INVO Bioscience, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The filing identifies the registrant as INVO Bioscience, Inc.
Business context
The company develops and commercializes INVOcell, a fertility-treatment device using intravaginal incubation. Ferring holds exclusive U.S. distribution and sublicensing rights; INVO retains international rights and limited rights to establish up to five U.S. clinics. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $246,072 | $658,638 | $504,643 | $848,070 |
| Gross profit | $224,902 | $603,356 | $453,479 | $781,810 |
| Gross margin | 91% | 92% | 90% | 92% |
| Operating expenses | $1,287,829 | $669,152 | $2,912,925 | $1,196,717 |
| Net loss | $1,322,881 | $241,552 | $2,767,273 | $700,122 |
| Operating cash flow | Not presented by quarter | $(2,014,414) | $2,710,232 |
- Q2 revenue fell 63% year over year and first-half revenue fell 40%, primarily due to lower product sales to Ferring. Product revenue for the first half was $147,500 versus $490,927; license revenue was unchanged at $357,143.
- SG&A rose 87% in Q2 and 138% in the first half, primarily due to higher wages, stock-based compensation and corporate costs. R&D was $34,890 in Q2 and $64,940 for the first half; it supported planned clinical-trial work and patent filings.
- At June 30, cash was $1,503,951; current assets were $2,041,048 and current liabilities $1,620,969, yielding working capital of $420,079. The company reported a stockholders’ deficiency of $3,598,164.
- First-half financing cash flow was $2,309,510, including proceeds from the 2020 convertible-note financing; investing cash outflow was $29,730. Cash increased $265,366 from year-end 2019.
- At June 30, convertible notes, net of discount, were $997,911. The company issued approximately $3.1 million of 2020 convertible notes at 10% interest, generally due in late 2021, and used some proceeds to repay older notes. Lease liabilities totaled $92,375. Deferred revenue was $3,928,572, principally related to the Ferring license.
Changes, outlook and risks
- Management attributed weaker sales to COVID-19 disruption as fertility clinics curtailed or postponed services. It said clinics had begun reopening and expected stronger second-half sales, citing reopening and Ferring’s annual minimums; no quantified revenue or earnings guidance was provided.
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It expects to rely on sufficient sales, new distribution agreements or additional debt or equity financing to fund the next 12 months. Failure to obtain capital could require scaling back or delaying operations and development.
- The Ferring agreement included a conditional additional $3 million payment tied to FDA label enhancement and other conditions. The 2020 notes are secured by proceeds from that milestone payment once received.
- The planned 2020 clinical trial was an anticipated use of funds. The India joint venture had not completed setup by June 30, despite the company’s earlier expectation that setup would occur in Q2.
- A post-quarter PPP loan of $157,620 was funded July 1, at 1% interest, with potential forgiveness subject to program criteria. The company also issued an additional $401,200 of convertible notes in July.
- A dispute with James Bowdring over repayment and possible conversion of older notes remained pending; the company did not expect a material adverse effect. COVID-19, financing availability, customer demand and execution of distribution and clinical plans remain key risks.
- The company completed a 1-for-20 reverse stock split effective May 26, 2020. Management reported disclosure controls effective at June 30 and stated there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway and the company’s ability to fund operations over the next 12 months, including availability and terms of further capital.
- Actual Ferring product orders, fulfillment of minimums, and the timing and conditions for the potential $3 million milestone payment.
- Whether clinic reopenings translated into improved sales, and the timing, cost and funding of the planned clinical trial.
- Convertible-note conversion, prepayment, security and warrant terms, and resulting potential dilution.
- Progress and potential exposure in the Bowdring litigation, as well as PPP loan forgiveness eligibility.