NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Note
1 – Description of Business
INVO
Bioscience, Inc. (“INVO” or the “Company”) is a medical device company focused on the Assisted Reproductive
Technology (“ART”) marketplace. The primary focus is the manufacture and sale of the INVOcell device and the INVO technology
to provide an alternative infertility treatment option for couples. The Company’s patented device, the INVOcell, is the first intravaginal
culture (“IVC”) system in the world used for the natural in vivo incubation of eggs and sperm during fertilization
and early embryo development (the “INVO Procedure”). INVOcell was granted clearance in the United States by the U.S. Food
& Drug Administration (“FDA”) in November 2015, received the CE mark in October 2019, and is now positioned to help provide
millions of infertile couples across the globe access to a new infertility treatment option. The Company believes this novel device and
procedure provides a more natural, safe, effective, efficient, and economical fertility treatment compared to current infertility
treatments, including in vitro fertilization (“IVF”) and intrauterine insemination (“IUI”). Unlike conventional
infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the
women’s vaginal cavity as an incubator to support a more natural fertilization and embryo development environment. This novel device
promotes in vivo conception and early embryo development.
In
both current utilization of the INVOcell and in clinical studies, the INVO Procedure has proven to have equivalent pregnancy success
and live birth rates as the traditional assisted reproductive technique, IVF. Additionally, the Company believes there are emotional
benefits of the mother’s participation in the fertilization and early embryo development by vaginal incubation compared to that
of conventional IVF treatment.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated balance sheets as of September 30, 2021, and December 31, 2020, the consolidated statements of operations
for the three and nine months ended September 30, 2021, and 2020 and stockholders’ equity (deficiency) and consolidated
statement of cash flows for the nine months ended September 30, 2021, and 2020 of the Company, and the related information contained
in these notes have been prepared by management and are unaudited. In the opinion of management, all adjustments (which include normal
recurring and nonrecurring items) necessary to present fairly the Company’s financial position, results of operations and cash
flows in conformity with generally accepted accounting principles (“GAAP”) for the periods presented have been made. Interim
operating results are not necessarily indicative of operating results for a full year.
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 unaudited 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
unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain information
and note disclosures normally included in the Company’s annual consolidated financial statements prepared in accordance with GAAP
have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the 10-K.
The
Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of September 30, 2021,
but prior to the filing of the unaudited 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 one 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 – Joint Ventures” for additional information on the Company’s VIEs.
Noncontrolling
Interests
The
noncontrolling interest in an affiliate is presented within total equity in the Company’s consolidated balance sheets. The
Company presents the noncontrolling interest and the amount of consolidated net income (loss) attributable to INVO in its
consolidated statements of operations. The Company’s earnings per share is calculated based on net income (loss) attributable
to INVO’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary
earnings based on ownership interest.
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.
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. 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. 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.
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 no
impairment recorded during the nine months ended September
30, 2021, and 2020.
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.
|
Revenues
generated from the sale of INVOcell®, are 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.
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 infertility treatment) in humans.
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
is being recognized as income over the 7-year term.
Stock
Based Compensation
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.
Loss
Per Share
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 and nine months ended September 30, 2021, and 2020, as the inclusion of any potential shares would have had
an anti-dilutive effect due to the Company generating a loss.
Schedule
of Earnings Per Share Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net loss attributable to INVO Bioscience common shareholders (numerator)
|
|
$
|
(2,242,783
|
)
|
|
$
|
(1,771,827
|
)
|
|
$
|
(6,513,415
|
)
|
|
$
|
(4,539,100
|
)
|
Basic and diluted weighted-average number of common shares outstanding (denominator)
|
|
|
10,463,981
|
|
|
|
4,946,125
|
|
|
|
10,267,495
|
|
|
|
4,932,405
|
|
Basic and diluted net loss per common share
|
|
|
(0.24
|
)
|
|
|
(0.36
|
)
|
|
|
(0.66
|
)
|
|
|
(0.92
|
)
|
The
Company has excluded the following dilutive securities from the calculation of fully diluted shares outstanding because the result would
have been anti-dilutive:
Schedule
of Antidilutive Securities Excluded from Computation of Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Options
|
|
|
1,118,911
|
|
|
|
588,321
|
|
Convertible notes and interest
|
|
|
160,591
|
|
|
|
627,738
|
|
Unit purchase options and warrants
|
|
|
216,193
|
|
|
|
971,568
|
|
Total
|
|
|
1,495,695
|
|
|
|
2,187,627
|
|
Recently
Adopted Accounting Pronouncements
None.
