UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,March 31, 20222023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 001-39701
INVO Bioscience, Inc.
(Exact Name of Registrant as Specified in its Charter)
Nevada | 20-4036208 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5582 Broadcast Court | ||
Sarasota, FL | 34240 | |
(Address of principal executive offices) | (Zip Code) |
(978) 878-9505
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||
Common Stock, $0.0001 par value per share | INVO | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |||
Non-accelerated filer ☒ | Smaller reporting company ☒ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of AugustMay 15, 2022,2023, the Registrant had shares of common stock outstanding.
INVO BIOSCIENCE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2022March 31, 2023
TABLE OF CONTENTS
2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
● | our business strategies; |
● | the timing of regulatory submissions; |
● | our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain; |
● | risks relating to the timing and costs of clinical trials and the timing and costs of other expenses; |
● | risks related to market acceptance of products; |
● | the ultimate impact of the ongoing Coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; |
● | intellectual property risks; |
● | risks associated with our reliance on third-party organizations; |
● | our competitive position; |
● | our industry environment; |
● | our anticipated financial and operating results, including anticipated sources of revenues; |
● | assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches; |
● | management’s expectation with respect to future acquisitions; |
● | statements regarding our goals, intentions, plans and expectations, including the introduction of new products and markets; and |
● | our cash needs and financing plans. |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
Reverse Stock Splits
On May 26, 2020, the Company effected a 1-for-20 reverse stock split of its common stock. All shares, options and warrants throughout these consolidated financial statements have been retroactively restated to reflect the reverse split.
On November 9, 2020, the Company effected a 5-for-8 reverse stock split of its common stock. All shares, options and warrants throughout these consolidated financial statements have been retroactively restated to reflect the reverse split.
3 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INVO BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
(audited) | (audited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash | $ | 1,962,159 | $ | 5,684,871 | $ | 2,188,245 | $ | 90,135 | ||||||||
Accounts receivable | 56,485 | 50,470 | 99,720 | 77,149 | ||||||||||||
Inventory | 281,996 | 287,773 | 270,919 | 263,602 | ||||||||||||
Prepaid expenses and other current assets | 247,682 | 282,751 | 250,878 | 190,201 | ||||||||||||
Total current assets | 2,548,322 | 6,305,865 | 2,809,762 | 621,087 | ||||||||||||
Property and equipment, net | 473,049 | 501,436 | 417,642 | 436,729 | ||||||||||||
Intangible Assets, net | 132,706 | 132,093 | ||||||||||||||
Lease right of use | 1,923,020 | 2,037,052 | 1,750,175 | 1,808,034 | ||||||||||||
Investment in joint ventures | 1,347,776 | 1,489,934 | 1,173,577 | 1,237,865 | ||||||||||||
Total assets | $ | 6,424,873 | $ | 10,466,380 | $ | 6,151,156 | $ | 4,103,715 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 466,975 | $ | 443,422 | $ | 1,847,208 | $ | 1,349,038 | ||||||||
Accrued compensation | 508,804 | 581,689 | 1,220,682 | 946,262 | ||||||||||||
Deferred revenue, current portion | 77,357 | 5,900 | ||||||||||||||
Notes payable, net | 331,321 | 100,000 | ||||||||||||||
Notes payable – related parties, net | 770,000 | 662,644 | ||||||||||||||
Notes payable, net | 770,000 | 662,644 | ||||||||||||||
Deferred revenue | 46,746 | 119,876 | ||||||||||||||
Lease liability, current portion | 226,749 | 221,993 | 234,050 | 231,604 | ||||||||||||
Total current liabilities | 1,279,885 | 1,253,004 | 4,450,007 | 3,409,424 | ||||||||||||
Lease liability, net of current portion | 1,787,424 | 1,901,557 | 1,610,734 | 1,669,954 | ||||||||||||
Deferred tax liability | 1,139 | 1,139 | 1,949 | 1,949 | ||||||||||||
Total liabilities | 3,068,448 | 3,155,700 | 6,062,690 | 5,081,327 | ||||||||||||
Stockholders’ equity | ||||||||||||||||
Common Stock, $ | par value; shares authorized; and issued and outstanding as of June 30, 2022 and December 31, 2021, respectively1,213 | 1,193 | ||||||||||||||
Stockholders’ equity (deficit) | ||||||||||||||||
Common Stock, $ | par value; shares authorized; and issued and outstanding as of March 31, 2023 and December 31, 2022, respectively1,397 | 1,217 | ||||||||||||||
Additional paid-in capital | 47,822,087 | 46,200,509 | 52,421,481 | 48,804,704 | ||||||||||||
Accumulated deficit | (44,466,875 | ) | (38,891,022 | ) | (52,334,412 | ) | (49,783,533 | ) | ||||||||
Total stockholders’ equity | 3,356,425 | 7,310,680 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 6,424,873 | $ | 10,466,380 | ||||||||||||
Total stockholders’ equity (deficit) | 88,466 | (977,612 | ) | |||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 6,151,156 | $ | 4,103,715 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
For the Three Months | For the Six Months | For the Three Months | ||||||||||||||||||||||
Ended June 30, | Ended June 30, | Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Product revenue | $ | 33,777 | $ | 29,900 | $ | 90,527 | 535,852 | $ | 50,644 | 56,750 | ||||||||||||||
Clinic revenue | 112,358 | - | 218,206 | - | 297,381 | 105,848 | ||||||||||||||||||
License revenue | - | 178,572 | - | 357,143 | ||||||||||||||||||||
Total revenue | 146,135 | 208,472 | 308,733 | 892,995 | 348,025 | 162,598 | ||||||||||||||||||
Cost of goods sold: | ||||||||||||||||||||||||
Production costs | 64,307 | 12,163 | 121,840 | 72,477 | ||||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||||
Cost of revenue | 61,291 | 57,533 | ||||||||||||||||||||||
Depreciation | 13,945 | 2,432 | 21,373 | 4,863 | 11,263 | 7,428 | ||||||||||||||||||
Total cost of goods sold | 78,252 | 14,595 | 143,213 | 77,340 | 72,554 | 64,961 | ||||||||||||||||||
Gross profit | 67,883 | 193,877 | 165,520 | 815,655 | 275,471 | 97,637 | ||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Selling, general and administrative expenses | 2,558,943 | 2,049,422 | 5,253,338 | 4,164,725 | 2,508,371 | 2,694,395 | ||||||||||||||||||
Research and development expenses | 190,761 | 31,016 | 294,941 | 97,283 | 73,520 | 104,180 | ||||||||||||||||||
Total operating expenses | 2,749,704 | 2,080,438 | 5,548,279 | 4,262,008 | 2,581,891 | 2,798,575 | ||||||||||||||||||
Loss from operations | (2,681,821 | ) | (1,886,561 | ) | (5,382,759 | ) | (3,446,353 | ) | (2,306,420 | ) | (2,700,938 | ) | ||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Loss from equity method joint ventures | (117,978 | ) | - | (189,095 | ) | - | (27,735 | ) | (71,117 | ) | ||||||||||||||
Other income | - | 159,126 | - | 159,126 | ||||||||||||||||||||
Interest income | 48 | 2,425 | 273 | 4,438 | - | 225 | ||||||||||||||||||
Interest expense | (102 | ) | (91,125 | ) | (1,558 | ) | (986,351 | ) | (216,589 | ) | (1,456 | ) | ||||||||||||
Foreign currency exchange loss | (888 | ) | (1,028 | ) | (1,914 | ) | (1,492 | ) | (135 | ) | (1,026 | ) | ||||||||||||
Total other income (expense) | (118,920 | ) | 69,398 | (192,294 | ) | (824,279 | ) | (244,459 | ) | (73,374 | ) | |||||||||||||
Loss before income taxes | (2,800,741 | ) | (1,817,163 | ) | (5,575,053 | ) | (4,270,632 | ) | ||||||||||||||||
Income taxes | 800 | - | 800 | - | ||||||||||||||||||||
Net loss | $ | (2,801,541 | ) | $ | (1,817,163 | ) | (5,575,853 | ) | (4,270,632 | ) | $ | (2,550,879 | ) | (2,774,312 | ) | |||||||||
Net loss per common share: | ||||||||||||||||||||||||
Basic | $ | (0.23 | ) | $ | (0.17 | ) | (0.46 | ) | (0.42 | ) | $ | (0.20 | ) | (0.23 | ) | |||||||||
Diluted | $ | (0.23 | ) | $ | (0.17 | ) | (0.46 | ) | (0.42 | ) | $ | (0.20 | ) | (0.23 | ) | |||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||||||||||
Basic | 12,115,205 | 10,444,150 | 12,082,457 | 10,167,624 | 12,450,072 | 12,050,696 | ||||||||||||||||||
Diluted | 12,115,205 | 10,444,150 | 12,082,457 | 10,167,624 | 12,450,072 | 12,050,696 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, December 31, 2020 | 9,639,268 | $ | 964 | $ | 37,978,224 | $ | (32,236,082 | ) | $ | 5,743,106 | ||||||||||
Common stock issued to directors and employees | 39,806 | 4 | 186,781 | - | 186,785 | |||||||||||||||
Common stock issued for services | 96,500 | 10 | 324,840 | - | 324,850 | |||||||||||||||
Conversion of notes payable and accrued interest | 388,684 | 39 | 1,243,749 | - | 1,243,788 | |||||||||||||||
Proceeds from warrant exercise | 39,095 | 4 | 123,558 | - | 123,562 | |||||||||||||||
Proceeds from unit purchase option exercise | 77,444 | 8 | 246,270 | - | 246,278 | |||||||||||||||
Cashless warrant exercise | 91,709 | 9 | (9 | ) | - | - | ||||||||||||||
Cashless unit purchase option exercise | 86,529 | 8 | (8 | ) | - | - | ||||||||||||||
Stock options issued to directors and employees as compensation | - | - | 760,606 | - | 760,606 | |||||||||||||||
Net loss | - | - | - | (4,270,632 | ) | (4,270,632 | ) | |||||||||||||
Balances, June 30, 2021 | 10,459,035 | $ | 1,046 | $ | 40,864,011 | $ | (36,506,714 | ) | $ | 4,358,343 | ||||||||||
Balances, December 31, 2021 | 11,929,147 | $ | 1,193 | $ | 46,200,509 | $ | (38,891,022 | ) | $ | 7,310,680 | ||||||||||
Common stock issued to directors and employees | 51,528 | 5 | 328,543 | - | 328,548 | |||||||||||||||
Common stock issued for services providers | 55,000 | 6 | 116,760 | - | 116,766 | |||||||||||||||
Proceeds from the sale of common stock, net of fees and expenses | 94,623 | 9 | 314,991 | - | 315,000 | |||||||||||||||
Stock options issued to directors and employees | - | - | 861,284 | - | 861,284 | |||||||||||||||
Net loss | - | - | - | (5,575,853 | ) | (5,575,853 | ) | |||||||||||||
Balances, June 30, 2022 | 12,130,298 | 1,213 | 47,822,087 | (44,466,875 | ) | 3,356,425 |
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balances, December 31, 2021 | 11,929,147 | $ | 1,193 | $ | 46,200,509 | $ | (38,891,022 | ) | $ | 7,310,680 | ||||||||||
Common stock issued to directors and employees | 51,528 | 6 | 243,356 | - | 243,362 | |||||||||||||||
Common stock issued for services | 21,500 | 2 | 66,848 | - | 66,850 | |||||||||||||||
Proceeds from sale of common stock, net of fees and expenses | 94,623 | 9 | 314,991 | - | 315,000 | |||||||||||||||
Stock options issued to directors and employees as compensation | - | - | 428,488 | - | 428,488 | |||||||||||||||
Net loss | - | - | - | (2,774,312 | ) | (2,774,312 | ) | |||||||||||||
Balances, March 31, 2022 | 12,096,798 | $ | 1,210 | $ | 47,254,192 | $ | (41,665,334 | ) | $ | 5,590,068 | ||||||||||
Balances, December 31, 2022 | 12,172,214 | $ | 1,217 | $ | 48,804,704 | $ | (49,783,533 | ) | $ | (977,612 | ) | |||||||||
Balance, value | 12,172,214 | $ | 1,217 | $ | 48,804,704 | $ | (49,783,533 | ) | $ | (977,612 | ) | |||||||||
Common stock issued to directors and employees | 69,798 | 7 | 46,496 | - | 46,503 | |||||||||||||||
Common stock issued for services | 260,000 | 26 | 149,874 | - | 149,900 | |||||||||||||||
Proceeds from the sale of common stock, net of fees and expenses | 1,380,000 | 138 | 2,708,504 | - | 2,708,642 | |||||||||||||||
Common stock issued with notes payable | 8 | 56,305 | - | 56,313 | ||||||||||||||||
Options exercised for cash | 5,938 | 1 | 2,375 | - | 2,376 | |||||||||||||||
Stock options issued to directors and employees as compensation | - | - | 325,834 | - | 325,834 | |||||||||||||||
Warrants issued with notes payable | - | - | 327,389 | - | 327,389 | |||||||||||||||
Net loss | - | - | - | (2,550,879 | ) | (2,550,879 | ) | |||||||||||||
Balances, March 31, 2023 | 13,971,283 | 1,397 | 52,421,481 | (52,334,412 | ) | 88,466 | ||||||||||||||
Balance, value | 13,971,283 | 1,397 | 52,421,481 | (52,334,412 | ) | 88,466 |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
INVO BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
2023 | 2022 | |||||||||||||||
For the Six Months Ended | For the Three Months Ended | |||||||||||||||
June 30, | March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (5,575,853 | ) | $ | (4,270,632 | ) | $ | (2,550,879 | ) | $ | (2,774,312 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Non-cash stock compensation issued for services | 116,766 | 240,422 | 149,900 | 66,850 | ||||||||||||
Non-cash stock compensation issued to directors and employees | 328,548 | 186,785 | 46,503 | 243,362 | ||||||||||||
Fair value of stock options issued to employees | 861,284 | 760,606 | 325,834 | 428,488 | ||||||||||||
Non-cash compensation for services | 30,000 | - | 45,000 | - | ||||||||||||
Amortization of discount on notes payable | - | 937,135 | 178,380 | - | ||||||||||||
Amortization of leasehold right of use asset | 114,032 | 34,350 | 57,859 | 56,899 | ||||||||||||
Extinguishment of debt | - | (157,620 | ) | |||||||||||||
Loss from equity method investment | 189,095 | - | 27,735 | 71,117 | ||||||||||||
Depreciation and amortization | 37,629 | 5,959 | 19,087 | 15,547 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (6,015 | ) | (26,170 | ) | (22,571 | ) | (8,250 | ) | ||||||||
Interest receivable | - | (1,827 | ) | |||||||||||||
Inventory | 5,777 | 14,588 | (7,317 | ) | (6,858 | ) | ||||||||||
Prepaid expenses and other current assets | 35,069 | (90,658 | ) | (60,677 | ) | 54,573 | ||||||||||
Accounts payable and accrued expenses | 23,553 | (22,675 | ) | 498,169 | 18,789 | |||||||||||
Accrued compensation | (72,885 | ) | (177,668 | ) | 274,420 | (189,812 | ) | |||||||||
Deferred revenue | 71,457 | (357,143 | ) | (73,130 | ) | (107 | ) | |||||||||
Leasehold liability | (109,377 | ) | (4,053 | ) | (56,774 | ) | (54,405 | ) | ||||||||
Accrued interest | - | 20,526 | ||||||||||||||
Income taxes payable | - | (1,062 | ) | |||||||||||||
Net cash used in operating activities | (3,950,920 | ) | (2,909,137 | ) | (1,148,461 | ) | (2,078,119 | ) | ||||||||
Cash from investing activities: | ||||||||||||||||
Payments to acquire property, plant, and equipment | (8,338 | ) | - | - | (5,654 | ) | ||||||||||
Payments to acquire intangibles | (1,517 | ) | (35,383 | ) | ||||||||||||
Payments to acquire intangible assets | - | (910 | ) | |||||||||||||
Investment in joint ventures | (76,937 | ) | (880,000 | ) | (8,447 | ) | (75,326 | ) | ||||||||
Net cash used in investing activities | (86,792 | ) | (915,383 | ) | (8,447 | ) | (81,890 | ) | ||||||||
Cash from financing activities: | ||||||||||||||||
Proceeds from the sale of notes payable | 714,000 | - | ||||||||||||||
Proceeds from the sale of common stock, net of offering costs | 315,000 | - | 2,708,642 | 315,000 | ||||||||||||
Proceeds from warrant exercise | - | 123,562 | ||||||||||||||
