Variable Interest Entities | Note 3 – Variable Interest Entities Consolidated VIEs Bloom INVO, LLC On June 28, 2021, INVO CTR entered into a limited liability company agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center (the “Atlanta Clinic”) in the Atlanta, Georgia metropolitan area. In consideration for INVO’s commitment to contribute up to $ 800,000 within the 24-month period following the execution of the Bloom Agreement to support the start-up operations of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute physician services having an anticipated value of up to $ 1,200,000 over the course of a 24-month vesting period, the Georgia JV issued 1,200 of its units to Bloom. The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR also performs all required, industry specific compliance and accreditation functions, and product documentation for product registration. The Bloom Agreement provides Bloom with a “profits interest” in the Georgia JV and, in connection with such profits interest, states that profits and losses be allocated to its members based on a hypothetical liquidation of the Georgia JV. In such a scenario, liquidation proceeds would be distributed in the following order: (a) to INVO CTR until the difference between its capital contributions and distributions equals $0; (b) to Bloom until its distributions equal 150% of the liquidation amounts distributed to INVO CTR (a “catch-up” to rebalance the distributions between members); and (c) thereafter on a pro rata basis. The Georgia JV had no assets or liabilities at the time the units were issued, and, as of March 31, 2023, INVO CTR had made capital contributions greater than the net loss of the Georgia JV. As such, the entire net loss was allocated to INVO CTR, and no loss was allocated to the noncontrolling interest of Bloom. The Georgia JV opened to patients on September 7, 2021. The Company determined the Georgia JV is a VIE, and that the Company is its primary beneficiary because the Company has an obligation to absorb losses that are potentially significant and the Company controls the majority of the activities that impact the Georgia JV’s economic performance, specifically control of the INVOcell and lab services quality management. As a result, the Company consolidated the Georgia JV’s results with its own. As of March 31, 2023, the Company invested $ 0.9 million in the Georgia JV in the form of capital contributions as well as $ 0.5 million in the form of a note. For the three months ended March 31, 2023 and 2022, the Georgia JV recorded net losses of $ 32 thousand and $ 0.2 million respectively. Noncontrolling interest in the Georgia JV was $ 0 . Unconsolidated VIEs HRCFG INVO, LLC On March 10, 2021, INVO CTR entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture entity is HRCFG INVO, LLC (the “Alabama JV”). The Company also provides certain funding to the Alabama JV. Each party owns 50% of the Alabama JV. The Alabama JV opened to patients on August 9, 2021. The Company determined the Alabama JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Alabama JV. As of March 31, 2023, the Company invested $ 1.6 million in the Alabama JV in the form of a note. For the three months ended March 31, 2023 and 2022, the Alabama JV recorded net losses of $ 37 thousand and $ 110 thousand, respectively, of which the Company recognized losses from equity method investments of $ 18 thousand and $ 55 thousand, respectively. Positib Fertility, S.A. de C.V. On September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”). The Mexico JV opened to patients on November 1, 2021. The Company determined the Mexico JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Mexico JV. As of March 31, 2023, the Company invested $ 0.1 million in the Mexico JV. For the three months ended March 31, 2023, the Mexico JV recorded net losses of $ 27 thousand and $ 49 thousand, respectively, of which the Company recognized a loss from equity method investments of $ 9 thousand and $ 16 thousand, respectively. The following table summarizes our investments in unconsolidated VIEs: Schedule of Investments in Unconsolidated Variable Interest Entities Carrying Value as of Location Percentage Ownership March 31, 2023 December 31, 2022 HRCFG INVO, LLC Alabama, United States 50 % $ 1,048,872 1,106,905 Positib Fertility, S.A. de C.V. Mexico 33 % 124,705 130,960 Total investment in unconsolidated VIEs $ 1,173,577 1,237,865 Earnings from investments in unconsolidated VIEs were as follows: Schedule of Earnings from Investments in Unconsolidated Variable Interest Entities 2023 2022 Three Months Ended March 31, 2023 2022 HRCFG INVO, LLC $ (18,670 ) $ (54,920 ) Positib Fertility, S.A. de C.V. (9,065 ) (16,197 ) Total earnings from unconsolidated VIEs (27,735 ) (71,117 ) The following tables summarize the combined unaudited financial information of our unconsolidated VIEs: Schedule of Financial Information of Investments in Unconsolidated Variable Interest Entities 2023 2022 Three Months Ended March 31, 2023 2022 Statements of operations: Operating revenue $ 349,326 $ 169,835 Operating expenses (413,866 ) (328,756 ) Net loss (64,540 ) (158,921 ) March 31, 2023 December 31, 2022 Balance sheets: Current assets $ 395,561 261,477 Long-term assets 1,082,606 1,094,490 Current liabilities (466,667 ) (396,619 ) Long-term liabilities (114,824 ) (107,374 ) Net assets $ 896,676 851,974 | Note 3 – Variable Interest Entities Consolidated