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Note
3 – Joint Ventures
Schedule
of Joint Venture Information
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
|
%
|
SNS MURNI INVO Bioscience Malaysia Sendirian Berhad*
|
|
Malaysia
|
|
|
50
|
%
|
Ginekalix INVO Bioscience LLC Skopje*
|
|
Republic of North Macedonia
|
|
|
50
|
%
|
Medesole INVO Bioscience India*
|
|
India
|
|
|
50
|
%
|
*
|
Joint
venture agreement has been entered into, but joint venture entity not yet created, therefore accounting treatment is currently undetermined.
|
HRCFG
INVO, LLC
On
March 10, 2021, the Company’s 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 entity is HRCFG INVO, LLC (the “Alabama JV”). In connection with the formation of
the Alabama JV, the Company provided an initial $30,000 in funding, in exchange for a note, which will be repaid from the operating profit
of the Alabama JV. As of September 30, 2021, the Company has provided an additional $1,300,000 to the Alabama JV pursuant to the note.
Interest on the note accrues at a rate of 1.5% per annum.
The
Company determined the Alabama JV is a VIE and the Company is the primary beneficiary, as a result the Company consolidated the Alabama
JV’s results with its own. For the three and nine months ended September 30, 2021, the Alabama JV recorded a net loss of $477,086.
HRCFG’s noncontrolling interest in the Alabama JV was $238,543. As the Alabama JV only operated part of the period and is still in ramp up
phase, pro forma financials have not
been provided for this period.
Bloom
Invo, LLC
On
June 28, 2021, INVO CTR entered into a joint venture agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”)
to organize and own in a joint venture entity formed as Bloom INVO, LLC (the “Georgia JV”). The Georgia JV will, subject
to the equity and debt arrangements in the Bloom Agreement, assist Bloom in establishing an INVO Center that will offer INVO technologies.
In connection with the formation of the Georgia JV, the Company provided an initial $200,000 in funding, in exchange for a note issued
by the Georgia JV, which will be repaid from the operating profit of the Georgia JV.
The
Company determined the Georgia JV is a VIE and is currently in the process of determining if the Company is the primary beneficiary.
As the financial results of the Georgia JV are immaterial for the third quarter, the Company will use the equity method to account for
its interest in the Georgia JV. As of September 30, 2021, the Company invested $165,170 in the Georgia JV. For the three and nine months
ended September 30, 2021, the Georgia JV recorded a net loss of $283,731 of which the Company recognized a loss from equity investment
of $113,492. As the Georgia JV only operated part of the period and is still in ramp
up phase, pro forma financials have not been provided for this period.
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 INVO 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
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 September 30, 2021, the Mexico JV was not yet operational and therefore
had no profit or loss to report. As of September 30, 2021, the Company had invested $43,721
in the Mexico JV.