Proceeds from unit purchase option exercise | - | 246,278 | ||||||||||||||
Proceeds from option exercise | 2,376 | - | ||||||||||||||
Principal payments on note payable | (170,000 | ) | - | |||||||||||||
Net cash provided by financing activities | 315,000 | 369,840 | 3,255,018 | 315,000 | ||||||||||||
Increase (decrease) in cash and cash equivalents | (3,722,712 | ) | (3,454,680 | ) | 2,098,110 | (1,845,009 | ) | |||||||||
Cash and cash equivalents at beginning of period | 5,684,871 | 10,097,760 | 90,135 | 5,684,871 | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,962,159 | $ | 6,643,080 | $ | 2,188,245 | $ | 3,839,862 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | - | $ | 27,184 | $ | - | $ | - | ||||||||
Taxes | $ | 2,847 | $ | 912 | $ | - | $ | - | ||||||||
Noncash activities: | ||||||||||||||||
Common stock issued upon note payable and accrued interest conversion | $ | - | $ | 1,243,788 | ||||||||||||
Common stock issued for prepaid services | $ | - | $ | 168,850 | ||||||||||||
Cashless exercise of warrants | $ | - | $ | 9 | ||||||||||||
Cashless exercise of unit purchase options | $ | - | $ | 8 | ||||||||||||
Initial ROU asset and lease liability | $ | - | $ | 1,374,956 | ||||||||||||
Fair value of warrants issued with debt | $ | 327,389 | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
7 |
INVO BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022March 31, 2023
(UNAUDITED)
Note 1 – Summary of Significant Accounting Policies
Description of Business
INVO Bioscience, Inc. (“INVO” or the “Company”) is a commercial-stage fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. The Company’s primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. The Company’s flagship product is INVOcell, a revolutionary medical device that, in a procedure referred to as “IVC” (intravaginal culture), allows fertilization and early embryo development to take place in vivo within the woman’s body. This treatment solution is the world’s first intravaginal culture technique for the incubationbody, instead of oocytes and sperm during fertilization and early embryo development. This technique, designatedoccurring in a lab incubator as “IVC,” provides patients a more connected and intimate experience in comparison to other ART treatments. We believe the IVC procedure can deliver comparable results at a lower cost than traditionalwith conventional in vitrofertilization (“IVF”) and is a significantly more effective treatment than intrauterine insemination (“IUI”). The Company’s commercialization strategy involves the opening of dedicated “INVO Centers” focused on offering the INVOcell and IVC procedure (with three centers in North America now operational), and the acquisition of existing IVF clinics, as well as continuing to distribute and sellselling its technology solution into existing fertility clinics.
Basis of Presentation
The accompanying consolidated financial statements present on a consolidated basis the accounts of the Company and its wholly owned subsidiaries and controlled affiliates. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets and the amount of consolidated net income (loss) that is attributable to the Company and to the noncontrolling interest in its consolidated statement of operations. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company uses the equity method of accounting when it owns an interest in an entity whereby it can exert significant influence over but cannot control the entity’s operations.
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
The Company considers events or transactions that have occurred after the consolidated balance sheet date of June 30, 2022,March 31, 2023, but prior to the filing of the consolidated financial statements with the SEC in this Quarterly Report on Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q.
Business Segments
The Company operates in 1one segment and therefore segment information is not presented.
Variable Interest Entities
The Company’s consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and variable interest entities (“VIE”), where the Company is the primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The Company reconsiders whether an entity is still a VIE only upon certain triggering events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary. See “Note 3 – Variable Interest Entities” for additional information on the Company’s VIEs.
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Equity Method Investments
Investments in unconsolidated affiliates, in which the Company exerts significant influence but does not control or otherwise consolidate, are accounted for using the equity method. Equity method investments are initially recorded at cost. These investments are included in investment in joint ventures in the accompanying consolidated balance sheets. The Company’s share of the profits and losses from these investments is reported in loss from equity method joint venture in the accompanying consolidated statements of operations. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the investees and records reductions in carrying values when necessary.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation.
Inventory
Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value, using the first-in, first-out method as a cost flow method.
Property and Equipment
The Company records property and equipment at cost. Property and equipment is depreciated using the straight-line method over the estimated economic lives of the assets, which are from 3 to 10 years. years. The Company capitalizes the expenditures for major renewals and improvements that extend the useful lives of property and equipment. Expenditures for maintenance and repairs are charged to expense as incurred. The Company reviews the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. RecoverabilityThe recoverability of long-lived assets is measured by a comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
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Long- Lived Assets
Long-lived assets and certain identifiable assets related to those assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the non-discounted future cash flows of the asset are less than their carrying amount, their carrying amounts are reduced to the fair value and an impairment loss recognized. There was 0no impairment recorded during the sixthree months ended June 30, 2022,March 31, 2023, and 2021.2022.
Fair Value of Financial Instruments
ASC 825-10-50, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.
Effective January 1, 2008, the Company adopted ASC 820-10, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
Income Taxes
The Company is subject to income taxes in the United States and its domestic tax liabilities are subject to the allocation of expenses in multiple state jurisdictions. The Company uses the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including taxable income in prior carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent the Company does not consider it more-likely-than-not that a deferred tax asset will be recovered, a valuation allowance is established.
Concentration of Credit Risk
Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (“FDIC”) limits. As of June 30, 2022,March 31, 2023, the Company had cash balances in excess of FDIC limits.
Revenue Recognition
The Company recognizes revenue on arrangements in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services ASC 606 requires companies to assess their contracts to determine the timing and amount of revenue to recognize under the new revenue standard. The model has a five-step approach:
1. | Identify the contract with the customer. |
2. | Identify the performance obligations in the contract. |
3. | Determine the total transaction price. |
4. | Allocate the total transaction price to each performance obligation in the contract. |
5. | Recognize as revenue when (or as) each performance obligation is satisfied. |
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Revenue generated from the sale of INVOcell is typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations.
Revenue generated from clinical and lab services related at the Company’s affiliated INVO Centers is typically recognized at the time the service is performed.
On November 12, 2018, the Company entered into a U.S. Distribution Agreement (the “Ferring Agreement”) with Ferring International Center S.A. (“Ferring”), pursuant to which it granted Ferring an exclusive license in the United States market only, with rights to sublicense under patents related to our proprietary intravaginal culture device (INVOcell), together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including fertility treatment) in humans.
On November 2, 2021, Ferring notified the Company of its intention to terminate the Ferring Agreement, which required 90-days prior written notice. Accordingly, the Ferring Agreement officially terminated on January 31, 2022.
The Ferring license was deemed to be a functional license that provides a customer with a “right to access” to the Company’s intellectual property during the subscription period and accordingly, under ASC 606-10-55-60 revenue is recognized over a period of time, which is generally the subscription period. The initial upfront payment of $5,000,000 which was received upon the signing of the agreement was being recognized as income over the 7-year term.
As of June 30, 2022, the Company had no deferred revenue related to the Ferring Agreement as it was recognized in the fourth quarter of fiscal year 2021 in relation to the contract termination. Per ASC 606-10-55-48 the likelihood of Ferring exercising its rights became remote at the time notice of termination was received so INVO recognized the full remaining amount of the deferred revenue.
The Company accounts for stock-based compensation under the provisions of Accounting Standards Codification (“ASC”) subtopic 718-10, Compensation (“ASC 718-10”). This statement requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service or based on performance goals in exchange for the award, which is usually the vesting period.
Basic loss per share calculations are computed by dividing net loss attributable to the Company’s common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share are computed similar to basic earnings per share except that the denominator is increased to include potentially dilutive securities. The Company’s diluted loss per share is the same as the basic loss per share for the three months ended June 30,March 31, 2023, and 2022, and 2021, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Net loss attributable to common shareholders (numerator) | $ | (2,801,541 | ) | $ | (1,817,163 | ) | $ | (5,575,853 | ) | $ | (4,270,632 | ) | ||||||||||||
Net loss (numerator) | $ | (2,550,879 | ) | (2,774,312 | ) | |||||||||||||||||||
Basic and diluted weighted-average number of common shares outstanding (denominator) | 12,115,205 | 10,444,150 | 12,082,457 | 10,167,624 | 12,450,072 | 12,050,696 | ||||||||||||||||||
Basic and diluted net loss per common share | (0.23 | ) | (0.17 | ) | (0.46 | ) | (0.42 | ) | (0.20 | ) | (0.23 | ) |
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
2022 | 2021 | 2023 | 2022 | |||||||||||||
As of June 30, | As of March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Options | 1,489,605 | 1,118,911 | 1,412,541 | 1,474,605 | ||||||||||||
Convertible notes and interest | - | 156,597 | 1,409,615 | - | ||||||||||||
Unit purchase options and warrants | 260,165 | 216,193 | 9,067,665 | 260,165 | ||||||||||||
Total | 1,749,770 | 1,491,701 | 11,889,821 | 1,734,770 |
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Recently Adopted Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements, and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.
Note 2 – Liquidity
Historically, the Company has funded its cash and liquidity needs primarily through operating cash flow,revenue collection, equity financings, and convertible notes. For the sixthree months ended June 30,March 31, 2023, and 2022, and 2021, the Company incurred a net loss of approximately $5.62.6 million and $4.32.8 million, respectively, and has an accumulated deficit of approximately $44.552.3 million as of June 30, 2022.March 31, 2023. Approximately $1.70.9 million of the net loss was related to non-cash expenses for the sixthree months ended June 30, 2022,March 31, 2023, compared to $2.00.9 million for the sixthree months ended June 30, 2021.March 31, 2022.
The Company has been dependent on raising capital from debt and equity financings to meet its needs for cash flow used in operating and investing activities. During the first sixthree months of 2021,2023, the Company convertedreceived net proceeds of approximately $1.22.7 million for the sale of its common stock par value $million of outstanding debt to equity and receivedper share (“Common Stock”) as well as approximately $370,0000.7 million from the sale of proceeds from unit purchase option and warrant exercises.convertible notes. During the first sixthree months of 2022, the Company received proceeds of approximately $0.3 million for the sale of common stock. TheCommon Stock. Over the next 12 months, the Company’s current plan includes opening additional INVO Centers, overcompleting the next 12 months.acquisition of Wisconsin Fertility Institute and pursuing additional IVF clinic acquisitions. Until the Company can generate a sufficient amount ofpositive cash from operations, andit will need to the extentraise additional funds are necessaryfunding to meet the Company’s longer-termits liquidity needs and to execute the Company’sits business strategy, it may need to raise additional funding, as it has donestrategy. As in the past, by way ofthe Company will seek debt and/or equity financings. Such additional fundingfinancing, which may not be available on reasonable terms, if at all.
Although the Company’s audited financial statements for the year ended December 31, 20212022 were prepared under the assumption that it would continue operations as a going concern, the report of the Company’s independent registered public accounting firm that accompanies the Company’s financial statements for the year ended December 31, 20212022 contains a going concern qualification in which such firm expressed substantial doubt about the Company’s ability to continue as a going concern, based on the financial statements at that time. Specifically, as noted above, the Company has incurred significant operating losses and the Company expects to continue to incur significant expenses and operating losses as it continues to ramp up the commercialization of INVOcell and develop new INVO Centers. These prior losses and expected future losses have had, and will continue to have, an adverse effect on the Company’s financial condition. If the Company cannot continue as a going concern, its stockholders would likely lose most or all of their investment in the Company.