VIEs Bloom INVO, LLC On June 28, 2021, INVO Centers LLC, a Delaware limited liability company (“INVO CTR”) entered into a limited liability company operating agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center, (the “Atlanta Clinic”) in the Atlanta, Georgia metropolitan area. In consideration for INVO’s commitment to contribute up to $ 800,000 within the 24-month period following execution of the Bloom Agreement to support the start-up operations of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute physician services having an anticipated value of up to $ 1,200,000 over the course of a 24-month vesting period, the Georgia JV issued 1,200 of its units to Bloom. The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR will also perform all required, industry specific compliance and accreditation functions, and product documentation for product registration. The Bloom Agreement provides Bloom with a “profits interest” in the Georgia JV and, in connection with such profits interest, states that profits and losses be allocated to its members based on a hypothetical liquidation of the Georgia JV. In such a scenario, liquidation proceeds would be distributed in the following order: (a) to INVO CTR until the difference between its capital contributions and distributions (the “Hurdle Amount”) equals $0; (b) to Bloom until its distributions equal 150 % of the liquidation amounts distributed to INVO CTR (a “catch-up” to rebalance the distributions between members); and (c) thereafter on a pro rata basis. The Georgia JV had no assets or liabilities at the time the units were issued, and, as of December 31, 2022, INVO CTR had made capital contributions greater than the net loss of the Georgia JV. As such, the entire net loss was allocated to INVO CTR, and no loss was allocated to the noncontrolling interest of Bloom. The Georgia JV opened to patients on September 7, 2021. The Company determined the Georgia JV is a VIE, and that the Company is its primary beneficiary because the Company has an obligation to absorb losses that are potentially significant and the Company controls the majority of the activities that impact the Georgia JV’s economic performance, specifically control of the INVOcell and lab services quality management. As a result, the Company consolidated the Georgia JV’s results with its own. As of December 31, 2022, the Company invested $ 0.9 million in the Georgia JV in the form of capital contributions as well as $ 0.5 million in the form of a note. For the years ended December 31, 2022 and 2021, the Georgia JV recorded net losses of $ 0.6 million and $ 0.4 million, respectively. Noncontrolling interest in the Georgia JV was $ 0 . Unconsolidated VIEs HRCFG INVO, LLC On March 10, 2021, INVO CTR entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture entity is HRCFG INVO, LLC (the “Alabama JV”). The Company also provides certain funding to the Alabama JV. Each party owns 50 % of the Alabama JV. The Alabama JV opened to patients on August 9, 2021. The Company determined the Alabama JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Alabama JV. As of December 31, 2022, the Company invested $ 1.6 million in the Alabama JV in the form of a note. For the years ended December 31, 2022 and 2021, the Alabama JV recorded net losses of $ 0.3 million and $ 0.6 million, respectively, of which the Company recognized losses from equity method investments of $ 0.2 million and $ 0.3 million, respectively. Positib Fertility, S.A. de C.V. On September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”). The Mexico JV opened to patients on November 1, 2021. The Company determined the Mexico JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Mexico JV. As of December 31, 2022, the Company invested $ 0.1 million in the Mexico JV. For the years ended December 31, 2022 and 2021, the Mexico JV recorded net losses of $ 0.1 million and $ 0.04 million, respectively, of which the Company recognized a loss from equity method investments of $ 0.05 million and $ 0.01 million, respectively. The following table summarizes our investments in unconsolidated VIEs: Schedule of Investments in Unconsolidated Variable Interest Entities Carrying Value as of Location Percentage Ownership December 31, 2022 December 31, 2021 HRCFG INVO, LLC Alabama, United States 50 % $ 1,106,905 1,387,495 Positib Fertility, S.A. de C.V. Mexico 33 % 130,960 102,439 Total investment in unconsolidated VIEs $ 1,237,865 1,489,934 Earnings from investments in unconsolidated VIEs were as follows: Schedule of Earnings from Investments in Unconsolidated Variable Interest Entities 2022 2021 Year Ended December 31, 2022 2021 HRCFG INVO, LLC $ (154,954 ) (313,033 ) Positib Fertility, S.A. de C.V. (45,604 ) (14,509 ) Total earnings from unconsolidated VIEs $ (200,558 ) (327,542 ) The following tables summarize the combined unaudited financial information of our investments in unconsolidated VIEs: Schedule of Financial Information of Investments in Unconsolidated Variable Interest Entities 2022 2021 Year Ended December 31, 2022 2021 Statements of operations: Operating revenue $ 822,490 151,672 Operating expenses (1,316,199 ) (821,705 ) Net loss $ (493,709 ) (670,033 ) December 31, 2022 December 31, 2021 Balance sheets: Current assets $ 261,477 456,967 Long-term assets 1,094,490 1,302,067 Current liabilities (396,619 ) (404,155 ) Long-term liabilities (107,374 ) (142,321 ) Net assets $ 851,974 1,212,558 |