Note
4 – Inventory
Components
of inventory are:
Schedule
of Inventory
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Raw materials
|
|
$
|
67,650
|
|
|
$
|
72,022
|
|
Work in process
|
|
|
-
|
|
|
|
29,645
|
|
Finished goods
|
|
|
222,740
|
|
|
|
163,705
|
|
Total inventory
|
|
$
|
290,390
|
|
|
$
|
265,372
|
|
Note
5 – Property and Equipment
The
estimated useful lives and accumulated depreciation for equipment are as follows as of September 30, 2021, and December 31, 2020:
Schedule
of Esimated Useful Lives of Property and Equipment
|
|
Estimated
Useful Life
|
Manufacturing
equipment
|
|
6
to 10 years
|
Medical
equipment
|
|
10
years
|
Office
equipment
|
|
3
to 7 years
|
Schedule
of Property and Equipment
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Manufacturing equipment
|
|
$
|
132,513
|
|
|
$
|
132,513
|
|
Medical equipment
|
|
|
407,502
|
|
|
|
49,261
|
|
Office equipment
|
|
|
61,617
|
|
|
|
2,689
|
|
Leasehold improvements
|
|
|
327,078
|
|
|
|
-
|
|
Less: accumulated depreciation
|
|
|
(74,580
|
)
|
|
|
(52,257
|
)
|
Total equipment, net
|
|
$
|
854,130
|
|
|
$
|
132,206
|
|
During
the three months ended September 30, 2021, and 2020, the Company recorded depreciation expense of $17,268
and $2,528,
respectively.
During
each of the nine months ended September 30, 2021, and 2020, the Company recorded depreciation expense of $22,323
and $7,583,
respectively.
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Note
6 – Patents and Trademarks
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 has recorded the following patent costs:
Schedule
of Finite-Lived Intangible Assets
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Patents
|
|
$
|
95,355
|
|
|
$
|
77,722
|
|
Accumulated amortization
|
|
|
(73,652
|
)
|
|
|
(72,295
|
)
|
Total patent costs, net
|
|
$
|
21,703
|
|
|
$
|
5,427
|
|
During
the three months ended September 30, 2021, and 2020, the Company recorded amortization expenses related to patents of $453
and $452,
respectively.
During
the nine months ended September 30, 2021, and 2020, the Company recorded amortization expenses related to patents of $1,357
and $1,355,
respectively.
The
increase in the trademark assets of $20,909
was the result of additional legal fees.
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.
Note
7 – Notes Receivable
On
August 5, 2021, the Company entered into a promissory note with Bloom Invo, LLC. The note was entered into in conjunction with the Georgia
JV, accrues interest at 3.25%
per annum and principal and interest shall be
repaid from 50%
of the Georgia JV’s operating profit, net
of reserves, no later than August 5, 2026. The balance as of September 30, 2021, consists of $200,000
principal and $579
of accrued interest.
The
following table lists the Company’s notes receivable:
Schedule
of Notes Receivable
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Notes receivable – Bloom Invo, LLC
|
|
$
|
200,579
|
|
|
$
|
-
|
|
Total notes receivable
|
|
$
|
200,579
|
|
|
$
|
-
|
|
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 201-02,
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 September 30, 2021, the Company’s lease components included in the consolidated balance sheet were as follows:
Schedule
of Lease Components
Lease component
|
|
Balance sheet classification
|
|
September 30,
2021
|
|
Assets
|
|
|
|
|
|
|
ROU assets - operating lease
|
|
Other assets
|
|
$
|
1,391,228
|
|
Total ROU assets
|
|
|
|
$
|
1,391,228
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current operating lease liability
|
|
Current liabilities
|
|
$
|
107,513
|
|
Long-term operating lease liability
|
|
Other liabilities
|
|
|
1,327,693
|
|
Total lease liabilities
|
|
|
|
$
|
1,435,206
|
|
Future
minimum lease payments as of September 30, 2021 were as follows:
Schedule
of Future Minimum Lease Payaments
|
|
|
|
|
2021
|
|
$
|
33,860
|
|
2022
|
|
|
137,388
|
|
2023
|
|
|
140,668
|
|
2024
|
|
|
125,762
|
|
2025 and beyond
|
|
|
1,193,694
|
|
Total future minimum lease payments
|
|
$
|
1,631,372
|
|
Less: Interest
|
|
|
(196,166
|
)
|
Total operating lease liabilities
|
|
$
|
1,435,206
|
|
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Note
9 – Convertible Notes and Notes Payable
2020
Convertible Notes Payable
From
May 15, 2020 through July 1, 2020, the Company entered into definitive securities purchase agreements (“Purchase Agreements”)
with accredited investors for their purchase of (i) secured convertible notes issued by us in the aggregate original principal amount
of $3,494,840 (the “Notes”), and (ii) Unit Purchase Options (“Purchase Options”) to purchase 303,623 units (each,
a “Unit”), at an exercise price of $3.20 per Unit (subject to adjustments), with each Unit exercisable for (A) one share
of the Company’s common stock and (B) a 5-year warrant (the “Warrants”) to purchase one share of our common stock at
an exercise price of $3.20 (subject to adjustments) (the “Private Placement”). Each purchaser of a Note was issued a 5-year
Purchase Option to purchase 0.086875 Units (as adjusted for subsequent reverse splits for each dollar of Notes purchased. The gross proceeds
received by the Company included $3,351,200 in cash and $143,640 from cancellation of indebtedness). Tribal Capital Markets, LLC acted
as placement agent (the “Placement Agent”) in the Private Placement. The Company paid the Placement Agent and certain selling
agents a cash fee of 8% on a portion of the proceeds for an aggregate amount of $236,000. The Company also agreed to issue the Placement
Agent and the selling agents 5-year warrants to purchase 6,750 shares of our common stock at an exercise price of $3.20 per share. These
warrants have the same terms and conditions as the Warrants issued in the Private Placement, except for the different exercise price.
