110 | ) | 2,555,110 | 2,588,466 | |||||||||||
| Total liabilities and stockholders’ equity | $ | 6,151,156 | $ | 1,272,410 | $ | 10,055,110 | 17,478,676 | |||||||||
INVO BIOSCIENCE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2023
| Pro Forma | ||||||||||||||||
INVO March 31, 2023 | WFI March 31, 2023 | Pro Forma Adjustments | Combined March 31, 2023 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product revenue | $ | 50,644 | $ | - | $ | - | $ | 50,644 | ||||||||
| Clinic revenue | 297,381 | 1,339,967 | - | 1,637,348 | ||||||||||||
| Total revenue | 348,025 | 1,339,967 | - | 1,687,992 | ||||||||||||
| Cost of revenue | 72,554 | 509,725 | - | 582,279 | ||||||||||||
| Gross profit | 275,471 | 830,242 | - | 1,105,713 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | $ | 2,508,371 | $ | 367,791 | $ | - | 2,876,162 | |||||||||
| Research and development | 73,520 | - | - | 73,520 | ||||||||||||
| Total operating expenses | 2,581,891 | 367,791 | - | 2,949,682 | ||||||||||||
| Income (loss) from operations | (2,306,420 | ) | 462,451 | - | (1,843,969 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Loss from equity method investment | $ | (27,735 | ) | $ | - | $ | - | (27,735 | ) | |||||||
| Other income | - | - | - | - | ||||||||||||
| Interest income | - | - | - | - | ||||||||||||
| Interest expense | (216,589 | ) | - | - | (216,589 | ) | ||||||||||
| Foreign currency exchange loss | (135 | ) | - | - | (135 | ) | ||||||||||
| Total other expense, net | (244,459 | ) | - | - | (244,459 | ) | ||||||||||
| Income (loss) before income taxes | (2,550,879 | ) | 462,451 | - | (2,088,428 | ) | ||||||||||
| Provision for income taxes | - | - | - | (d) | - | |||||||||||
| Net income (loss) | (2,550,879 | ) | 462,451 | - | (2,088,428 | ) | ||||||||||
| Net profit (loss) per common share | ||||||||||||||||
| Basic | (0.20 | ) | - | - | (0.17 | ) | ||||||||||
| Diluted | (0.20 | ) | - | - | (0.17 | ) | ||||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | 12,450,072 | - | - | 12,450,072 | ||||||||||||
| Diluted | 12,450,072 | - | - | 12,450,072 | ||||||||||||
INVO BIOSCIENCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 – Basis of presentation
The WFI Acquisition will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of WFI’s assets acquired and liabilities assumed and conformed the accounting policies of WFI to its own policies.
Note 2 – Calculation of purchase consideration and preliminary purchase price allocation
The following table summarizes the fair value of purchase consideration that will be transferred on the Closing Date:
| Proceeds from the sale of INVO common stock | $ | 2,500,000 | ||
| Total upfront cash consideration | 2,500,000 | |||
| Future cash or equity consideration(1) | 7,500,000 | |||
| Total purchase consideration | $ | 10,000,000 |
| (1) | Sellers may elect to receive shares of INVO common stock in lieu of cash payments. See Note 3. |
The Company has performed a preliminary valuation analysis of the fair market value of the Companies’ assets and liabilities. The following table summarizes the preliminary allocation of the purchase price as of March 31, 2023:
| Cash | $ | 169,361 | ||
| Accounts receivable | 119,559 | |||
| Prepaid expenses and other current assets | 526 | |||
| Property and equipment, net | 71,763 | |||
| Lease right of use asset | 911,201 | |||
| Goodwill | 10,055,110 | |||
| Accounts payable and accrued expenses | (96,949 | ) | ||
| Distributions payable | (171,981 | ) | ||
| Deferred revenue | (132,703 | ) | ||
| Lease liability | (925,887 | ) | ||
| Total consideration | $ | 10,000,000 |
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined balance sheet and income statements. The final purchase price allocation will be determined when INVO has completed all detailed valuations and necessary calculations, which are expected to be finalized within the next twelve months. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (i) changes in identifiable net assets, (ii) changes in fair values of property, plant and equipment, and (iii) other changes to assets and liabilities.
Note 3 – Pro forma adjustments
The pro forma adjustments are based on the INVO’s preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial statements:
(a) Represents the preliminary goodwill associated with the WFI Acquisition as presented in Note 2. Goodwill represents the estimate of the excess of the purchase price over the fair value of the assets acquired and liabilities assumed.
(b) Represents the future cash payments owed for the WFI acquisition. INVO has agreed to make additional payments of $2,500,000 within 90-days of each of the first three anniversaries of closing. The sellers may elect to receive shares of INVO common stock in lieu of cash payments as follows: (i) 400,000 shares of INVO common stock on the first additional payment date; (ii) 275,000 shares of INVO common stock on the second additional payment date and (iii) 175,000 shares of INVO common stock on the third additional payment date.
(c) Represents estimated proceeds from common stock sold by INVO to meet the initial $2.5 million due upon closing of the WFI acquisition. As an alternative, INVO may decide to fund the upfront consideration using debt financing, if available on reasonable terms.
(d) WFRSA and FLOW are taxed at the partnership level and as such no provision for income taxes has been recorded for the WFI Acquisition. Beginning in 2022 the members elected to have state income taxes paid by the Companies on the members’ behalf. This expense is included in the Companies operating expenses.
Cover |
Mar. 16, 2023 |
|---|---|
| Cover [Abstract] | |
| Document Type | 8-K/A |
| Amendment Flag | true |
| Amendment Description | Amendment No. 2 |
| Document Period End Date | Mar. 16, 2023 |
| Entity File Number | 001-39701 |
| Entity Registrant Name | INVO BIOSCIENCE, INC. |
| Entity Central Index Key | 0001417926 |
| Entity Tax Identification Number | 20-4036208 |
| Entity Incorporation, State or Country Code | NV |
| Entity Address, Address Line One | 5582 Broadcast Court |
| Entity Address, City or Town | Sarasota |
| Entity Address, State or Province | FL |
| Entity Address, Postal Zip Code | 34240 |
| City Area Code | (978) |
| Local Phone Number | 878-9505 |
| Written Communications | false |
| Soliciting Material | false |
| Pre-commencement Tender Offer | false |
| Pre-commencement Issuer Tender Offer | false |
| Title of 12(b) Security | Common Stock, $0.0001 par value |
| Trading Symbol | INVO |
| Security Exchange Name | NASDAQ |
| Entity Emerging Growth Company | false |