INVO Bioscience, Inc. (INVO) — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2021. The filing identifies the registrant as INVO Bioscience, Inc. and describes its focus as fertility care and assisted reproductive technology, including the INVOcell device and INVO Procedure. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $218,874 | $336,071 | $1,111,869 | $840,714 |
| Gross profit / margin | $198,456 / 91% | $308,673 / 92% | $1,014,111 / 91% | $762,152 / 91% |
| Operating expenses | $2,472,182 | $1,576,439 | $6,734,190 | $4,489,364 |
| Operating loss | $(2,273,726) | $(1,267,766) | $(5,720,079) | $(3,727,212) |
| Net loss attributable to INVO | $(2,242,783) | $(1,771,827) | $(6,513,415) | $(4,539,100) |
| Basic and diluted loss per share | $(0.24) | $(0.36) | $(0.66) | $(0.92) |
- Revenue mix and concentration: Q3 product revenue was $2,790, clinic revenue was $37,513, and license revenue was $178,571. Nine-month amounts were $538,642, $37,513, and $535,714, respectively. License revenue reflects recognition over time of the Ferring agreement’s upfront payment. Deferred revenue related to that agreement was $3,035,715 at September 30.
- Cash and liquidity: Cash was $4,713,119 at September 30, down from $10,097,760 at December 31, 2020. Working capital was approximately $3.2 million, versus approximately $8.3 million at year-end. Total current assets were $5.33 million and current liabilities $2.14 million.
- Cash flows, nine months: Operating activities used $4,518,808; investing activities used $1,235,673; financing activities provided $369,840. Cash used in operations rose from $2,954,823 in the comparable 2020 period. Investing outflows included clinic equipment, joint-venture funding, and a $200,000 note to the Georgia JV.
- Liabilities and equity: Total liabilities were $5,789,423 and stockholders’ equity was $2,356,124. Convertible notes had $500,000 principal outstanding and a $340,539 net carrying value after discounts and costs. Operating lease liabilities totaled $1,435,206. The $157,620 PPP loan and accrued interest were forgiven in June, producing a $159,126 gain.
Changes versus the comparable period
- Q3 revenue declined approximately 35%, mainly due to lower product sales to Ferring; the company said Ferring’s calendar-year minimum purchase requirements contributed to quarterly fluctuations.
- Nine-month revenue increased approximately 32%, reflecting higher product sales to Ferring, including sales that satisfied 2020 minimum purchase requirements, and initial Alabama clinic revenue.
- Nine-month SG&A rose approximately 53% to $6.6 million, driven by personnel and business-development costs, Alabama JV operations, clinic startup costs, and other administration. Stock-based compensation was also substantial: approximately $1.4 million for the nine months.
- Nine-month net loss attributable to INVO increased to $6.5 million from $4.5 million. Interest expense increased to $1.1 million, primarily from noncash amortization of debt discounts and issuance costs; the PPP forgiveness gain partly offset expenses.
- Cash used in investing increased to $1.2 million from $0.1 million, while financing inflows were lower than in 2020, when the company received proceeds from convertible notes.
Outlook, developments, and risks
- Ferring termination: After quarter-end, Ferring gave notice on November 2, 2021, to terminate its exclusive U.S. distribution agreement effective January 31, 2022. The related supply agreement also ends then, and expected minimum purchases for 2021 are no longer anticipated. Management intends to take over U.S. distribution and says it believes it has the resources to do so; it may or may not seek another U.S. distributor. The filing warns the termination could materially adversely affect the business, financial condition, and results.
- Funding outlook: Management expects continued near-term losses while investing in INVO Centers and expansion. It said September 30 cash plus approximately $3.65 million net proceeds from an October registered offering should provide liquidity for at least 12 months. Management also says additional longer-term financing may be needed and may not be available on acceptable terms.
- Additional financing after quarter-end: The October offering sold 1,240,737 shares for approximately $4.04 million gross and $3.65 million net. A separate agreement for approximately $2.0 million of shares was scheduled to close November 30, 2021; this was not completed as of the reporting date.
- Commercialization: The Alabama INVO Center opened to patients in August and began treatment cycles in September. The Georgia center opened in September and began initial treatment cycles in November. Both ventures were in early ramp-up; the Alabama JV recorded a $477,086 loss for the period, and INVO recognized a $113,492 equity-method loss from the Georgia JV.
- Other risks and contingencies: The company identifies financing availability, commercialization and regulatory execution, market acceptance, customer payments, competition, intellectual-property protection, and debt compliance as risks. A dispute with James Bowdring over old promissory notes and alleged conversion rights remains pending; the company stated it does not expect a material adverse effect. No numerical formal revenue or earnings guidance is provided.
- Controls: Management concluded disclosure controls were effective as of September 30, 2021, and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How U.S. sales, customer transition, supply, and revenue will be affected when Ferring’s agreements end January 31, 2022; verify whether replacement distribution arrangements or direct-sales capabilities materialized.
- Whether the company’s cash runway and stated 12-month liquidity expectation account for ongoing operating cash burn, clinic ramp-up spending, and the status of the separate approximately $2.0 million share purchase scheduled to close after quarter-end.
- Whether the Alabama and Georgia centers generate sufficient patient volumes and revenue to offset startup losses and funding commitments to joint ventures.
- How much of reported revenue is recurring product or clinic activity versus deferred Ferring license revenue, and whether deferred revenue is recognized after the agreement terminates.
- Potential dilution and financing needs, including outstanding convertible notes, options and warrants, and shares issued in subsequent offerings.
- Developments in the Bowdring litigation and any resulting payment, conversion, or share-issuance exposure.