The Company received approximately $2,998,905 in net proceeds from the Private Placement, after deducting fees payable to the Placement
Agent, selling agents, and investor counsel. The Company used approximately $413,456, in proceeds to repay outstanding 9% promissory
notes and the Company intends to use the remaining proceeds for working capital and general corporate purposes.
Pursuant
to those certain Secured Convertible Notes issued in connection with the Purchase Agreements, interest on
such Notes accrues at a rate of ten percent (10%)
per annum and is payable either in cash or in shares of the Company’s common stock at a conversion price of $3.20
(following and subject to adjustment for stock
splits, combinations or similar events and anti-dilution provisions, among other adjustments) on each
of the six- and twelve-month anniversary of the issuance date and on the maturity dates of November 15, 2021, December 22, 2021 and December
30, 2021.
All
amounts of principal and interest due under the 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 stock at a fixed conversion price of
$3.20, which is subject to adjustment as described above.
Upon
any issuance by the Company of any of its equity securities, including common stock, for cash consideration, indebtedness or a combination
thereof after the date hereof (a “Subsequent Equity Financing”), each holder of a Note will has option to convert the outstanding
principal and accrued but unpaid interest of its Note into the number of fully paid and non-assessable shares of common stock issued
in the Subsequent Equity Financing (“Conversion Securities”) equal to the product of unpaid principal, together with the
balance of unpaid and accrued interest and other amounts payable hereunder multiplied by 1.1, divided by the price per share paid by
the investors for the Conversion Securities.
A
Note may not be converted and shares of common stock may not be issued under the Notes if, after giving effect to the conversion or issuance,
the holder together with its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding ordinary shares.
The
Company may prepay the Notes at any time in whole or in part by paying an amount equal to 100% of the principal amount to be redeemed,
together with accrued and unpaid interest plus a prepayment fee equal to one percent (1%) of the principal amount to be repaid.
The
Notes contain customary events of default including but not limited to: (i) failure to make payments when due; and (ii) bankruptcy or
insolvency of the Company. If an event of default occurs, each holder may require the Company to redeem all or any portion of the Notes
(including all accrued and unpaid interest thereon), in cash.
Pursuant
to the terms of a Security Agreement entered into between the Company and the noteholders under the Purchase Agreements, the Notes are
secured by the proceeds from the $3,000,000 milestone payment pursuant to Section 7.2(b) of the Ferring Agreement to the extent such
proceeds are actually received by the Company from Ferring.
Of
the $3,494,840 in gross proceeds received in the offering, $1,048,904 million was allocated to the unit purchase options issued to investors
based on their relative fair value and $2,062,586 of beneficial conversion feature based on their relative fair value. This amount represented
a discount on the debt and additional paid-in-capital at the date of issuance.