Note 3 – Variable Interest Entities
Consolidated VIEs
Bloom INVO, LLC
On June 28, 2021, INVO CTR entered into a limited liability company agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center (the “Atlanta Clinic”) in the Atlanta, Georgia metropolitan area.
In consideration for INVO’s commitment to contribute up to $800,000 within the 24-month period following the execution of the Bloom Agreement to support the start-up operations of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute physician services having an anticipated value of up to $1,200,000 over the course of a 24-month vesting period, the Georgia JV issued 1,200 of its units to Bloom.
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The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR also performs all required, industry specific compliance and accreditation functions, and product documentation for product registration.
The Bloom Agreement provides Bloom with a “profits interest” in the Georgia JV and, in connection with such profits interest, states that profits and losses be allocated to its members based on a hypothetical liquidation of the Georgia JV. In such a scenario, liquidation proceeds would be distributed in the following order: (a) to INVO CTR until the difference between its capital contributions and distributions equals $0; (b) to Bloom until its distributions equal 150150%% of the liquidation amounts distributed to INVO CTR (a “catch-up” to rebalance the distributions between members); and (c) thereafter on a pro rata basis. The Georgia JV had no assets or liabilities at the time the units were issued, and, as of June 30, 2022,March 31, 2023, INVO CTR had made capital contributions greater than the net loss of the Georgia JV. As such, the entire net loss was allocated to INVO CTR, and no loss was allocated to the noncontrolling interest of Bloom.
The Georgia JV opened to patients on September 7, 2021 and commenced initial treatment cycles in November 2021.
The Company determined the Georgia JV is a VIE, and that the Company is its primary beneficiary because the Company has an obligation to absorb losses that are potentially significant and the Company controls the majority of the activities that impact the Georgia JV’s economic performance, specifically control of the INVOcell and lab services quality management. As a result, the Company consolidated the Georgia JV’s results with its own. As of June 30, 2022,March 31, 2023, the Company invested $0.80.9 million in the Georgia JV in the form of as well as $0.5 million in the form of a note. For the three and six months ended June 30,March 31, 2023 and 2022, the Georgia JV recorded net losses of $0.132 millionthousand and $0.30.2 million respectively. Noncontrolling interest in the Georgia JV was $0.
Unconsolidated VIEs
HRCFG INVO, LLC
On March 10, 2021, INVO CTR entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture entity is HRCFG INVO, LLC (the “Alabama JV”). The Company also provides certain funding to the Alabama JV. Each party owns 5050%% of the Alabama JV.
The Alabama JV opened to patients on August 9, 2021, and initial treatment cycles commenced in September 2021.
The Company determined the Alabama JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Alabama JV. As of June 30, 2022,March 31, 2023, the Company invested $1.71.6 million in the Alabama JV in the form of a note. For the sixthree months ended June 30,March 31, 2023 and 2022, the Alabama JV recorded a net losslosses of $0.337 millionthousand and $110 thousand, respectively, of which the Company recognized a losslosses from equity method investmentinvestments of $0.218 million.thousand and $55 thousand, respectively.
Positib Fertility, S.A. de C.V.
On September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”).
The Mexico JV opened to patients on November 1, 2021, and commenced initial treatment cycles beginning in January 2022.2021.
The Company determined the Mexico JV is a VIE, and that there is no primary beneficiary. As a result, the Company will use the equity method to account for its interest in the Mexico JV. As of June 30,2022,March 31, 2023, the Company invested $0.20.1 million in the Mexico JV. For the sixthree months ended June 30, 2022,March 31, 2023, the Mexico JV recorded a net losslosses of $0.127 millionthousand and $49 thousand, respectively, of which the Company recognized a loss from equity method investmentinvestments of $0.039 million.thousand and $16 thousand, respectively.
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The following table summarizes our investments in unconsolidated VIEs:
Schedule of Investments in Unconsolidated Variable Interest Entities
Carrying Value as of | Carrying Value as of | |||||||||||||||||||||||||||
Location | Percentage Ownership | June 30, 2022 | December 31, 2021 | Location | Percentage Ownership | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||
HRCFG INVO, LLC | Alabama, United States | 50 | % | $ | 1,198,320 | 1,387,495 | Alabama, United States | 50 | % | $ | 1,048,872 | 1,106,905 | ||||||||||||||||
Positib Fertility, S.A. de C.V. | Mexico | 33 | % | 149,456 | 102,439 | Mexico | 33 | % | 124,705 | 130,960 | ||||||||||||||||||
Total investment in unconsolidated VIEs | Total investment in unconsolidated VIEs | $ | 1,347,776 | 1,489,934 | Total investment in unconsolidated VIEs | $ | 1,173,577 | 1,237,865 |
Earnings from investments in unconsolidated VIEs were as follows:
Schedule of Earnings from Investments in Unconsolidated Variable Interest Entities
2023 | 2022 | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
HRCFG INVO, LLC | $ | (104,255 | ) | $ | - | $ | (159,175 | ) | $ | - | $ | (18,670 | ) | $ | (54,920 | ) | ||||||||
Positib Fertility, S.A. de C.V. | (13,723 | ) | - | (29,920 | ) | - | (9,065 | ) | (16,197 | ) | ||||||||||||||
Total earnings from unconsolidated VIEs | (117,978 | ) | - | (189,095 | ) | - | (27,735 | ) | (71,117 | ) |
The following tables summarize the combined unaudited financial information of our investments in unconsolidated VIEs:
Schedule of Financial Information of Investments in Unconsolidated Variable Interest Entities
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Statements of operations: | ||||||||||||||||||||||||
Operating revenue | $ | 166,477 | $ | - | $ | 336,312 | $ | - | $ | 349,326 | $ | 169,835 | ||||||||||||
Operating expenses | (415,665 | ) | - | (744,421 | ) | - | (413,866 | ) | (328,756 | ) | ||||||||||||||
Net loss | (249,188 | ) | - | (408,109 | ) | - | (64,540 | ) | (158,921 | ) |
June 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Balance sheets: | ||||||||||||||||
Current assets | $ | 494,588 | 456,967 | $ | 395,561 | 261,477 | ||||||||||
Long-term assets | 1,071,433 | 1,302,067 | 1,082,606 | 1,094,490 | ||||||||||||
Current liabilities | (544,305 | ) | (404,155 | ) | (466,667 | ) | (396,619 | ) | ||||||||
Long-term liabilities | (146,585 | ) | (142,321 | ) | (114,824 | ) | (107,374 | ) | ||||||||
Net assets | $ | 875,131 | 1,212,558 | $ | 896,676 | 851,974 |
Note 4 – Agreements and Transactions with VIE’s
The Company sells the INVOcell to its consolidated and unconsolidated VIEs and anticipates continuing to do so in the ordinary course of business. All intercompany transactions with consolidated entities are eliminated in the Company’s consolidated financial statements. Per ASC 323-10-35-8 the Company eliminates any sales to an unconsolidated VIE for INVOcell inventory that the VIE still has remaining on the books at period end.
The following table summarizes the Company’s transactions with VIEs:
Summary of Transaction with Variable Interest Entities
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Bloom Invo, LLC | ||||||||||||||||||||||||
INVOcell revenue | $ | - | $ | - | $ | - | $ | - | $ | 4,500 | $ | - | ||||||||||||
Unconsolidated VIEs | ||||||||||||||||||||||||
INVOcell revenue | $ | 9,000 | $ | - | $ | 16,500 | $ | - | $ | 3,000 | $ | 7,500 |
The Company had balances with VIEs as follows:
Summary of Balances with Variable Interest Entities
June 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Bloom Invo, LLC | ||||||||||||||||
Accounts receivable | $ | 21,600 | 21,600 | $ | 18,000 | 13,500 | ||||||||||
Notes payable | 460,658 | 453,406 | 471,637 | 468,031 | ||||||||||||
Unconsolidated VIEs | ||||||||||||||||
Accounts receivable | $ | 32,810 | 16,310 | $ | 49,310 | 46,310 |
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Note 5 – Inventory
Components of inventory are:
Schedule of Inventory
June 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Raw materials | $ | 71,417 | $ | 67,605 | $ | 61,251 | $ | 68,723 | ||||||||
Finished goods | 210,579 | 220,168 | 209,668 | 194,879 | ||||||||||||
Total inventory | $ | 281,996 | $ | 287,773 | $ | 270,919 | $ | 263,602 |
Note 6 – Property and Equipment
The estimated useful lives and accumulated depreciation for equipment are as follows as of June 30, 2022,March 31, 2023, and December 31, 2021:2022:
Schedule of Estimated Useful Lives of Property and Equipment
Estimated Useful Life | |||
Manufacturing equipment | 6 to 10 years | ||
Medical equipment | 7 to 10 years | ||
Office equipment | 3 to 7 years |
Schedule of Property and Equipment
June 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Manufacturing equipment | $ | 132,513 | $ | 132,513 | $ | 132,513 | $ | 132,513 | ||||||||
Medical equipment | 283,063 | 275,423 | 283,065 | 283,065 | ||||||||||||
Office equipment | 75,589 | 74,891 | 77,601 | 77,601 | ||||||||||||
Leasehold improvements | 96,817 | 96,817 | 96,817 | 96,817 | ||||||||||||
Less: accumulated depreciation | (114,933 | ) | (78,208 | ) | (172,354 | ) | (153,267 | ) | ||||||||
Total equipment, net | $ | 473,049 | $ | 501,436 | $ | 417,642 | $ | 436,729 |
During the three months ended June 30,March 31, 2023, and 2022, and 2021, the Company recorded depreciation expense of $21,63019,087 and $2,52815,095, respectively.
During the six months ended June 30, 2022, and 2021, the Company recorded depreciation expense of $36,725 and $5,055.
Note 7 – Intangible Assets
Components of intangible assets are as follows:
Schedule of Finite-Lived Intangible Assets
June 30, 2022 | December 31, 2021 | |||||||
Trademarks | $ | 112,359 | $ | 110,842 | ||||
Patents | 95,355 | 95,355 | ||||||
Accumulated amortization | (75,008 | ) | (74,104 | ) | ||||
Total patent costs, net | $ | 132,706 | $ | 132,093 |
The Company capitalizes the initial expense related to establishing patents by country and then amortizes the expense over the life of the patent, typically 20 years. It then expenses annual filing fees to maintain the patents. The Company regularly reviews the value of its patents in the marketplace in proportion to the expense it must spend to maintain the patent. The Company fully impaired its patents as of December 31, 2022.
During the three months ended June 30,March 31, 2023, and 2022, and 2021, the Company recorded amortization expenses related to patents of $452nil and $452, respectively.
During the six months ended June 30, 2022, and 2021, the Company recorded amortization expenses related to patents of $904 and $904, respectively.
The trademarks have an indefinite life and therefore are not amortized. Trademarks are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. The trademark assets were created in 2019, and no material adverse changes have occurred since their creation.Company fully impaired its trademarks as of December 31, 2022.
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Note 8 – Leases
The Company has various operating lease agreements in place for its office and joint ventures. Per FASB’s ASU 2016-02, Leases Topic 842 (“ASU 2016-02”), effective January 1, 2019, the Company is required to report a right-of-use asset and corresponding liability to report the present value of the total lease payments, with appropriate interest calculation. Per the terms of ASU 2016-02, the Company can use its implicit interest rate, if known, or applicable federal rate otherwise. Since the Company’s implicit interest rate was not readily determinable, the Company utilized the applicable federal rate, as of the commencement of the lease. Lease renewal options included in any lease are considered in the lease term if it is reasonably certain the Company will exercise the option to renew. The Company’s operating lease agreements do not contain any material restrictive covenants.
As of June 30, 2022,March 31, 2023, the Company’s lease components included in the consolidated balance sheet were as follows:
Schedule of Lease Components
Lease component | Balance sheet classification | June 30, 2022 | Balance sheet classification | March 31, 2023 | ||||||||
Assets | ||||||||||||
ROU assets – operating lease | Other assets | $ | 1,923,020 | Other assets | $ | 1,750,175 | ||||||
Total ROU assets | $ | 1,923,020 | $ | 1,750,175 | ||||||||
Liabilities | ||||||||||||
Current operating lease liability | Current liabilities | $ | 226,749 | Current liabilities | $ | 234,050 | ||||||
Long-term operating lease liability | Other liabilities | 1,787,424 | Other liabilities | 1,610,734 | ||||||||
Total lease liabilities | $ | 2,014,173 | $ | 1,844,784 |
Future minimum lease payments as of June 30, 2022March 31, 2023 were as follows:
Schedule of Future Minimum Lease Payments
2022 | $ | 130,345 | |||||||
2023 | 264,108 | 198,835 | |||||||
2024 | 251,671 | 251,671 | |||||||
2025 | 247,960 | 247,960 | |||||||
2026 and beyond | 1,316,245 | ||||||||
2026 | 253,235 | ||||||||
2027 and beyond | 1,063,010 | ||||||||
Total future minimum lease payments | $ | 2,210,329 | $ | 2,014,711 | |||||
Less: Interest | (196,156 | ) | (169,927 | ) | |||||
Total operating lease liabilities | $ | 2,014,173 | $ | 1,844,784 |
Note 9 – Notes Payable
Notes payables consisted of the following:
2020Schedule of Notes Payable
March 31, 2023 | December 31, 2022 | |||||||
Related party demand notes with a 10% financing fee. 10% annual interest starting January 31, 2023. Notes are callable starting March 31, 2023 | $ | 770,000 | $ | 770,000 | ||||
Convertible notes. 10% annual interest. Conversion price of $0.50 | 410,000 | 100,000 | ||||||
Convertible debentures. 8% interest. Conversion price of $0.52 | 330,000 | - | ||||||
Less debt discount | (408,679 | ) | (107,356 | ) | ||||
Total, net of discount | $ | 1,101,321 | $ | 762,644 |
Related Party Demand Notes
In the fourth quarter of 2022, the Company received $500,000 through the issuance of five demand notes (the “JAG Notes”) from a related party, JAG Multi Investments LLC (“JAG”). The Company’s CFO is a beneficiary of JAG but does not have any control over JAG’s investment decisions with respect to the Company. The JAG Notes accrue 10% annual interest from the date of issuance. The JAG Notes currently are callable with 10 days prior written notice. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest.
