Convertible Notes and Notes Payable

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Convertible Notes and Notes Payable

Note 9 – Convertible Notes and Notes Payable

2020 Convertible Notes Payable

From May 15, 2020 through July 1, 2020, the Company entered into definitive securities purchase agreements (“Purchase Agreements”) with accredited investors for their purchase of (i) secured convertible notes issued by us in the aggregate original principal amount of $3,494,840 (the “Notes”), and (ii) Unit Purchase Options (“Purchase Options”) to purchase 303,623 units (each, a “Unit”), at an exercise price of $3.20 per Unit (subject to adjustments), with each Unit exercisable for (A) one share of the Company’s common stock and (B) a 5-year warrant (the “Warrants”) to purchase one share of our common stock at an exercise price of $3.20 (subject to adjustments) (the “Private Placement”). Each purchaser of a Note was issued a 5-year Purchase Option to purchase 0.086875 Units (as adjusted for subsequent reverse splits for each dollar of Notes purchased. The gross proceeds received by the Company included $3,351,200 in cash and $143,640 from cancellation of indebtedness). Tribal Capital Markets, LLC acted as placement agent (the “Placement Agent”) in the Private Placement. The Company paid the Placement Agent and certain selling agents a cash fee of 8% on a portion of the proceeds for an aggregate amount of $236,000. The Company also agreed to issue the Placement Agent and the selling agents 5-year warrants to purchase 6,750 shares of our common stock at an exercise price of $3.20 per share. These warrants have the same terms and conditions as the Warrants issued in the Private Placement, except for the different exercise price. The Company received approximately $2,998,905 in net proceeds from the Private Placement, after deducting fees payable to the Placement Agent, selling agents, and investor counsel. The Company used approximately $413,456, in proceeds to repay outstanding 9% promissory notes and the Company intends to use the remaining proceeds for working capital and general corporate purposes.

Pursuant to those certain Secured Convertible Notes issued in connection with the Purchase Agreements, interest on such Notes accrues at a rate of ten percent (10%) per annum and is payable either in cash or in shares of the Company’s common stock at a conversion price of $3.20 (following and subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments) on each of the six- and twelve-month anniversary of the issuance date and on the maturity dates of November 15, 2021, December 22, 2021 and December 30, 2021.

All amounts of principal and interest due under the Notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders, into the Company’s common stock at a fixed conversion price of $3.20, which is subject to adjustment as described above.

Upon any issuance by the Company of any of its equity securities, including common stock, for cash consideration, indebtedness or a combination thereof after the date hereof (a “Subsequent Equity Financing”), each holder of a Note will has option to convert the outstanding principal and accrued but unpaid interest of its Note into the number of fully paid and non-assessable shares of common stock issued in the Subsequent Equity Financing (“Conversion Securities”) equal to the product of unpaid principal, together with the balance of unpaid and accrued interest and other amounts payable hereunder multiplied by 1.1, divided by the price per share paid by the investors for the Conversion Securities.

A Note may not be converted and shares of common stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding ordinary shares.

The Company may prepay the Notes at any time in whole or in part by paying an amount equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest plus a prepayment fee equal to one percent (1%) of the principal amount to be repaid.

The Notes contain customary events of default including but not limited to: (i) failure to make payments when due; and (ii) bankruptcy or insolvency of the Company. If an event of default occurs, each holder may require the Company to redeem all or any portion of the Notes (including all accrued and unpaid interest thereon), in cash.

Pursuant to the terms of a Security Agreement entered into between the Company and the noteholders under the Purchase Agreements, the Notes are secured by the proceeds from the $3,000,000 milestone payment pursuant to Section 7.2(b) of the Ferring Agreement to the extent such proceeds are actually received by the Company from Ferring.

Of the $3,494,840 in gross proceeds received in the offering, $1,048,904 million was allocated to the unit purchase options issued to investors based on their relative fair value and $2,062,586 of beneficial conversion feature based on their relative fair value. This amount represented a discount on the debt and additional paid-in-capital at the date of issuance.

In November 2020, noteholders holding notes with a principal value of $1,319,840 elected to convert in connection with the public underwritten offering. In November and December 2020, the Company redeemed an additional $475,000 in principal note value. In March 2021, an additional $1,200,000 converted into equity. As of September 30, 2021, there is $500,000 in principal value of such notes that remains outstanding.

INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(UNAUDITED)

Principal balances of the 2020 Convertible Notes were as follows:

	September 30, 2021			December 31, 2020
2020 Convertible Notes		500,000			1,700,000
Accrued interest		13,890			24,373
Less beneficial conversion feature discount		(45,232	)		(604,897	)
Less options discount		(55,284	)		(224,051	)
Less warrants discount		(58,505	)		(229,954	)
Less issuance cost		(14,330	)		(129,408	)
Total, net of discount	$	340,539		$	536,063

Interest expense on the 2020 Convertible Notes was $12,779 and $89,158 for the three months ended September 30, 2021, and 2020, respectively.

Interest expense on the 2020 Convertible Notes was $60,628 and $120,939 for the nine months ended September 30, 2021, and 2020, respectively.

Amortization of options discount on the 2020 Convertible Notes was $3,734 and $26,428 for the three months ended September 30, 2021, and 2020, respectively.

Amortization of options discount on the 2020 Convertible Notes was $168,767 and $35,805 for the nine months ended September 30, 2021, and 2020, respectively.

Amortization of warrant discount on the 2020 Convertible Notes was $3,955 and $27,053 for the three months ended September 30, 2021, and 2020, respectively.

Amortization of warrant discount on the 2020 Convertible Notes was $171,449 and $36,656 for the nine months ended September 30, 2021, and 2020, respectively.

Amortization of beneficial conversion feature on the 2020 Convertible Notes was $49,541 and $345,208 for the three months ended September 30, 2021, and 2020, respectively.

Amortization of beneficial conversion feature on the 2020 Convertible Notes was $559,665 and $468,231 for the nine months ended September 30, 2021, and 2020, respectively.

Amortization of issuance costs on the 2020 Convertible Notes was $20,594 and $61,187 for the three months ended September 30, 2021, and 2020, respectively.

Amortization of issuance costs on the 2020 Convertible Notes was $115,078 and $81,764 for the nine months ended September 30, 2021, and 2020, respectively.

Paycheck Protection Program

On July 1, 2020, the Company received a loan in the principal amount of $157,620 pursuant to the U.S. Small Business Administration’s Paycheck Protection Program. The loan matured 18 months from the date of funding, was payable over 18 equal monthly installments, and had an interest of 1% per annum. Up to 100% of the principal balance of the loan was forgivable based upon satisfaction of certain criteria under the Paycheck Protection Program. On June 16, 2021, the principal of the loan as well as $1,506 of accrued interest was forgiven and the note was extinguished. The Company recognized a gain of $159,126 as other income.

INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(UNAUDITED)