In
November 2020, noteholders holding notes with a principal value of $1,319,840 elected to convert in connection with the public underwritten
offering. In November and December 2020, the Company redeemed an additional $475,000 in principal note value. In March 2021, an additional
$1,200,000 converted into equity. As of September 30, 2021, there is $500,000 in principal value of such notes that remains outstanding.
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Principal
balances of the 2020 Convertible Notes were as follows:
Schedule
of Convertible Notes
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
2020 Convertible Notes
|
|
|
500,000
|
|
|
|
1,700,000
|
|
Accrued interest
|
|
|
13,890
|
|
|
|
24,373
|
|
Less beneficial conversion feature discount
|
|
|
(45,232
|
)
|
|
|
(604,897
|
)
|
Less options discount
|
|
|
(55,284
|
)
|
|
|
(224,051
|
)
|
Less warrants discount
|
|
|
(58,505
|
)
|
|
|
(229,954
|
)
|
Less issuance cost
|
|
|
(14,330
|
)
|
|
|
(129,408
|
)
|
Total, net of discount
|
|
$
|
340,539
|
|
|
$
|
536,063
|
|
Interest
expense on the 2020 Convertible Notes was $12,779
and $89,158
for the three months ended September 30, 2021,
and 2020, respectively.
Interest
expense on the 2020 Convertible Notes was $60,628
and $120,939
for the nine months ended September 30, 2021,
and 2020, respectively.
Amortization
of options discount on the 2020 Convertible Notes was $3,734
and $26,428
for the three months ended September 30, 2021,
and 2020, respectively.
Amortization
of options discount on the 2020 Convertible Notes was $168,767
and $35,805
for the nine months ended September 30, 2021,
and 2020, respectively.
Amortization
of warrant discount on the 2020 Convertible Notes was $3,955
and $27,053
for the three months ended September 30, 2021,
and 2020, respectively.
Amortization
of warrant discount on the 2020 Convertible Notes was $171,449
and $36,656
for the nine months ended September 30, 2021,
and 2020, respectively.
Amortization
of beneficial conversion feature on the 2020 Convertible Notes was $49,541
and $345,208
for the three months ended September 30, 2021,
and 2020, respectively.
Amortization
of beneficial conversion feature on the 2020 Convertible Notes was $559,665
and $468,231
for the nine months ended September 30, 2021,
and 2020, respectively.
Amortization
of issuance costs on the 2020 Convertible Notes was $20,594
and $61,187
for the three months ended September 30, 2021,
and 2020, respectively.
Amortization
of issuance costs on the 2020 Convertible Notes was $115,078
and $81,764
for the nine months ended September 30, 2021,
and 2020, respectively.
Paycheck
Protection Program
On
July 1, 2020, the Company received a loan in the principal amount of $157,620 pursuant to the U.S. Small Business Administration’s
Paycheck Protection Program. The loan matured 18 months from the date of funding, was payable over 18 equal monthly installments, and
had an interest of 1% per annum. Up to 100% of the principal balance of the loan was forgivable based upon satisfaction of certain criteria
under the Paycheck Protection Program. On June 16, 2021, the principal of the loan as well as $1,506 of accrued interest was forgiven
and the note was extinguished. The Company recognized a gain of $159,126 as other income.
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Note
10 – Related Party Transactions
In
November 2020, Paulson Investment Company served as a co-managing underwriter for the Company’s underwritten public offering and
received fees and commissions for such role in the amount of $271,440. Trent Davis, one of the Company’s directors, is President
of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and commissions received by Paulson.
See “Note 16-Subsequent Events” for
information relating to the Company’s October 2021 Offering.
Note
11 – Stockholders’ Equity
Reverse
Stock Splits
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 125,000,000 shares from 200,000,000.
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, 133
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
offering
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 3,625,000
shares of common stock, at a public offering
price of $3.20
per share. The initial closing of the Offering
for 3,625,000
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
528,750
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 4,153,750
shares with aggregate net proceeds received by
the Company of approximately $11.8
million after deducting underwriting discounts
and commissions and offering expenses.
During
the year ended December 31, 2020, the Company incurred approximately $1.8
million of offering costs related to issuance
of common stock.