16 |
In consideration for subscribing to the JAG Note for $100,000 dated December 29, 2022, and for agreeing to extend the date on which the other JAG Notes are callable to March 31, 2023, the Company issued JAG a warrant to purchase 350,000 shares of Common Stock. The warrant may be exercised for a period of five (5) years from issuance at a price of $ per share. The financing fees for said JAG Note and the fair value of the warrant issued were capped at the total proceeds. The relative fair value of the warrant was recorded as a debt discount and as of March 31, 2023 the Company had fully amortized the discount.
In the fourth quarter of 2022, the Company received $200,000 through the issuance of demand promissory notes of which (1) $100,000 was received from our chief executive officer, Steven Shum ($60,000 on November 29, 2022, $15,000 on December 2, 2022, and $25,000 on December 13, 2022) and (2) $100,000 was received from an entity controlled by our chief financial officer, Andrea Goren ($75,000 on November 29, 2022 and $25,000 on December 13, 2022). These notes accrue 10% annual interest accrues from the date of issuance. These notes are callable with 10 days prior written notice. At maturity, the Company agreed to pay outstanding principal, a 10% financing fee and accrued interest.
The financing fees for all demand notes were recorded as a debt discount and as of March 31, 2023 the Company had fully amortized the discount.
For the three months ended March 31, 2023, the Company incurred $25,064 in interest related to these demand notes.
Jan and March 2023 Convertible Notes Payable
From May 15, 2020, through July 1, 2020,In January and March 2023, the Company entered into agreements with accredited investors for their purchaseissued $410,000 of secured convertible notes, issued byfor $310,000 in cash and the Company in the aggregate original principal amountconversion of $3,494,840100,000 of demand notes from the fourth quarter of 2022. These convertible notes were issued with fixed conversion prices of $0.50 (for the $275,000 issued in January 2023) and $0.60 (for the $135,000 issued in March 2023) and (ii) 5-year warrants to purchase (the “2020 Convertible Notes”)shares of the Common Stock at an exercise price of $. See Note 14 – Unit Purchase Options and Warrants for additional information on related securities.
The cumulative fair value of the warrants at issuance was $132,183. This was recognized as a debt discount and will be amortized on a straight-line basis over the life of the respective notes. For the three months ending March 31, 2023 the Company amortized $23,162 of the debt discount and as of March 31, 2023 had a remaining debt discount balance of $109,021.
Interest on the 2020 Convertible Notes accruedthese notes accrues at a rate of ten percent (10%) per annum and wasis payable at the holder’s option either in cash or in shares of the Common Stock at the conversion price set forth in the notes on December 31, 2023, unless converted earlier. For the maturity dates of November 15, 2021, December 22, 2021, and December 30, 2021.three months ended March 31, 2023 the Company incurred $5,537 in interest related to these convertible notes.
All amounts of principal and interest due under the 2020 Convertible Notes werethese notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders into the Company’s common stockCommon Stock at a fixed conversion price of $3.20, subject to adjustments.
As of June 30, 2022, all 2020 Convertible Notes had either converted or been repaid by the Company.
Interest expense on the 2020 Convertible Notes was $0 and $12,640for the three months ended June 30, 2022, and 2021, respectively.
Interest expense on the 2020 Convertible Notes was $0 and $47,710 for the six months ended June 30, 2022, and 2021, respectively.
Amortization of options discount on the 2020 Convertible Notes was $0 and $3,694 for the three months June 30, 2022, and 2021, respectively.
Amortization of options discount on the 2020 Convertible Notes was $0 and $165,033 for the six months ended June 30, 2022, and 2021, respectively.
Amortization of warrant discount on the 2020 Convertible Notes was $0 and $3,914 for the three months ended June 30, 2022, and 2021, respectively.
Amortization of warrant discount on the 2020 Convertible Notes was $0 and $167,494 for the six months ended June 30, 2022, and 2021, respectively.
Amortization of beneficial conversion feature on the 2020 Convertible Notes was $0 and $49,004 for the three months ended June 30, 2022, and 2021, respectively.
Amortization of beneficial conversion feature on the 2020 Convertible Notes was $0 and $510,124 for the six months ended June 30, 2022, and 2021, respectively.
Amortization of issuance costs on the 2020 Convertible Notes was $0 and $20,368 for the three months ended June 30, 2022, and 2021, respectively.
Amortization of issuance costs on the 2020 Convertible Notes was $0 and $94,484 for the six months ended June 30, 2022, and 2021, respectively.notes as described above.
Paycheck Protection ProgramFebruary 2023 Convertible Debentures
On July 1, 2020,February 3, and February 17, 2023, the Company received a loanentered into securities purchase agreements (the “February Purchase Agreements”) with accredited investors (the “February Investors”) for the purchase of (i) convertible debentures of the Company in the aggregate original principal amount of $157,620500,000 pursuant(the “February Debentures”) for a purchase price of $, (ii) warrants (the “February Warrants”) to purchase 250,000shares (the “February Warrant Shares”) of Common Stock at an exercise price of $0.75per share, and (iii) shares of Common Stock issued as an inducement for issuing the February Debentures. The proceeds, net of placement agent and legal fees, were used for working capital and general corporate purposes.
The cumulative fair value of the warrants at issuance was $291,207. This was recognized as a debt discount and will be amortized on a straight-line basis over the life of the respective notes. For the three months ending March 31, 2023 the Company amortized $47,862 of the debt discount and as of March 31, 2023 had a remaining debt discount balance of $299,658.
Pursuant to the U.S. Small Business Administration’s Paycheck Protection Program. February Debentures, interest on the February Debentures accrues at a rate of eight percent (The loan matured 18 months8%) per annum and is payable at maturity, one year from the date of funding, was payable over 18the February Debentures. For the three months ended March 31, 2023 the Company incurred $5,600 in interest on the February Debentures.
All amounts due under the February Debentures are convertible at any time after the issuance date, in whole or in part, at the option of the February Investors into Common Stock at an initial price of $ per share. This conversion price is subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments and is subject to a floor price.
17 |
The Company may prepay the February Debentures at any time in whole or in part by paying a sum of money equal monthly installments, and had an interest of 1% per annum.Up to 100%105% of the principal balanceamount to be redeemed, together with accrued and unpaid interest.
While any portion of each February Debenture remains outstanding, if the Company receives cash proceeds of more than $2,000,000(the “Minimum Threshold”) in the aggregate from any source or series of related or unrelated sources, the February Investors shall have the right in their sole discretion to require the Company to immediately apply up to 50% of all proceeds received by the Company above the Minimum Threshold to repay the outstanding amounts owed under the February Debentures. The Company used $383,879 in proceeds from the RD Offering (as described in Note 11 below) to repay a portion of the loan was forgivable based upon satisfaction of certain criteria under the Paycheck Protection Program.February Debentures, leaving $116,121 On June 16, 2021, the principal of the loanFebruary Debentures outstanding as well asof May 15, 2023.
The February Warrants include anti-dilution protection whereby a subsequent offering priced below the February Warrants’ strike price then in effect would entitle the February Investors to a reduction of such strike price to the price of such subsequent offering and an increase in the February Warrant Shares determined by dividing the dollar amount for which the February Warrants are exercisable by such lower strike price. As a result of the $1,5060.63 strike of accrued interest was forgiven and the note was extinguished. The Company recognizedMarch Warrant Placement (as described in Note 11 below), the February Warrants now entitle the February Investors to purchase a gaintotal 297,620 at a price of $159,1260.63 on extinguishment of debt during the year ended December 31, 2021.per February Warrant Share.
Note 10 – Related Party Transactions
In October 2021, Paulson Investmentthe fourth quarter of 2022, the Company servedreceived $700,000 through the issuance of demand notes from related parties, as follows: (a) $500,000 from JAG; (b) $100,000 from our chief executive officer, Steve Shum; and (c) $100,000 from our chief financial officer, Andrea Goren. The Company’s CFO is a placement agent forbeneficiary of JAG but does not have any control over JAG’s investment decisions with respect to the Company’s registered direct offering and received fees and commissions for such role in the amount of $323,584. Trent Davis, oneCompany. See Note 9 of the Company’s directors, is PresidentNotes to Consolidated Financial Statements for additional information.
As of Paulson Investment Company. Mr. Davis did not receive any compensationMarch 31, 2023 the Company owed totaling $ , primarily related to the feesunpaid employee expense reimbursements and commissions received by Paulson. Steve Shum and Andrea Goren, the CEO and CFO of the Company, respectively, each purchased shares in the registered direct offering for gross proceeds of $199,994.unpaid board fees.
Note 11 – Stockholders’ Equity
February 2023 Equity Purchase Agreement
On February 3, 2023, the Company entered into an equity purchase agreement (the “ELOC”) and registration rights agreement (the “ELOC RRA”) with an accredited investor (the “Feb 3 Investor”) pursuant to which the Company has the right, but not the obligation, to direct the Feb 3 Investor to purchase up to $10.0 million (the “Maximum Commitment Amount”) of shares of Common Stock, in multiple tranches. Further, under the ELOC and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit notices to the Feb 3 Investor to purchase shares of Common Stock (i) in a minimum amount of not less than $25,000 and (ii) in a maximum amount of up to the lesser of (a) $750,000 or (b) 200% of the Company’s average daily trading value of the Common Stock.
Also on February 3, 2023, the Company issued to the Feb 3 Investor
shares of Common Stock for its commitment to enter into the ELOC.The obligation of the Feb 3 Investor to purchase shares of Common Stock pursuant to the ELOC ends on the earlier of (i) the date on which the purchases under the ELOC equal the Maximum Commitment Amount, (ii) 24 months after the date of the ELOC (February 3, 2025), (iii) written notice of termination by the Company, (iv) the date that the ELOC RRA is no longer effective after its initial effective date, or (v) the date that the Company commences a voluntary case or any person or entity commences a proceeding against the Company pursuant to or within the meaning of federal or state bankruptcy law, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
During the Commitment Period, the price that Feb 3 Investor will pay to purchase the shares of Common Stock that it is obligated to purchase under the ELOC shall be 97% of the “market price,” which is defined as the lesser of (i) the lowest closing price of our Common Stock during the 7 trading day-period following the clearance date associated with the applicable put notice from the Company or (ii) the lowest closing bid price of the Common Stock on the principal trading market for the Common Stock (currently, the Nasdaq Capital Market) on the trading day immediately preceding a put date.
Reverse Stock SplitsMarch 2023 Registered Direct Offering
On December 16, 2019, the Company’s stockholders approved a reverse stock split at a ratio of between 1-for-5 and 1-for-25, with discretion for the exact ratio to be approved by the Company’s board of directors. On February 19, 2020, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 1-for-20. On May 21, 2020, the Company filed a certificate of change (with an effective date of May 26, 2020) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 1-for-20 reverse stock split of its outstanding common stock. The reverse split took effect at the open of business on May 26, 2020.
On October 22, 2020, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of 5-for-8 and also approved a proportionate decrease in the Company’s authorized common stock to shares from . On November 5, 2020, the Company filed a certificate of change (with an effective date of November 9, 2020) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 5-for-8 reverse stock split of its outstanding common stock. As a result of the reverse stock split, shares were issued in lieu of fractional shares. On November 6, 2020, the Company received notice from FINRA/OTC Corporate Actions that the reverse split would take effect at the open of business on November 9, 2020, and the reverse stock split took effect on that date.
The consolidated financial statements presented reflect the reverse splits.
Public offerings
On November 12, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters (the “Underwriters”), in connection with the Company’s public offering (the “Offering”) of shares of common stock, at a public offering price of $ per share. The initial closing of the Offering for shares of common stock took place on November 17, 2020. On November 18, 2020, the Underwriters exercised their option pursuant to the Underwriting Agreement to purchase an additional shares of common stock (the “Option Shares”). The closing for the Option Shares took place on November 20, 2020, for which the Company received approximately $1.5 million in net proceeds after deducting underwriting discounts and commissions. With the exercise of the option to purchase the Option Shares, the total amount of shares of common stock sold in the Offering was shares with aggregate net proceeds received by the Company of approximately $11.8 million after deducting underwriting discounts and commissions and offering expenses.
On October 1, 2021, the Company and certain institutional and accredited investors and members of the Company’s management team (the “Investors”)March 23, 2023, INVO entered into a securities purchase agreement (the “March Purchase Agreement”) with a certain institutional investor, pursuant to which the Company agreed to issue and sell to the Investors shares of its common stock,such investor (i) in a registered direct offering (the “Direct“RD Offering”) for aggregate gross proceeds of $4,044,803. The purchase price for each share in the Direct Offering was $. The net proceeds to the Company from the Direct Offering, after deducting placement agent fees and the Company’s estimated offering expenses, were approximately $3.65 million. Paulson Investment Company served as a placement agent for the Direct Offering and received a fee for its role in the amount of $323,584, as well as warrants to purchase shares of the Company’s common stockCommon Stock, and a pre-funded warrant (the “Pre-Funded Warrant”) to purchase up to 2,300,000 shares of Common Stock, at an exercise price of $3.9120.01 per share, and (ii) in a concurrent private placement (the “March Warrant Placement”), a common stock purchase warrant (the “March Warrant”), exercisable for an aggregate of up to shares of Common Stock, at an exercise price of $ per share. The securities to be issued in the RD Offering (priced at the marked under Nasdaq rules) were offered pursuant to the Company’s shelf registration statement on Form S-3 (File 333-255096), initially filed by the Company with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), on April 7, 2021 and declared effective on April 16, 2021. The Pre-Funded Warrant is exercisable upon issuance and will remain exercisable until all of the shares underlying the Pre-Funded Warrant are exercised in full.
