INVO Bioscience, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. The filing identifies the registrant as INVO Bioscience, Inc.
Business context and financial performance
INVO is a medical-device company focused on assisted reproductive technology. It sells the INVOcell device and related technology and is expanding through distributors and fertility-clinic partnerships. In the U.S., Ferring holds exclusive distribution rights, subject to specified exceptions.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Product revenue | $505,952 | $80,000 |
| License revenue | $178,571 | $178,571 |
| Total revenue | $684,523 | $258,571 |
| Gross profit / margin | $621,778 / approximately 91% | $228,577 / approximately 88% |
| Operating expenses | $2,181,570 | $1,625,096 |
| Operating loss | $(1,559,792) | $(1,396,519) |
| Net loss | $(2,453,469) | $(1,444,392) |
| Basic and diluted loss per share | $(0.25) | $(0.29) |
| Cash used in operating activities | $(1,735,384) | $(863,450) |
Liquidity, debt, and balance sheet
- Cash was $8.42 million at March 31, 2021, down from $10.10 million at year-end 2020. Working capital was approximately $7.7 million, versus $8.3 million at year-end.
- Total assets were $10.19 million and total liabilities were $4.59 million. Stockholders’ equity was $5.60 million, compared with $5.74 million at December 31, 2020.
- Investing activities used $308,980, including a $280,000 note receivable to the Alabama joint-venture partner and patent and trademark expenditures. Financing activities provided $369,840, mainly from warrant and unit-purchase-option exercises.
- The 2020 convertible notes had $500,000 of principal outstanding at quarter-end, down from $1.7 million at year-end 2020; $1.2 million of principal converted to equity during the quarter. Their carrying amount, net of discounts and issuance costs, was $185,458. The company also had a $157,620 PPP loan outstanding.
- Interest expense was $895,226, versus $47,873 a year earlier; management said the increase was primarily noncash amortization of debt discounts and issuance costs, plus interest on the convertible notes.
Material changes and unusual items
- Revenue increased approximately 165%, primarily from product sales to Ferring. The $501,000 purchase under the March 2021 Ferring amendment satisfied the agreement’s 2020 minimum annual target.
- SG&A increased approximately 33% to $2.1 million, mainly from clinic-joint-venture startup costs and increased personnel and consulting expense. Stock-based compensation was approximately $0.6 million.
- The company formed a 50%-owned Alabama clinic joint venture and advanced $280,000 to HRCFG under a note bearing 1.5% interest, repayable from a portion of the venture’s operating profit. The company consolidated the Alabama and Mexico joint ventures as variable-interest entities; it reported no JV financial activity at quarter-end.
- Deferred revenue, primarily related to Ferring’s upfront license payment, was $3.39 million at March 31, 2021. The $5 million upfront payment is recognized over the seven-year license term.
- Ferring’s potential additional $3 million payment is conditional on FDA label enhancement and other agreement requirements; it is not presented as received revenue.
Outlook, risks, and contingencies
- Management expects continued losses in 2021 as it invests in U.S. clinics and international expansion. It said it expects sufficient liquidity for at least the next 12 months, but may need additional debt or equity financing for longer-term needs; availability and terms are uncertain.
- Management anticipated initial INVO clinics could begin opening in the second half of 2021 and expected international sales to increase, while noting that COVID-19 could impede progress in some markets. No quantified revenue or earnings guidance is provided.
- Key risks include commercialization and market acceptance, regulatory approvals, partner performance, financing availability, debt compliance, competition, intellectual-property protection, collection of customer invoices, and possible dilution or operating constraints from future financing.
- A dispute with James Bowdring over legacy promissory notes and an asserted right to convert remains pending. The company said it does not expect the matter to have a material adverse effect. The PPP loan had a forgiveness application pending; forgiveness is not stated as approved.
- Management reported disclosure controls were effective as of March 31, 2021 and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Ferring’s $501,000 purchase was completed as described and whether future minimum purchases and the conditional $3 million milestone payment are achieved.
- Whether clinic openings, especially the planned Alabama clinic, proceed on schedule and generate revenue or repayment of the related note.
- Cash burn and financing needs relative to management’s stated 12-month liquidity expectation; also monitor debt maturities and potential dilution.
- Progress on the FDA label-enhancement requirement, international product registrations, and distributor minimum-purchase commitments.
- Developments in the Bowdring litigation and the status of PPP loan forgiveness.