Nine
months Ended September 30, 2021
In
March 2021, the Company issued 388,684 shares of common stock with fair value of $1,243,788 as a result of the conversion of notes payables
and accrued interest. No gain or loss was recorded on conversion, as the issuance of common stock was pursuant to the terms of a prior
agreement.
In
March 2021, the Company issued 77,444 shares of common stock for proceeds of $246,278 as a result of the exercise of unit purchase options.
In
March 2021, the Company issued 39,095 shares of common stock for proceeds of $123,562 as a result of the exercise of warrants.
In
March 2021, the Company issued 91,709 shares of common stock as a result of a cashless exercise of warrants.
In
March 2021, the Company issued 86,529 shares of common stock as a result of a cashless exercise of unit purchase options.
As
of September 30, 2021, the Company had issued 44,806
shares of common stock to employees and directors
and 91,500
shares of common stock to consultants with
a fair value of $274,698
and $293,650,
respectively. The shares were issued under the 2019 Stock Incentive Plan.
As of September
30, 2021, the Company issued 5,000 shares of its common stock to consultants in consideration of services rendered with a fair value
of $31,200. There shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of
1933, as amended. The Company did not receive any proceeds from this issuance.
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
Note
12 – Equity-Based Compensation
Equity
Incentive Plans
In
October 2019, the Company adopted its 2019 Stock Incentive Plan (the “2019 Plan”). Under the 2019 Plan, the Company’s
Board of Directors is authorized to grant both incentive and non-statutory stock options to purchase common stock and restricted stock
awards to its employees, directors, and consultants. The 2019 Plan initially provided for the issuance of 500,000 shares. A provision
in the 2019 Plan provides for an automatic annual increase equal to 6% of the total number of shares of Company common stock outstanding
on December 31 of the preceding calendar year. In January 2020, the number of available shares was increased to 793,093. In January 2021,
the number of available shares issuable increased by an additional 578,356 shares to a total of 1,371,449 shares.
Options
generally have a life of 3 to 10 years and exercise prices equal to or greater than the fair market value of the common stock as determined
by the Company’s Board of Directors. Vesting for employees typically occurs over a three-year period.
The
following table sets forth the activity of the options to purchase common stock under the 2019 Plan.
Schedule
of Stock Options Activity
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of December 31, 2020
|
|
|
939,114
|
|
|
$
|
5.73
|
|
|
$
|
17,250
|
|
Granted
|
|
|
179,797
|
|
|
|
3.14
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of September, 2021
|
|
|
1,118,911
|
|
|
$
|
5.32
|
|
|
$
|
333,368
|
|
Exercisable as of September, 2021
|
|
|
582,858
|
|
|
$
|
2.63
|
|
|
$
|
17,325
|
|
The
fair value of each option granted is estimated as of the grant date using the Black-Scholes option pricing model with the following assumptions:
Schedule
of Share-based Payment Award, Stock Options, Valuation Assumptions
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
Risk-free interest rate range
|
|
|
0.22
to 0.73
|
%
|
|
|
0.48
to 1.65
|
%
|
Expected life of option-years
|
|
|
5.3 to 6.5
|
|
|
|
5.20 to 5.77
|
|
Expected stock price volatility
|
|
|
107
to 125
|
%
|
|
|
110.8
to 128.
|
%
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
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 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, nor does it expect to do so in the foreseeable future.
Schedule
of Share Based Payments Arrangements Options Exercised and Options Vested
|
|
Total Intrinsic
Value of Options
Exercised
|
|
|
Total Fair
Value of Options
Vested
|
|
Year ended December 31, 2020
|
|
$
|
-
|
|
|
$
|
1,495,744
|
|
Nine months ended September 30, 2021
|
|
$
|
-
|
|
|
$
|
1,137,129
|
|
For
the nine months ended September 30, 2021, the weighted average grant date fair value of options granted was $2.37
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 September 30, 2021, the weighted average
remaining service period is 4.0
years.