The March Warrant (and the shares of Common Stock issuable upon the exercise of the March Warrant) was not registered under the Securities Act and was offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrant is immediately exercisable upon issuance, will expire eight years from the date of issuance, and in certain circumstances may be exercised on a cashless basis.
Six
On March 27, 2023, the Company closed the RD Offering and March Warrant Placement, raising gross proceeds of approximately $3 million before deducting placement agent fees and other offering expenses payable by the Company. In the event the March Warrant is fully exercised for cash, the Company would receive additional gross proceeds of approximately $3.5 million. Under the March Purchase Agreement, the Company may use a portion of the net proceeds of the offering to (a) repay February Debentures, and (b) to pay the down payment for Wisconsin Fertility acquisition. The remainder of the net proceeds will be used for working capital, capital expenditures, and other general corporate purposes. The Company used $383,879 in proceeds to repay a portion of the February Debentures and the remainder of the proceeds are being used for working capital and general corporate purposes.
Under the March Purchase Agreement, the Company is required within 30 days of the closing date of the March Warrant Placement to file a registration statement on Form S-1 (the “Resale Registration Statement”) registering the resale of the shares of Common Stock issuable upon the exercise of the March Warrant. The Company is required to use commercially reasonable efforts to cause such registration to become effective within 75 days of the closing date of the offering (or 120 days if the registration statement is subject to a full review by the SEC), and to keep the Resale Registration Statement effective at all times until no shares of Common Stock remain exercisable under the March Warrant.
In addition, pursuant to certain “lock-up” agreements, our officers and directors have agreed, for a period of 180 days from the date of the RD Offering and March Warrant Placement, not to engage in any of the following, whether directly or indirectly, without the consent of the March Purchase Agreement investor: offer to sell, sell, contract to sell pledge, grant, lend, or otherwise transfer or dispose of our common stock or any securities convertible into or exercisable or exchangeable for Common Stock (the “Lock-Up Securities”); enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities; make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Lock-Up Securities; enter into any transaction, swap, hedge, or other arrangement relating to any Lock-Up Securities subject to customary exceptions; or publicly disclose the intention to do any of the foregoing.
18 |
Three Months Ended June 30, 2022March 31, 2023
During the first sixthree months of 2022,ended March 31, 2023, the Company issued shares of common stockCommon Stock to employees and directors and shares of common stockCommon Stock to consultants with a fair value of $214,63746,503 and $89,40556,900, respectively. The shares were issued under the Company’s 2019 Stock Incentive Plan (the “2019 Plan”).
During the first sixthree months of 2022,ended March 31, 2023, the Company issued shares of its common stock to consultants in considerationCommon Stock upon the exercise of services renderedoptions. The Company received proceeds of $2,376.
In February 2023, the Company issued shares of Common Stock with a fair value of $27,36156,313 as inducement for issuing the February Debentures. TheseThe fair value of the shares were issued pursuantwas recognized as a discount to the exemption from registration provided by Section 4(a)(2)February Debentures and will be amortized over the life of the Securities Actnotes.
In February 2023, the Company shares of 1933, as amended. The Company did not receive any cash proceeds from this issuance.Common Stock in connection with the ELOC with a fair value of $93,000 that was expensed in the period.
In January 2022,March 2023, the Company issued shares of its common stock forCommon Stock in the RD Offering and March Warrant Placement. The Company received net proceeds of approximately $315,0002.7. million.
During the first six months of 2022, the Company granted restricted stock units to employees that will vest at six months from grant date and at twelve months from grant date. The Company recognized stock based compensation expense of $ for during the six months ended June 30, 2022 associated with the equity grant.
Equity Incentive Plans
In October 2019, the Company adopted the 2019 Plan. Under the 2019 Plan, the Company’s board of directors is authorized to grant stock options to purchase common stock,Common Stock, restricted stock units, and restricted shares of common stockCommon Stock to its employees, directors, and consultants. The 2019 Plan initially provided for the issuance of shares. . In January 2022,2023, the number of available shares increased by shares bringing the total shares available under the 2019 Plan to a total of .
Options granted under the 2019 Plan generally have a life of common stockCommon Stock as determined by the Company’s board of directors. Vesting for employees typically occurs over a period. to years and exercise prices equal to or greater than the fair market value of the
Schedule of Stock OptionOptions Activity
Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding as of December 31, 2021 | $ | 1,055,894 | $ | 5.09 | $ | 133,022 | |||||||||||||||||||
Outstanding as of December 31, 2022 | 1,297,006 | $ | 3.40 | $ | - | ||||||||||||||||||||
Granted | 433,711 | 3.65 | - | 144,606 | 0.62 | 3,904 | |||||||||||||||||||
Exercised | - | - | - | 5,938 | 0.40 | 1,419 | |||||||||||||||||||
Canceled | - | - | - | 23,133 | 3.95 | - | |||||||||||||||||||
Balance as of June 30, 2022 | 1,489,605 | 4.48 | - | ||||||||||||||||||||||
Exercisable as of June 30, 2022 | 786,392 | 5.32 | - | ||||||||||||||||||||||
Balance as of March 31, 2023 | 1,412,541 | 3.14 | 18,038 | ||||||||||||||||||||||
Exercisable as of March 31, 2023 | 1,068,911 | 3.84 | 18,038 |
Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions
Six months ended June 30, | Three months ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Risk-free interest rate range | to | % | to | % | - | % | to | % | ||||||||
Expected life of option-years | to | to | to | |||||||||||||
Expected stock price volatility | to | % | to | % | - | % | to | % | ||||||||
Expected dividend yield | % | % | % | % |
19 |
The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options. Expected volatility is based upon the average historical volatility of the Company’s common stockCommon Stock over the period commensurate with the expected term of the related instrument. The expected life and estimated post-employment termination behavior is based upon historical experience of homogeneous groups, executives and non-executives, within the Company. The Company does not currently pay dividends on its common stock,Common Stock, nor does it expect to do so in the foreseeable future.
Total Intrinsic Value of Options Exercised | Total Fair Value of Options Vested | ||||||||
Year ended December 31, 2021 | $ | - | $ | 1,543,912 | |||||
Six months ended June 30, 2022 | $ | - | $ | 861,284 |
Total Intrinsic Value of Options Exercised | Total Fair Value of Options Vested | |||||||
Year ended December 31, 2022 | $ | - | $ | 1,616,401 | ||||
Three months ended March 31, 2023 | $ | 1,419 | $ | 594,966 |
For the sixthree months ended June 30, 2022,March 31, 2023, the weighted average grant date fair value of options granted was $ per share. The Company estimates the fair value of options at the grant date using the Black-Scholes model. For all stock options granted through June 30, 2022,March 31, 2023, the weighted average remaining service period is years.year.
Restricted Stock and Restricted Stock Units
In the sixthree months ended June 30, 2022,March 31, 2023, the Company granted in restricted stock units and shares of restricted stock to certain employees, directors, and consultants under the 2019 Plan. Restricted stock issued to employees, directors, and consultants generally vest either at grant or vest over a period of from the date of grant.
March 31, 2023:
Schedule of Aggregate Restricted Stock Awards and Restricted Stock Unit Activity
Number of Unvested Shares | Weighted Average Grant Date Fair Value | Aggregate Value of Shares | Number of Unvested Shares | Weighted Average Grant Date Fair Value | Aggregate Value of Shares | ||||||||||||||||||||
Balance as of December 31, 2021 | 9,730 | $ | 3.72 | $ | 36,148 | ||||||||||||||||||||
Balance as of December 31, 2022 | 70,667 | $ | 0.42 | $ | 29,949 | ||||||||||||||||||||
Granted | 187,861 | 3.08 | 579,086 | 124,131 | 0.53 | 65,367 | |||||||||||||||||||
Vested | (100,841 | ) | 3.08 | (309,416 | ) | 179,798 | 1.35 | 242,185 | |||||||||||||||||
Forfeitures | - | - | - | - | - | - | |||||||||||||||||||
Balance as of June 30, 2022 | 96,750 | $ | 3.16 | $ | 305,818 | ||||||||||||||||||||
Balance as of March 31, 2023 | 15,000 | 1.18 | 17,764 |
Note 13 – Unit Purchase Options and Warrants
In connection with the issuance of the 2020 Convertible Notes, the Company also issued unit purchase options to purchase 303,623 units at an exercise price of $ per unit, with each unit consisting of 1 share of common stock and a warrant to purchase one share of common stock at an exercise price of $3.20 per share. The units and warrants vested immediately, are exercisable for a period of five years from the date of issuance and are subject to downward adjustment if the Company issues securities at a lower price. Warrant holders have a right to require the Company to pay cash in the event of a fundamental transaction. In accordance with ASC 815, the unit purchase options and warrants issued in this period were determined to require equity treatment.
In connection with the issuance of the 2020 Convertible Notes, the Company agreed to issue the placement agent and the selling agent five-year warrants to purchase 6,750 shares of the Company’s common stock at an exercise price of $3.20.
A Monte Carlo model was used because the investor unit purchase options and warrants contain fundamental transaction payouts and reset events that cannot be modeled with a Black Scholes model.
The fair value of the unit purchase options and warrants issued to the convertible debt holders is estimated as of the issue date using a Monte Carlo model with the following assumptions:
Schedule of Fair Value Measurement Inputs and Valuation Techniques
The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the unit purchase options and warrants. Expected volatility is based upon the historical volatility of the Company’s common stock over the period commensurate with the expected term of the related instrument. The unit purchase options and warrants are valued assuming projected reset events adjusting the exercise price and a forced exercise upon a projected fundamental transaction by management. The unit purchase options and warrants early exercise are modeled assuming registration after 180 days. The Company does not currently pay dividends on its common stock, nor does it expect to in the foreseeable future.
The following table sets forth the activity of unit purchase options:
Schedule of Unit Purchase Stock Options Activity
Number of Unit Purchase Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Unit Purchase Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding as of December 31, 2021 | $ | 92,893 | $ | 3.20 | $ | 5,647 | |||||||||||||||||||
Outstanding as of December 31, 2022 | $ | 92,893 | $ | 3.20 | $ | - | |||||||||||||||||||
Granted | - | - | - | - | - | - | |||||||||||||||||||
Exercised | - | - | - | - | - | - | |||||||||||||||||||
Canceled | - | - | - | - | - | - | |||||||||||||||||||
Balance as of June 30, 2022 | $ | 92,893 | $ | 3.20 | $ | - | |||||||||||||||||||
Balance as of March 31, 2023 | $ | 92,893 | $ | 3.20 | $ | - |
The following table sets forth the activity of warrants:
Schedule of Warrants Activity
Number of Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding as of December 31, 2021 | 167,272 | $ | 3.62 | $ | 16,029 | ||||||||||||||||||||
Outstanding as of December 31, 2022 | 517,272 | $ | 1.51 | $ | - | ||||||||||||||||||||
Granted | - | - | - | 8,457,500 | 0.63 | 92,293 | |||||||||||||||||||
Exercised | - | - | - | - | - | - | |||||||||||||||||||
Canceled | - | - | - | - | - | - | |||||||||||||||||||
Balance as of June 30, 2022 | 167,272 | $ | 3.62 | $ | - | ||||||||||||||||||||
Balance as of March 31, 2023 | 9,067,665 | $ | 0.70 | $ | 140,943 |
Note 14 – Income Taxes
The Company uses the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If a carryforward exists, the Company decides as to whether the carryforward will be utilized in the future. Currently, a valuation allowance is established for all deferred tax assets and carryforwards as their recoverability is deemed to be uncertain. If the Company’s expectations for future operating results at the federal or at the state jurisdiction level vary from actual results due to changes in healthcare regulations, general economic conditions, or other factors, it may need to adjust the valuation allowance, for all or a portion of the Company’s deferred tax assets. The Company’s income tax expense in future periods will be reduced or increased to the extent of offsetting decreases or increases, respectively, in the Company’s valuation allowance in the period when the change in circumstances occurs. These changes could have a significant impact on the Company’s future earnings.
Income tax expense was $8000 for each of the three and six months ended June 30, 2022, compared to $0 for the threeMarch 31, 2023 and six months ended June 30, 2021.2022. The annual forecasted effective income tax rate for 20222023 is 0%, with a year-to-date effective income tax rate for the three months ended June 30, 2022,March 31, 2023, of 0%.
Note 15 – Commitments and Contingencies
Insurance
The Company’s insurance coverage is carried with third-party insurers and includes: (i) general liability insurance covering third-party exposures; (ii) statutory workers’ compensation insurance; (iv) excess liability insurance above the established primary limits for general liability and automobile liability insurance; (v) property insurance, which covers the replacement value of real and personal property and includes business interruption; and (vi) insurance covering our directors and officers for acts related to our business activities. All coverage is subject to certain limits and deductibles, the terms and conditions of which are common for companies with similar types of operations.
Legal Matters
The Company is not currently subject to any material legal proceedings; however, it could be subject to legal proceedings and claims from time to time in the ordinary course of its business, or legal proceedings it considered immaterial may in the future become material. Regardless of the outcome, litigation can, among other things, be time consuming and expensive to resolve, and can divert management resources.
Note 16 – Subsequent Events
In July and August 2022,On May 10, 2023, the partnership agreement between the Company issued shares of common stock to employees underand Lyfe Medical I, LLC was terminated by mutual agreement.
