INVO Bioscience, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The filing identifies the registrant as INVO Bioscience, Inc. (the request metadata names INVO Fertility, Inc.). The company develops and commercializes INVOcell, an intravaginal culture fertility-treatment system.
Financial performance
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $189,432 | $104,140; up 82% |
| Gross profit / margin | $178,454 / 94% | $89,716 / 86% |
| SG&A | $527,565 | $229,999 |
| Operating loss | $349,111 | $140,283 |
| Interest expense | $109,459 | $4,440 |
| Net loss | $458,570 | $144,723 |
| Cash and cash equivalents | $3,057,466 | $212,243 at Dec. 31, 2018 |
| Current assets / current liabilities | $3,410,564 / $6,605,701 | $731,109 / $3,501,570 at Dec. 31, 2018 |
| Stockholders’ deficiency | $3,102,470 | $2,724,223 at Dec. 31, 2018 |
Operating cash flow was positive $3,088,088, versus cash used of $37,353 in Q1 2018. The increase was principally driven by $4,821,428 of additional deferred revenue associated with Ferring’s upfront payment, not by operating profitability. Investing activities used $48,400; financing activities used $194,465, primarily for debt repayments. The filing does not present a clear standalone debt-total figure; at quarter-end, the balance sheet lists $35,000 of related-party notes and convertible notes net of discount of $196,883 plus $12,480 related-party convertible notes.
Material changes and business developments
- In January 2019, the company entered an exclusive U.S. licensing and distribution agreement with Ferring. It received $5 million after closing conditions were met; the license revenue is recognized over the seven-year agreement, with $178,572 recognized in Q1 and $4,840,323 deferred at March 31.
- A further $3 million payment is conditional on obtaining an FDA five-day label enhancement, meeting timing requirements, and Ferring not having terminated the agreement for convenience.
- Revenue growth came from the Ferring license fee. Domestic physician product revenue fell to $10,860 from $104,140; management attributed low Q1 shipments to transition work on Ferring packaging, labeling, and branding.
- SG&A increased 129%, reflecting staffing and benefits, travel, product and site development, insurance, legal work, and investor-relations costs. Interest expense rose mainly due to $93,237 amortization of discounts on convertible notes.
- The company paid off a $131,722 vendor note and $62,743 remaining balance on a CEO-related note. It issued 268,615 shares to convert $53,723 of note principal and accrued interest and 60,000 shares for services. After quarter-end, it issued 800,000 shares upon conversion of a $160,000 note.
Outlook, risks, and notable matters
- Management said it had a backlog of Ferring orders, began shipments of the new packaging in Q2, and anticipated a significant Q2 revenue increase. It expects results to depend substantially on Ferring’s U.S. market penetration and physician training; it also plans international partnerships and up to five U.S. INVO-only centers.
- Management estimated operating cash use at approximately $350,000 per quarter and forecast cash sufficiency for at least 15 months in one discussion, 12–18 months in another, and 12–24 months elsewhere. The filing does not reconcile these differing runway estimates.
- The company continues to report recurring losses and expects negative operating cash flows in 2019. Its independent auditor had previously cited substantial doubt about going concern; management says the Ferring proceeds support operations and growth, but gives no assurance of positive operating cash flow.
- Disclosure controls and internal control over financial reporting were deemed ineffective at March 31, 2019 because a previously identified material weakness remained unremediated. Management cited limited staffing and segregation of duties and described control-improvement steps underway.
- A long-running dispute over a predecessor company’s asset sale remained subject to appeal. The company says it intends to oppose the appeal; it provides no clear estimate of potential financial exposure.
- Key risks include dependence on Ferring’s sales execution, commercialization and regulatory outcomes, financing and debt obligations, competition, intellectual-property protection, and litigation. The filing reports no material changes to the risk factors in its 2018 Form 10-K.
Important facts for investors to verify
- Whether Ferring shipments and sales expanded after Q1, and whether the reported order backlog converted to revenue and cash.
- Progress toward the FDA label enhancement and the conditions, timing, and likelihood of the additional $3 million payment.
- Cash burn, deferred-revenue recognition, and the basis for management’s differing cash-runway estimates.
- Debt balances, conversion terms, and potential dilution, including the post-quarter 800,000-share conversion and share count (155,421,112 shares outstanding as of May 10, 2019).
- Remediation of the material weakness and any updates to the pending litigation appeal or potential exposure.