The
Company recognized $391,194
and $259,547
in stock-based compensation expense for stock
options for the three months ended September 30, 2021, and 2020, respectively. The Company recognized $1,151,800
and $852,187
in stock-based compensation expense related to
stock options for the nine months ended September 30, 2021, and 2020, respectively. Unamortized stock option expense as of September
30, 2021, to be amortized over the weighted-average remaining service period totaled $1,937,560.
Restricted
Stock and Restricted Stock Units
In
the nine months ended September 30, 2021, the Company issued 44,806 shares of restricted stock to certain employees and directors under
the Company’s 2019 Plan. Restricted stock and restricted stock units issued to employees and directors generally vest either at
grant or vest over a period of one year from grant.
The
following table summarizes the Company’s aggregate restricted stock awards and restricted stock unit activity under the Company’s
2019 Plan during the nine months ended September 30, 2021:
Schedule
of Aggregate Restricted Stock Awards and Restricted Stock Unit Activity
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Aggregate
Value
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
16,698
|
|
|
$
|
4.67
|
|
|
$
|
77,927
|
|
Granted
|
|
|
86,563
|
|
|
|
3.62
|
|
|
|
285,094
|
|
Vested
|
|
|
(74,669
|
)
|
|
|
3.51
|
|
|
|
(262,356
|
)
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of September 30, 2021
|
|
|
28,592
|
|
|
$
|
3.34
|
|
|
$
|
100,665
|
|
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
The
Company recognized $87,912
and $67,202
in stock-based compensation expense related to
restricted stock and restricted stock units for the three months ended September 30, 2021, and 2020, respectively. The Company
recognized $266,718
and $388,173
in stock-based compensation expense for restricted
stock and restricted stock units for the nine months ended September 30, 2021, and 2020, respectively.
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 $3.20 per unit, with each unit consisting of one 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
Risk-free interest rate range
|
|
|
0.33% - 0.39
|
%
|
Stock Price
|
|
$
|
3.00 - $3.95
|
|
Expected life of warrants and unit purchase options (years)
|
|
|
5.00
|
|
Expected stock price volatility
|
|
|
108.2% - 112.5
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
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
|
|
Outstanding as of December 31, 2020
|
|
|
303,623
|
|
|
$
|
3.20
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
210,730
|
|
|
|
3.20
|
|
|
|
427,839
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of September 30, 2021
|
|
|
92,893
|
|
|
$
|
3.20
|
|
|
$
|
2,606
|
|
The
following table sets forth the activity of warrants:
Schedule
of Warrants Activity
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of December 31, 2020
|
|
|
310,373
|
|
|
$
|
3.48
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
180,323
|
|
|
|
3.20
|
|
|
|
457,839
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of September 30, 2021
|
|
|
130,050
|
|
|
$
|
3.74
|
|
|
$
|
4,431
|
|
INVO
BIOSCIENCE, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(UNAUDITED)
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 $0 for
each of the three and nine months ended September 30, 2021, and 2020. The annual forecasted effective income tax rate for 2021
is 0%,
with a year-to-date effective income tax rate for the nine months ended September 30, 2021, of 0%.
Note
15 – Commitments and Contingencies
INVO
Bioscience, Inc. v. James Bowdring
On
August 7, 2019, the Company sent James Bowdring, the brother of the Company’s then Chief Financial Officer, a check in the amount
of $65,197
as full and final payment under those certain
promissory notes dated April
8, 2011, and November 9, 2011. On August
8, 2019, Mr. Bowdring’s legal counsel returned the check. The basis for returning the check was a claim that the interest due under
the Notes called for compounded interest and not per annum interest, this amount is recorded in Accounts Payable and Accrued Liabilities
on the Consolidated Balance Sheet. In addition, the letter rejecting the tender of the payment in full check alleged Mr. Bowdring was
considering a future intention to convert his Promissory Notes into shares of the Company’s common stock. Mr. Bowdring, through
his counsel, indicated that such future intention to convert the Notes to common stock were contingent upon Mr. Bowdring addressing certain
personal issues which were not disclosed by his counsel in the correspondence returning the checks. The Company does not believe that
Mr. Bowdring has the right to seek conversion of the Notes once payment for the Notes has been tendered. In order to resolve the issue
of the Company’s tender of payment in full versus Mr. Bowdring’s assertion that he can reject tender and seek conversion,
the Company has filed an action in the Suffolk Superior Court in Boston on September 3, 2019, seeking Declaratory Judgment and
Judgment for Breach of Contract. On September 30, 2019, Mr. Bowdring filed an answer and counterclaim under which he alleged breach of
contract, fraud, promissory estoppel, unfair and deceptive practices and constructive trust. Mr. Bowdring is seeking receipt of all shares
due under the adjusted conversion price.