On May 12, 2023 the 2019 Stock Incentive Plan.joint venture agreement between the Company and Ginekaliks Dooel Skopje was terminated by mutual agreement.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” “INVO,” or “INVO Bioscience, Inc.” refer to INVO Bioscience, Inc.
Overview
We are a commercial-stage fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace by making fertility care accessible and inclusive to people around the world. Our primary mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility care. Our flagship product is INVOcell, a revolutionary medical device that allows fertilization and early embryo development to take place in vivo within the woman’s body. This treatment solution is the world’s first intravaginal culture technique for the incubation of oocytes and sperm during fertilization and early embryo development. This technique, designated as “IVC”, provides patients a more connected and intimate experience at a more affordable cost in comparison to in vitro fertilization (“IVF”), the other advanced ART treatments. We believe thetreatment. The IVC procedure can deliver comparable results at a lower cost than traditional in vitro fertilization (“IVF”)to IVF and is a significantly more effective treatment than intrauterine insemination (“IUI”). Ourinsemination.
While the INVOcell remains central to our efforts, our commercialization and corporate development strategy was expanded to focus primarily on providing ART services to the significantly underserved patient population seeking access to affordable fertility treatment. The Company is now largely focused on the opening of dedicated “INVO Centers” offering the INVOcell and IVC procedure (with three centers in North America now operational), and the acquisition of existing IVF clinics, in addition to continuing to distribute and sell our technology solution into existing fertilityIVF clinics.
Unlike conventional infertility treatments such as IVF where the oocytes and sperm develop into embryos in an expensive laboratory incubator, the INVOcell allows fertilization and early embryo development to take place in the woman’s body. This allows for many benefits in the IVC procedure, including:
● | Eliminates expensive and time-consuming lab | |
● | Provides a natural, stable incubation environment; | |
● | Offers a more personal, intimate experience | |
● | Reduces the risk of errors and wrong embryo transfers. |
In both current utilization of the INVOcell, and in clinical studies, the IVC procedure has demonstrated equivalent pregnancy success and live birth rates to those of IVF.as IVF when comparing similar incubation periods and patient demographics.
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Operations
We operate with a core internal team and outsource certain operational functions in order to help advance our efforts as well as reduce fixed internal overhead needs and costs as well asand in-house capital equipment requirements. Our most critical management and leadership functions are carried out by our core management team. We have contracted out the manufacturing, assembly, packaging, labeling, and sterilization of the INVOcell device to a medical manufacturing company and a sterilization specialist to perform the gamma sterilization process.
To date, we have completed a series of important steps in the successful development and manufacturing of the INVOcell:
● | Manufacturing: |
● | Raw Materials: |
● | CE Mark: INVO Bioscience received the CE Mark in October 2019. The CE Mark permits the sale of devices in Europe, Australia and other countries that recognize the CE Mark, subject to local registration requirements. |
● | US Marketing Clearance: the safety and efficacy of the INVOcell |
● | Clinical: |
Market Opportunity
The global ART marketplace is a large, multi-billion industry growing at a strong pace in mostmany parts of the world as increased infertility rates, increased patient awareness, acceptance of treatment options, and improving financial incentives such as insurance and governmentgovernmental assistance continue to drive demand. According to the European Society for Human Reproduction 2020 ART Fact Sheet, one in six couples worldwide experience infertility problems. Additionally, the worldwide market remains vastly underserved as a high percentage of patients in need of care continue to go untreated each year for many reasons, but key among them are capacity constraints and cost barriers. While there have been large increases in the use of IVF, there are still only approximately 2.6 million ART cycles, including IVF, IUI and other fertility treatments, performed globally each year, producing around 500,000 babies. This amounts to less than 3% of the infertile couples worldwide being treated and only 1% having a child throughthough IVF. The industry remains capacity constrained which creates challenges in providing access to care to the volume of patients in need. A survey by “Resolve: The National Infertility Association,” indicates the two main reasons couples do not use IVF is cost and geographical availability (and/or capacity).
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In the United States, infertility, according to the American Society of Reproductive Medicine (2017), affects an estimated 10%-15% of the couples of childbearing-age. According to the Centers for Disease Control (“CDC”), there are approximately 6.7 million women with impaired fertility. Based on preliminary 2020 data from CDC’s National ART Surveillance System, approximately 326,000 IVF cycles were performed at 449 IVF centers, leaving the U.S. with a large, underserved patient population, which is similar to most markets around the world.
We estimate that approximately 200 of the United States IVF clinics are single-location, owner operated, and of these that approximately 80 to 100 clinics represent suitable acquisitions for the Company.
Competitive Advantages
We believe that the INVOcell, and the IVC procedure it enables, have the following key advantages:
Lower cost than IVF with equivalent efficacyefficacy.. The IVC procedure can be offered for less than IVF due to lower cost of supplies, labor, capital equipment and general overhead. The laboratory equipment needed to perform an IVF cycle is expensive and requires ongoing costs as compared to what is required for an IVC cycle. As a result, we also believe INVOcell and the IVC procedure enable a clinic and its laboratory to be more efficient as compared to conventional IVF, and, ultimately, to allow the treatment of more patients with fewer resources.IVF.
The IVC procedure is currently being offered at practicingseveral IVF clinics at a price range of $5,000 - $11,000 per cycle and from $4,500 to $7,000 at the existing INVO Centers, thereby making it more affordable than conventional IVF (which tends to average $12,000 to $17,000 per cycle or higher).
Improved efficiency providing for greater capacity and improved access to care and geographic availability. In many parts of the world, including the U.S., IVF clinics tend to be concentrated in higher population centers and are often capacity constrained in terms of how many patients a center can treat, since volume is limited by the number of capital-intensive incubators available in IVF clinic labs. With the significant number of untreated patients along with the growing interest and demand for services, the industry remains challenged to provide sufficient access to care and to do so at an economical price. We believe INVOcell and the IVC procedure it enables can play a significant role in helping to address these challenges. According to the 2020 CDC Report, there are approximately 449 IVF centers in the U.S. We estimate that by adopting the INVOcell, IVF clinics can increase fertility cycle volume by up to 30% without adding to personnel, space and/or equipment costs. Our own INVO Centers also address capacity constraints by adding to the overall ART cycle capacity and doing so with comparable efficacy to IVF outcomes as well as at a lower per cycle price. Moreover, we believe that we are uniquely positioned to drive more significant growth in fertility treatment capacity in the future by partnering with existing OB/GYN practices. In the U.S., there are an estimated 5,000 OB/GYN offices, many of which offer fertility services (usually limited to consultation and IUI, but not IVF). Since the IVC procedure requires a much smaller lab facility, less equipment and fewer lab personnel (in comparison to conventional IVF), it could potentially be offered as an extended service in an OB/GYN office. With proper training and a lighter lab infrastructure, the INVOcell could expand the business for these physicians and allow them to treat patients that are unable to afford IVF and provide patients with a more readily accessible, convenient, and cost-effective solution. With our multi-prongedthree-pronged strategy (IVF clinics, INVO Centers and OB/GYN practices), in addition to lowering costs, we believe INVOcell and the IVC procedure can address our industry’s key challenges, capacity and cost, by their ability to expand and decentralize treatment and increase the number of points of care for patients in need. This powerful combination of lower cost and added capacity has the potential to open up access to care for underserved patients around the world.
Greater patient involvement. With the IVC procedure, the patient uses their own body for fertilization, incubation, and early embryo development which creates a greater sense of involvement, comfort, and participation. In some cases, this may also free people from barriers related to due to ethical or religious concerns, or fears of laboratory mix-ups.
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INVOcellSales and Marketing
Our product commercialization efforts areapproach to market is focused on identifying distributors and partners within targeted geographic regions that we believe can best promote market and sell the INVOcell and support our efforts to expand access to advanced fertility treatment for the large number of underserved infertile people hoping to have a baby. We believe that the INVOcell-based IVC procedure is an effective and affordable treatment option that greatly reduces the need for more expensive IVF lab facilities and allows providers to pass on related savings to patients without compromising efficacy. We have been cleared to sell the INVOcell in the United States since November 2015 after receiving de novo class II clearance from the FDA. Our primary focus over the past two years has been on establishing INVO Centers in the U.S. and abroad to promote the INVOcell and the IVC procedure and acquiring existing U.S.-based IVF clinics where we can integrate the INVOcell. While we continue selling the INVOcell directly to U.S. fertilityIVF clinics and developing key international market partnershipsvia distributors and other partners around the world.
In late 2021,world, we made substantial progress with ourhave transitioned INVO Center strategy by opening three locations – Birmingham, Alabama, Atlanta, Georgia, and Monterrey, Mexico – and remainfrom being a medical device company to one that is mostly focused on opening additional locations in the US and abroad to expand access to INVOcell and the IVC procedure.
We anticipate that we will experience quarterly fluctuations in our revenue as we expand the sales of the INVOcell to new markets in the U.S. and globally. We continue to seek partners that will contractually commit to meeting agreeable performance objectives that are consistent with our goals and objectives.
providing fertility services.
Ferring
On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Ferring Agreement”) with Ferring International Center S.A. (“Ferring”), which closed on January 14, 2019. Pursuant to the Ferring Agreement, among other things, we granted Ferring an exclusive license in the United States to market, promote, distribute, and sell the INVOcell. Ferring was responsible, at its own cost, for all commercialization activities in the United States. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to five INVO Centers in the United States, which as of March 2, 2021, was amended to seven centers. We retained all commercialization rights for the INVOcell outside of the United States.
On November 2, 2021, Ferring notified us of its intention to terminate the Ferring Agreement, which required 90-days prior written notice. Accordingly, the Ferring Agreement officially terminated on January 31, 2022. Pursuant to the terms of the Ferring Agreement, upon notice of termination, Ferring was required to use commercially reasonable efforts to transition any customers to us and otherwise facilitate the orderly transition of the distribution from Ferring to us. By its terms, our Supply Agreement with Ferring also terminated on January 31, 2022.
The Ferring license was deemed to be a functional license that provides the counterparty with a “right to access” to our intellectual property during the subscription period and accordingly, revenue is recognized over a period of time, which is generally the subscription period. During the years ended December 31, 2021, and 2020, we recognized $3.6 million and $0.7 million of revenue related to the Ferring license agreement, respectively.
As of December 31, 2021, we had no deferred revenue related to the Ferring Agreement as it was recognized in the fourth quarter of fiscal year 2021 in relation to the contract termination. The likelihood of Ferring exercising its rights became remote at the time notice of termination was received therefore INVO recognized the full remaining amount of the deferred revenue.
International Distribution Agreements
We have entered into exclusive distribution agreements for a number of international markets. These agreements usually have an initial term with renewal options and require the distributors to meet minimum annual purchases, which vary depending on the market. We are also required to register the product in each market before the distributor can begin importing, a process and timeline that can vary widely depending on the market.
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The following table sets forth a list of our current international distribution agreements:
INVOcell Registration | ||||||||
Market | Distribution Partner | Date | Initial Term | Status in Country | ||||
Mexico (a) | Positib Fertility, S.A. de C.V. | Sept 2020 | TBD** | Completed | ||||
Malaysia | iDS Medical Systems | Nov 2020 | 3-year | Completed | ||||
Pakistan | Galaxy Pharma | Dec 2020 | 1-year | In process | ||||
Thailand | IVF Envimed Co., Ltd. | April 2021 | 1-year | Completed | ||||
Sudan | Quality Medicines, Cosmetics & Medical Equipment Import | Sept 2020 | 1-year | In process | ||||
Ethiopia | Quality Medicines, Cosmetics & Medical Equipment Import | Sept 2020 | 1-year | In process | ||||
Uganda | Quality Medicines, Cosmetics & Medical Equipment Import | Sept 2020 | 1-year | Not required | ||||
Nigeria | G-Systems Limited | Sept 2020 | 5-year | Completed | ||||
Iran | Tasnim Behboud | Dec 2020 | 1-year | Completed | ||||
Sri Lanka | Alsonic Limited | July 2021 | 1-year | In process | ||||
China | Onesky Holdings Limited | May 2022 | 5-year | In process |
(a) | Our Mexico JV. Please note that the registration is temporarily in the name of Proveedora de Equipos y Productos, S.A. de C.V. and will be transferred to Positib Fertility as soon as practicable. |
Investment in Joint Ventures and Partnerships
As part of our commercialization strategy, we entered into a number of joint ventures and partnerships designed to establish new INVO Centers.
The following table sets forth a list of our current joint venture arrangements:
Affiliate Name | Country | Percent (%) Ownership | ||||
HRCFG INVO, LLC | United States | 50 | % | |||
Bloom Invo, LLC | United States | 40 | % | |||
Positib Fertility, S.A. de C.V. | Mexico | 33 | ||||
The following table sets forth a list of our current partnership arrangements:
% |
Alabama JV Agreement
On March 10, 2021, our wholly owned subsidiary, INVO Centers, LLC (“INVO CTR”), entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture LLC is HRCFG INVO, LLC (the “Alabama JV”). The responsibilities of HRCFG’s principals include providing clinical practice expertise, performing recruitment functions, providing all necessary training, and providing day-to-day management of the clinic. The responsibilities of INVO CTR include providing certain funding to the Alabama JV and providing access to and being the exclusive provider of the INVOcell to the Alabama JV. INVO CTR will also perform all required, industry specific compliance and accreditation functions, and product documentation for product registration.
The Alabama JV opened to patients on August 9, 2021, and initial treatment cycles commenced in September 2021.
The Alabama JV is accounted for using the equity method in our financial statements. As of June 30, 2022March 31, 2023 we invested $1.7$1.6 million in the Alabama JV in the form of a note. For the sixthree months ended June 30,March 31, 2023 and 2022, the Alabama JV recorded a net losslosses of $0.3 million$37 thousand and $110 thousand, respectively, of which we recognized a losslosses from equity method investmentinvestments of $0.2 million.$18 thousand and $55 thousand, respectively.
