INVO Bioscience, Inc. — Q2 2021 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. The unaudited filing describes INVO as a medical-device company focused on assisted reproductive technology, principally commercializing its INVOcell device and procedure. INVOcell had U.S. FDA clearance and a CE mark; the company’s U.S. distribution agreement is with Ferring. Management’s claims about clinical outcomes and comparative treatment benefits are company statements.
Financial performance
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $208,472 | $246,072 | $892,995 | $504,643 |
| Gross profit | $193,877 | $224,902 | $815,655 | $453,479 |
| Gross margin | 93% | 91% | 91% | 90% |
| Operating expenses | $2,080,438 | $1,287,829 | $4,262,008 | $2,912,925 |
| Loss from operations | $(1,886,561) | $(1,062,927) | $(3,446,353) | $(2,459,446) |
| Net loss | $(1,817,163) | $(1,322,881) | $(4,270,632) | $(2,767,273) |
| Net loss per share, basic and diluted | $(0.17) | $(0.27) | $(0.42) | $(0.56) |
| Operating cash flow | Not presented for the quarter | $(2,909,137) | $(2,014,414) |
Q2 revenue declined about 15%, principally because product sales to Ferring were lower; the company recognized $178,572 of Ferring license revenue in each comparative quarter. First-half revenue increased about 77%, mainly from higher Ferring product sales, including sales connected to satisfying its 2020 minimum purchase requirement. First-half interest expense was $986,351, up from $307,827, primarily because of noncash amortization of debt discounts and issuance costs.
Financial position and liquidity
- Cash was $6.64 million at June 30, 2021, down from $10.10 million at December 31, 2020. Working capital was approximately $5.5 million, versus $8.3 million at year-end.
- Total assets were $9.93 million; total liabilities were $5.57 million; stockholders’ equity was $4.36 million. Accumulated deficit was $36.51 million.
- Six-month investing cash outflow was $915,383, including an $880,000 note receivable connected with the Alabama joint venture. Financing cash inflow was $369,840, primarily from warrant and unit-option exercises. Cash declined by $3.45 million overall.
- Convertible notes had $500,000 principal outstanding at quarter-end, reported at $249,936 net of discounts and costs. The notes accrue 10% interest and mature in November and December 2021. The company also reported $1.45 million of operating lease liabilities and $3.21 million of deferred revenue, principally related to the Ferring agreement.
- The $157,620 Paycheck Protection Program loan and accrued interest were forgiven in June, generating $159,126 of other income. Management stated it believed available liquidity would fund operations for at least the next 12 months, but anticipated that additional funding might be needed for longer-term needs and execution of its strategy.
Business developments, outlook, and risks
- In March, the Ferring agreement was amended to permit up to seven U.S. INVO Centers and remove certain geographic requirements. Ferring agreed to purchase 2,004 devices for $501,000; deferred revenue under the agreement was $3.21 million at quarter-end.
- The company formed an Alabama joint venture and an Atlanta joint venture and continued pursuing international distribution and clinic partnerships. Management said it expected first patient visits at announced INVO Centers in the second half of 2021 and expected to continue investing in U.S. and international expansion.
- Management expected losses to continue during 2021. It cited the pandemic as a possible source of delays in some markets and noted that revenue may fluctuate with market expansion and Ferring’s purchase timing. Additional capital may not be available on acceptable terms; debt or equity financing could increase fixed obligations or dilute existing shareholders.
- A disputed claim by James Bowdring involves historical promissory notes and a claim for conversion into shares. The company said it did not expect the matter to have a material adverse effect. The filing reports no material changes to the risk factors in the referenced annual report.
- Management reported disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Ferring purchases, international registrations, and planned INVO Center openings translate into recurring product revenue and cash receipts.
- Whether the company can maintain liquidity as it funds expansion, given first-half operating cash use of $2.91 million and management’s stated possibility of needing additional capital.
- Repayment, conversion, or refinancing of the $500,000 convertible-note principal and the potential dilution from outstanding options, warrants, and other equity awards.
- Collection terms and recoverability of the $881,827 HRCFG note receivable, which is repayable from 30% of the Alabama joint venture’s operating profit.
- Resolution and potential financial consequences of the Bowdring litigation, and the timing and treatment of Ferring deferred revenue.