The
10%
Senior Secured Convertible Promissory Notes were
issued on April 8, 2011, and November 9, 2011, with maturity dates thirty days subsequent to the dates of issuance. Interest was
calculated at 10% per annum, compounded based on a 360-day year. Investors
had the option to convert any unpaid principal and accrued interest into shares of Company’s common stock original conversion prices
of $0.96 and $0.32, respectively, subject to adjustments upon the Company’s issuances of stock at prices less than the original
conversion prices during the 24-months after issuance of each note.
The
Company does not currently expect the above matter to have a material adverse effect upon either the Company’s results of operations,
financial position, or cash flows.
Note
16 – Subsequent Events
On
October 1, 2021, the Company and certain institutional and accredited investors and members of the Company’s management team (the
“Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant
to which the Company agreed to issue and sell to the Investors 1,240,737
shares (the “Shares”) of its common
stock, par value $0.0001
per share (the “Common Stock”), in
a registered direct offering (the “ Offering”) for aggregate gross proceeds of $4,044,802.62. The purchase
price for each share in the Offering was $3.26.
Steve Shum and Andrea Goren, the CEO and CFO of the Company, respectively, each purchased 30,674
shares in the Offering for gross proceeds of
$199,994.48.
The net proceeds to the Company from the 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 Offering and received a fee for its role in the amount of $323,584.21,
as well
as warrants to purchase 37,222
shares of the Company’s common stock
at an exercise price of $3.912
per share. Trent Davis, one of the Company’s
directors, is president of Paulson Investment Company. Mr. Davis did not receive any compensation related to the fees and warrants received
by Paulson in the Offering.
On
October 1, 2021, the Company entered into a Stock Purchase Agreement (the “Paradigm Purchase Agreement’) with
Paradigm Opportunities Fund, LP an accredited institutional investor, pursuant to which the Company will issue to such investor
600,703
shares (the “Paradigm Shares”)
of the Company’s common stock, for a purchase price of $3.329
per share for an aggregate purchase price of
$1,999,740.29.
This transaction is set to close on November 30, 2021. The
Paradigm Purchase Agreement contains a $250,000 break-up fee whereby if either party fails to close, it will be required to pay
the non-breaching party a fee of $250,000. The investor under the Purchase Agreement also agreed to a 1-year lock up period with respect
to the Paradigm Shares.
On November 2, 2021, Ferring notified the
Company of its intention to terminate the Ferring Agreement. Ferring gave notice of termination for convenience under Section
14.2(b) of the Ferring Agreement which requires 90-days prior written notice. Accordingly, the Ferring Agreement will
officially terminate on January 31, 2022. Pursuant to the terms of the Ferring Agreement, for ninety (90) days after the expiration
or termination, Ferring shall use commercially reasonable efforts to transition any customers to the Company and otherwise
facilitate the orderly transition of the distribution from Ferring to the Company. In addition, Ferring shall provide the Company
with a list of all then-existing customers. By its terms, the Company’s Supply Agreement with Ferring terminates upon
termination of the Ferring Agreement on January 31, 2022.
In October 2021, the Company issued 20,000
shares of common stock to consultants under the 2019 Stock Incentive Plan.
In October 2021,
the Company issued 10,000 shares of its common stock to consultants and employees in consideration of services rendered. There shares
were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Company
did not receive any proceeds from this issuance.