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Georgia JV Agreement
On June 28, 2021, INVO CTR entered into a limited liability company agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell, and the related IVC procedure, through the establishment of an INVO Center, (the “Atlanta Clinic”) in the Atlanta, Georgia metropolitan area.
In consideration for INVO’s commitment to contribute up to $800,000 within the 24-month period following execution of the Bloom Agreement to support the start-up operations of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute physician services having an anticipated value of up to $1,200,000 over the course of a 24-month vesting period, the Georgia JV issued 1,200 of its units to Bloom.
The responsibilities of Bloom include providing all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia JV. INVO CTR will also perform all required, industry specific compliance and accreditation functions, and product documentation for product registration.
The Georgia JV opened to patients on September 7, 2021, and commenced initial treatment cycles in November 2021.
The results of the Georgia JV are consolidated in our financial statements. As of June 30, 2022,March 31, 2023, INVO invested $0.8$0.9 million in the Georgia JV in the form of capital contributions as well as $0.5 million in the form of a note. For the three months ended June 30,March 31, 2023 and 2022, the Georgia JV recorded a net losslosses of $32 thousand and $0.2 million.million respectively. Noncontrolling interest in the Georgia JV was $0. See Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information on the Georgia JV.
Mexico JV Agreement
Effective September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”).
The Mexico JV will operate in Monterrey, Nuevo Leon, Mexico and any other cities and places in Mexico as approved by the Mexico JV’s board of directors and Shareholders. In addition, the Shareholders agreed that the Mexico JV will be our exclusive distributor in Mexico. The Shareholders also agreed not to compete directly or indirectly with the Mexico JV in Mexico.
The Mexico JV opened to patients on November 1, 2021, and commenced initial treatment cycles beginning in January 2022.2021.
The Mexico JV is accounted for using the equity method in our financial statements. As of June 30, 2022,March 31, 2023, INVO invested $0.2$0.1 million in the Mexico JV. For the sixthree months ended June 30, 2022,March 31, 2023, the Mexico JV recorded a net losslosses of $0.09 million$27 thousand and $49 thousand, respectively, of which we recognized a loss from equity method investmentinvestments of $0.03 million.$9 thousand and $16 thousand, respectively.
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MalaysiaTerminated JV AgreementAgreements
On November 23, 2020, we entered into a joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated in Malaysia,As of May 15, 2023, the Company’s JV agreements to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market technologies related to the INVOcell and IVC Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Centers in Malaysia. The joint venture is co-managed and owned 50% by each of INVO Bioscience and SNS Murni. As of June 30, 2022, no joint venture entity had been formed.
North Macedonia JV Agreement
On November 23, 2020, we entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote and market technologies related to the INVOcell and IVC procedure in the Republic of North Macedonia and (ii) establish an INVO Center. The joint venture will be co-managed and owned 50% by eachin the Bay Area of INVO and Ginekaliks. AsCalifornia were terminated due to lack of June 30, 2022, no joint venture entity had been formed.progress.
Recent Developments
Lyfe Medical Center I, LLC Partnership AgreementExecution of Definitive Agreements to Acquire the Wisconsin Fertility Institute
On April 9, 2021, weMarch 16, 2023, INVO, through Wood Violet Fertility LLC, a Delaware limited liability company (“Wood Violet”) and wholly owned subsidiary of INVO Centers LLC, a Delaware company (“INVO CTR”) wholly owned by INVO, entered into binding purchase agreements to acquire Wisconsin Fertility Institute (“Wisconsin Fertility”) for a combined purchase price of $10 million.
The purchase price is payable in four installments of $2.5 million each (which payments may be offset by assumption of certain Wisconsin Fertility liabilities, payable at closing and on each of the subsequent three anniversaries of closing. The sellers have the option to take all or a portion of the final three installments in shares of INVO common stock par value $0.0001 per share (“Common Stock”) valued at $6.25, $9.09, and $14.29, for the second, third, and final installments, respectively.
Wisconsin Fertility is comprised of (a) a medical practice, Wisconsin Fertility and Reproductive Surgery Associates, S.C., a Wisconsin professional service corporation d/b/a Wisconsin Fertility Institute (“WFRSA”), and (b) a laboratory services company, Fertility Labs of Wisconsin, LLC, a Wisconsin limited liability company (“FLOW”). WFRSA owns, operates and manages the Clinic’s fertility practice that provides direct treatment to patients focused on fertility, gynecology and obstetrics care and surgical procedures, and employs physicians and other healthcare providers to deliver such services and procedures. FLOW provides WFRSA with related laboratory services.
March 2023 Registered Direct Offering
On March 23, 2023, INVO entered into a partnershipsecurities purchase agreement (the “Lyfe“March Purchase Agreement”) with Lyfe Medical Center I, LLC (“Lyfe”a certain institutional investor, pursuant to which the Company agreed to issue and sell to such investor (i) in a registered direct offering (the “RD Offering”), 1,380,000 shares of Common Stock, and a pre-funded warrant (the “Pre-Funded Warrant”) to purchase up to 2,300,000 shares of Common Stock, at an exercise price of $0.01 per share, and (ii) in connectiona concurrent private placement (the “March Warrant Placement”), a common stock purchase warrant (the “March Warrant”), exercisable for an aggregate of up to 5,520,000 shares of Common Stock, at an exercise price of $0.63 per share. The securities to be issued in the RD Offering (priced at the marked under Nasdaq rules) were offered pursuant to the Company’s shelf registration statement on Form S-3 (File 333-255096), initially filed by the Company with Lyfe’sthe SEC under the Securities Act of 1933, as amended (the “Securities Act”), on April 7, 2021 and declared effective on April 16, 2021. The Pre-Funded Warrant is exercisable upon issuance and will remain exercisable until all of the shares underlying the Pre-Funded Warrant are exercised in full.
The March Warrant (and the shares of Common Stock issuable upon the exercise of the Private Warrants) was not registered under the Securities Act and was offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The March Warrant is immediately exercisable upon issuance, will expire eight years from the date of issuance, and in certain circumstances may be exercised on a cashless basis.
On March 27, 2023, the Company closed the RD Offering and March Warrant Placement, raising gross proceeds of approximately $3 million before deducting placement agent fees and other offering expenses payable by the Company. In the event the March Warrant is fully exercised for cash, the Company would receive additional gross proceeds of approximately $3.5 million. The Company used $383,879 in proceeds to repay a portion of the convertible debenture issued in February 2023 and the remainder of the proceeds are being used for working capital and general corporate purposes.
Under the March Purchase Agreement, the Company is required within 30 days of the closing date of the March Warrant Placement to file a registration statement on Form S-1 (the “Resale Registration Statement”) registering the resale of the shares of Common Stock issuable upon the exercise of the March Warrant. The Company is required to use commercially reasonable efforts to cause such registration to become effective within 75 days of the closing date of the offering (or 120 days if the registration statement is subject to a full review by the SEC), and to keep the Resale Registration Statement effective at all times until no shares of Common Stock remain exercisable under the March Warrant.
In addition, pursuant to certain “lock-up” agreements, our officers and directors have agreed, for a period of 180 days from the date of the RD Offering and March Warrant Placement, not to engage in any of the following, whether directly or indirectly, without the consent of the March Purchase Agreement investor: offer to sell, sell, contract to sell pledge, grant, lend, or otherwise transfer or dispose of our common stock or any securities convertible into or exercisable or exchangeable for Common Stock (the “Lock-Up Securities”); enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities; make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Lock-Up Securities; enter into any transaction, swap, hedge, or other arrangement relating to any Lock-Up Securities subject to customary exceptions; or publicly disclose the intention to establish an INVO Center in the Bay Area of California (the “Bay Area Clinic”). Pursuant to the Lyfe Agreement, we will provide embryology laboratory services in connection with the IVC procedure and other fertility-related treatments (the “Lab Services”) to be provided by Lyfe to its patients at the Bay Area Clinic. Under the termsdo any of the Lyfe Agreement, we will receive 40% of the net income received by the Bay Area Clinic for the performance of the Lab Services. As of June 30, 2022, the Bay Area Clinic was not yet operational.foregoing.
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Notices from Nasdaq of Failure to Satisfy Continued Listing Rules.
Notice Regarding Non-Compliance with Minimum Stockholders’ Equity
On November 23, 2022, we received notice (the “Stockholders’ Equity Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires companies listed on The Nasdaq Capital Market to maintain stockholders’ equity of at least $2,500,000 (the “Stockholders’ Equity Requirement). In this Quarterly Report on Form 10-Q, we reported stockholders’ deficit of $16,090, which, although improved from the $977,612 deficit recorded as of December 31, 2022, is below the Stockholders’ Equity Requirement for continued listing. Additionally, we do not meet either of the alternative Nasdaq continued listing standards under the Nasdaq Listing Rules, market value of listed securities of at least $35 million, or net income of $500,000 from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years.
The Stockholders’ Equity Notice has no immediate effect on the listing of our Common Stock and our Common Stock continues to trade on The Nasdaq Capital Market under the symbol “INVO” subject to our compliance with the other continued listing requirements.
Pursuant to the Stockholders’ Equity Notice, Nasdaq gave us 45 calendar days, or until January 7, 2023, to submit to Nasdaq a plan to regain compliance, which, if accepted by Nasdaq, may grant the Company an extension of up to 180 calendar days from the date of the Stockholders’ Equity Notice to evidence compliance.
On January 18, 2023, we received a letter from Nasdaq under which it stated that based on our submission that Nasdaq has determined to grant us an extension of time to regain compliance with Nasdaq Listing Rule 5550(b) until May 22, 2023. We must furnish to the SEC and Nasdaq a publicly available report (e.g., a Form 8-K) which report, among other things, includes a description of the completed transaction or event that enabled us to satisfy the stockholders’ equity requirement for continued listing. After filing the publicly available report described above, if we fail to evidence compliance upon filing our periodic report for the June 30, 2023, with the SEC and Nasdaq, we may be subject to delisting. In the event we do not satisfy these terms, Nasdaq will provide written notification that our securities would be delisted. At that time, we may appeal Nasdaq’s determination to a hearings panel.
We are currently in discussions with counsel with a view to submitting an updated plan to Nasdaq for compliance with the Stockholders’ Equity Requirement and to requesting a further extension to implement such plan and regain compliance.
Notice Regarding Failure to Maintain Minimum Bid Price
On January 11, 2023, we received a letter from the staff (the “Staff”) of Nasdaq’s listing qualifications group indicating that, based upon the closing bid price of our Common Stock for the previous 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing under Nasdaq Listing Rule 5550(a)(2).
The notice has no immediate effect on the listing of our Common Stock, and our Common Stock will continue to trade on The Nasdaq Capital Market under the symbol “INVO.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until July 10, 2023, to regain compliance with the minimum bid price requirement. If at any time before July 10, 2023, the closing bid price of our Common Stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance prior to July 10, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we (i) meet the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and (ii) notify Nasdaq of its intent to cure the deficiency within such second 180 calendar day period, by effecting a reverse stock split, if necessary.
We will continue to monitor the closing bid price of our Common Stock and will consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. If we do not regain compliance with the minimum bid price requirement within the allotted compliance periods, we will receive a written notification from Nasdaq that our securities are subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that we will regain compliance during either compliance period or maintain compliance with the other Nasdaq listing requirements.
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Results of Operations
During the first six monthsquarter of 2022, our fully operational2023, we achieved several important developments. Our existing three INVO Centers in Birmingham, Alabama, Atlanta, Georgia, and Monterrey, Mexico continued to makemade steady progress producing record quarterly revenue on a combined basis. We also made important progress toward building local market awarenessopening our planned Tampa INVO Center. With respect to our previously announced acquisition strategy, we reached a major milestone by signing binding agreements to acquire Wisconsin Fertility Institute (“WFI”). WFI is a well-established and treating patients.profitable clinic that would substantially increase the size and scope of our operations. We also continuedexpect to expand on our similar marketing efforts to build awareness forclose the INVOcell and IVC procedure and to supportacquisition during the effortssecond quarter of both the INVO Centers and our distribution partners around the world. During the quarter,2023.
Looking ahead, we also announced plans to open INVO Centers in the Tampa, Florida and Kansas City, Missouri areas, and are working towardsanticipate opening additional INVO Centers in key domestic, and select international, markets. Wemarkets, and pursuing additional acquisitions. With respect to INVO Centers, we have identified more thanselected an initial list or about 20 markets in the U.S. alone asthat we believe are excellent potential locations, for an INVO Center. As part of our efforts to expand our clinic activities, we have more recently identified opportunities to acquire existing profitable fertility practices. Although these established practices provide conventional IVF,and we believe they represent an opportunity to integrate the INVOcell technology and thereby enhance the available treatment optionsuniverse of suitable acquisition targets for patients and further expand the overall business level. As such, we intend to selectively pursue potential acquisitions as part of our strategy, which we believe compliments our efforts to build new practices and allows us to scale up our overall operations more quickly.
With respect to our distribution efforts, we re-assumed control of the U.S. market upon the termination of the Ferring Agreement in the first quarter. We are now selling directly ourselves (rather than through a distributor) to the existing, established fertilityINVO exceeds 80 clinics in the U.S. market. DuringWe also continue to work on the quarter, we received several orders fromexpansion of INVOcell distribution into existing IVF clinics that had previously trained on implementing the IVC procedure within their practices. To support these efforts, we added sales resources during the first quarter and believe we will experience growing revenue from these activities going forward. This revenue is also anticipated to be more consistent from quarter to quarter, as opposed to the sporadic orders placed by Ferring over the past several years.fertility clinics.
From a market strategy perspective, our commercialization efforts will continue to focus on the substantial, underserved patient population and on expanding access to advanced fertility treatments. We believe our solutions can help address the key challenges of affordability and capacity to provide care to the vast number of patients that go untreated every year. This represents the major opportunity for INVOcell and the IVC procedure it enables. Despite the COVID pandemic, the fertility industry continues to expand, and we believe our growing volume of partners (both distributors and JV INVO Centers) affords us a strong forward-looking outlook.opportunities. We believe our INVO Center approach addsand our plans to implement IVC procedures in acquired clinics can help to add much needed capacity and affordability and aligns with our key mission to open access to care to the underserved.underserved patient population.
The ART market also continues to benefit from a number of industry tailwinds, including 1) the large under-served potential patient population, 2) increasing infertility rates around the world 3) growing awareness and education of fertility treatment options, 4) a growing acceptance of fertility treatment, 5) improvements in procedure techniques and hence improvements in pregnancy success rates and 6) generally improving insurance (private and public) reimbursement trends.
Comparison of the Three Months Ended June 30,March 31, 2023, and 2022 and 2021
Revenue
Revenue for the three months ended June 30, 2022,March 31, 2023, was approximately $146$348 thousand compared to approximately $208$163 thousand for the three months ended June 30, 2021.March 31, 2022. Of the $146$348 thousand in revenue for the second quarterfirst three months of 2022,2023, approximately $112$297 thousand was related to clinic revenue from the consolidated Georgia JV. The decreaseincrease of approximately $62$185 thousand, or approximately 30%114%, was primarily related to the loss of Ferring licensingincreased revenue from the same period in 2021, offset by the Georgia JV revenue.JV.
Gross Profit
Gross profit for the three months ended June 30, 2022,March 31, 2023, was approximately $68$275 thousand compared to approximately $193$98 thousand for the three months ended June 30, 2021.March 31, 2022. Gross margins were approximately 46%79% and 93%60% for the three months ended June 30,March 31, 2023, and 2022, and 2021, respectively. The decrease in gross margin reflects bothimprovement is primarily due to increased efficiencies at the lack of Ferring license revenue in the second quarter of 2022 compared to the same period in 2021, as well as consolidated INVO Center cost of goods sold expenses.Georgia JV.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2022,March 31, 2023, were approximately $2.6$2.5 million compared to approximately $2.0$2.7 million for the three months ended June 30, 2021.March 31, 2022. The increasedecrease of approximately $0.6$0.2 million, or approximately 25%7%, was primarily the result of approximately $0.2 million in increased expenses related to the operations of the consolidated Georgia JV, approximately $0.3 million in increased personnel expenses, and $0.1 million in marketing activities. Non-cash,decreased non-cash, stock-based compensation expense, which was $0.5 million in the period, was $0.1 million, compared to $0.2$0.7 million for the same period in the prior year.
Research and Development Expenses
We began to fund additional research and development (“R&D”) efforts in 2020 as part of our 5-day label expansion efforts. R&D expenses were approximately $0.2 million$74 thousand and $0.03 million$104 thousand for the three months ended June 30,March 31, 2023, and March 31, 2022, and June 30, 2021, respectively.
Loss from equity investment
Loss from equity investments for the three months ended June 30, 2022,March 31, 2023, was approximately $0.1 million$27 thousand compared to $0 for the three months ended June 30, 2021. The increase in loss is due to the investment in Alabama and Mexico JVs becoming operational in the second half of 2021.
Other income
Other income was $0 for the three months ended June 30, 2022, compared to approximately $159$71 thousand for the three months ended June 30, 2021.March 31, 2022. The decrease wasin loss is due to an increase in revenue in the result of the extinguishment of our Paycheck Protection Program noteequity method JV’s and related interest being forgivena decrease in 2021.
expenses associated with one-time startup costs.
Interest Expense and Financing Fees
Interest expense and financing fees were approximately $102 for the three months ended June 30, 2022, compared to approximately $91$217 thousand for the three months ended June 30, 2021.March 31, 2023, compared to approximately $0.1 thousand for the three months ended March 31, 2022. The expense in 20212023 was primarily non-cash and due to the debt discount, debt issuance cost and interest from convertible notes which have now been fully amortized.
Comparison of the Six Months Ended June 30, 2022, and 2021
Revenue
Revenue for the six months ended June 30, 2022, was approximately $0.3 million compared to approximately $0.9 million for the six months ended June 30, 2021. Of the $0.3 million in revenue for the six months ended June 30, 2022, $0.2 was related to clinic revenue from the consolidated Georgia JV. The decrease of approximately $0.6 million, or approximately 65%, was related to a decrease in product sales versus a one-time bulk order from Ferring in the previous year that was made to meet calendar year 2020 minimum purchase commitments in the Ferring Agreement and the loss of Ferring licensing revenue from the same period in 2021.
Gross Profit
Gross profit for the six months ended June 30, 2022, was approximately $0.2 million compared to approximately $0.8 million for the six months ended June 30, 2021. Gross margins were approximately 54% and 91% for the six months ended June 30, 2022, and 2021, respectively. The decrease in gross margin reflects the lack of Ferring license revenue and one-time bulk order from Ferring in the first quarter of 2021 compared to the same period in 2022, as well as the inclusion of consolidated INVO Center cost of goods sold expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended June 30, 2022, were approximately $5.3 million compared to approximately $4.2 million for the six months ended June 30, 2021. The increase of approximately $1.1 million, or approximately 26%, was primarily the result of approximately $0.4 million in increased expenses related to the operations of the consolidated Georgia JV, approximately $0.7 million in increased personnel expenses, $0.3 million in marketing activities and $0.1 million in public company costs, and was partially offset by a $0.3 million reduction in INVO Center start-up expenses. Non-cash, stock-based compensation expense in the period did not change compared to $0.4 million for the same period in the prior year.
Research and Development Expenses
R&D expenses were approximately $0.3 million and $0.1 million for the six months ended June 30, 2022, and June 30, 2021, respectively.
Loss from equity investment
Loss from equity investments for the six months ended June 30, 2022, was approximately $0.2 million compared to $0 for the six months ended June 30, 2021. The increase in loss was due to the investment in Alabama and Mexico JVs becoming operational in the second half of 2021.
Other income
Other income was $0 for the six months ended June 30, 2022, compared to approximately $159 thousand for the six months ended June 30, 2021. The decrease was the result of the extinguishment of our Paycheck Protection Program note and related interest being forgiven in 2021.
Interest Expense and Financing Fees
Interest expense and financing fees were approximately $2 thousand for the six months ended June 30, 2022, compared to approximately $1.0 million for the six months ended June 30, 2021. The expense in 2021 was primarily non-cash and due to the debt discount, debt issuance cost and interest from convertible notes which have now been fully amortized.
notes.
Liquidity and Capital Resources
For the sixthree months ended June 30,March 31, 2023, and 2022, and 2021, we had net losses of approximately $5.6$2.6 million and $4.3$2.8 million, respectively, and an accumulated deficit of approximately $44.5$52.3 million as of June 30, 2022.March 31, 2023. Approximately $1.7$0.9 million of the net loss was related to non-cash expenses for the sixthree months ended June 30, 2022,March 31, 2023, compared to $2.0$0.9 million for the sixthree months ended June 30, 2021.March 31, 2022. We had netnegative working capital of approximately $1.3$1.6 million as of June 30, 2022,March 31, 2023, compared to negative working capital of approximately $5.1$2.8 million as of December 31, 2021.2022. As of June 30, 2022, ourMarch 31, 2023, we had stockholder’s equity wasof approximately $3.4 million$88 thousand compared to negative stockholder’s equity of approximately $7.3$1.0 million as of December 31, 2021.2022.
We have been dependent on raising capital from debt and equity financings to meet our needs for cash required to fund our operating expenses and investing activities. During the first sixthree months of 2021,2023, we convertedreceived proceeds of approximately $1.2$2.7 million for the sale of outstanding debt to equityour Common Stock and received approximately $0.4$0.7 million ofin proceeds from unit purchase option and warrant exercises.the sale of convertible notes. During the first sixthree months of 2022, we received proceeds of approximately $0.3 million for the sale of Common Stock. Over the next 12 months, our common stock. Our current plan includes opening additional INVO Centers, overcompleting the next 12 months.acquisition of Wisconsin Fertility Institute and pursuing additional IVF clinic acquisitions. Until we can generate a sufficient amount ofpositive cash from operations, andwe will need to the extentraise additional funds are necessaryfunding to meet our longer-term liquidity needs and to execute our business strategy, we will need to raise additional funding, asstrategy. As in the past, by way ofwe will seek debt and/or equity financings. Such additional fundingfinancing, which may not be available on reasonable terms, if at all.
Although our audited financial statements for the year ended December 31, 2021,2022 were prepared under the assumption that we would continue operations as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the year ended December 31, 2021,2022 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on the financial statements at that time. Specifically, as noted above, we have incurred significant operating losses and we expect to continue to incur significant expenses and operating losses as we continue to ramp up the commercialization of INVOcell and develop new INVO Centers. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.
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Cash Flows
The following table shows a summary of our cash flows for the sixthree months ended June 30 , 2022March 31, 2023 and 2021:2022:
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash (used in) provided by: | ||||||||||||||||
Operating activities | (3,950,920 | ) | (2,909,137 | ) | (1,148,461 | ) | (2,078,119 | ) | ||||||||
Investing activities | (86,792 | ) | (915,383 | ) | (8,447 | ) | (81,890 | ) | ||||||||
Financing activities | 315,000 | 369,840 | 3,255,018 | 315,000 |
Cash Flows from Operating Activities
As of June 30, 2022,March 31, 2023, we had approximately $2.0$2.2 million in cash compared to approximately $6.6$3.8 million as of June 30, 2021.March 31, 2022. Net cash used in operating activities for the first sixthree months of 2022,2023 was approximately $4.0$1.1 million, compared to approximately $2.9$2.1 million for the same period in 2021.2022. The increasedecrease in net cash used in operationsoperating activities was primarily due to the increase in net loss.accounts payable and accrued compensation.
Cash Flows from Investing Activities
During the sixthree months ended June 30,March 31, 2023, cash used in investing activities of $8 thousand was primarily related to a loss on equity method for the JVs. During the three months ended March 31, 2022, cash used in investing activities of approximately $0.1 million was primarily related to a loss on equity method for the JVs, payments to acquire property, plants,plant, and equipment, as well as additionalinvestment in trademarks. During the six months ended June 30, 2021, cash used in investing activities of approximately $0.9 million was related to notes receivable as well as additional trademarks and patents.
Cash Flows from Financing Activities
During the sixthree months ended June 30,March 31, 2023 cash provided by financing activities of approximately $3.3 million was primarily related to the sale of Common Stock and convertible notes. During the three months ended March 31, 2022, cash provided by financing activities of approximately $0.3 million was primarily related to the sale of common stock. During the six months ended June 30, 2021, cash provided by financing activitiesCommon Stock, net of approximately $0.4 million related to the exercise of unit purchase options and warrants.offering costs.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition presented in this section is based upon our audited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. During the preparation of the financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, our results, which allows us to form a basis for making judgments on the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates based on variance with our assumptions and conditions. A summary of significant accounting policies is included below. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.
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See Note 1 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for a summary of significant accounting policies and the effect on our financial statements.
Stock Based Compensation
We account for stock-based compensation under the provisions of ASC 718-10 Share-Based Payment (formerly SFAS 123R). This statement requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service or performance goals in exchange for the award, which is usually immediate but sometimes over a vesting period. Warrants granted to non-employees are recorded as an expense over the requisite service period based on the grant date and the estimated fair value of the grant, which is determined using the Black-Scholes option pricing model.
Revenue Recognition
We recognize revenue on arrangements in accordance with ASC 606, Revenue from Contracts with Customers. The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services ASC 606 requires companies to assess their contracts to determine the timing and amount of revenue to recognize under the new revenue standard. The model has a five-step approach:
1. | Identify the contract with the customer. |
2. | Identify the performance obligations in the contract. |
3. | Determine the total transaction price. |
4. | Allocate the total transaction price to each performance obligation in the contract. |
5. | Recognize as revenue when (or as) each performance obligation is satisfied. |
Variable Interest Entities
The Company’s consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and variable interest entities (“VIE”), where the Company is the primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The Company reconsiders whether an entity is still a VIE only upon certain triggering events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary.
Equity Method Investments
Investments in unconsolidated affiliates in which we exert significant influence but do not control or otherwise consolidate are accounted for using the equity method. Equity method investments are initially recorded at cost. These investments are included in investment in joint ventures in the accompanying consolidated balance sheets. Our share of the profits and losses from these investments is reported in loss from equity method investment in the accompanying consolidated statements of operations. Management monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the investees and records reductions in carrying values when necessary.
Recently Issued Accounting Standards Not Yet Effective or Adopted
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying condensed consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risks
The Company isWe are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required byunder this Item as it is a “smaller reporting company,” as defineditem.
We are exposed to risk from changes in Rule 12b-2 offoreign currency exchange rates related to our foreign joint venture. Our principal exchange rate exposure relates to the Exchange Act.Mexican Peso.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2022,March 31, 2023, the end of the fiscal period covered by this Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022.March 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Please see Note 14 to the financial statements in our A Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 31, 2022, as amended (“Annual Report”) for a description of pending litigation.
Item 1A. Risk Factors
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report.Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”) as filed with the SEC on April 17, 2023, as amended. There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operatingoperating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
On May 10, 2023, the partnership agreement between the Company and Lyfe Medical I, LLC was terminated by mutual agreement.
None.
On May 12, 2023 the joint venture agreement between the Company and Ginekaliks Dooel Skopje was terminated by mutual agreement.
Item 6. Exhibits
* Filed herewith. | ||
** Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on AugustMay 15, 2022.2023.
INVO Bioscience, Inc. | ||
Date: | By: | /s/ Steven Shum |
Steven Shum, Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | By: | /s/ Andrea Goren |
Andrea Goren, Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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