INVO Bioscience, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 15, 2023. INVO is a commercial-stage fertility company whose strategy centers on INVOcell and the intravaginal culture (IVC) procedure, operating fertility clinics, acquiring IVF clinics, and selling its technology to existing clinics. Three INVO Centers in North America were operational.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $348,025 | $162,598; up about 114% |
| Gross profit / margin | $275,471 / about 79% | $97,637 / about 60% |
| Operating expenses | $2.582 million | $2.799 million |
| Operating loss | $2.306 million | $2.701 million |
| Net loss | $2.551 million; $0.20 per share | $2.774 million; $0.23 per share |
| Operating cash flow | $(1.148) million | $(2.078) million |
| Investing cash flow | $(8,447) | $(81,890) |
| Financing cash flow | $3.255 million | $315,000 |
Clinic revenue was $297,381, primarily from the consolidated Georgia joint venture; product revenue was $50,644. Management attributed the revenue and gross-margin improvement mainly to increased Georgia JV revenue and operating efficiencies. SG&A fell about 7% to $2.508 million, partly reflecting lower stock-based compensation; R&D decreased to $73,520. Interest expense rose to $216,589, primarily due to debt discounts, issuance costs, and interest on convertible debt.
Cash was $2.188 million at quarter-end, versus $90,135 at December 31, 2022. Current assets were $2.810 million and current liabilities $4.450 million, representing negative working capital of about $1.640 million. Total liabilities were $6.063 million, including approximately $1.101 million of notes payable net of discounts and $1.845 million of lease liabilities. Stockholders’ equity was $88,466, compared with a $977,612 deficit at year-end. The accumulated deficit was $52.334 million.
Material changes and financing
- Q1 financing included about $2.709 million net proceeds from common-stock sales and $714,000 in note proceeds, partly offset by $170,000 of note principal payments. The March registered direct offering and warrant placement generated about $3 million gross proceeds; the company reported approximately $2.7 million net equity proceeds for the quarter.
- The March offering included 1.38 million common shares, a pre-funded warrant for up to 2.3 million shares, and warrants for up to 5.52 million shares at $0.63 per share. Full cash exercise of the March warrant could provide approximately $3.5 million additional gross proceeds, but the securities create substantial potential dilution. The company used $383,879 of offering proceeds to repay part of its February debentures.
- At March 31, related-party demand notes totaled $770,000; they carry 10% annual interest and a 10% financing fee and were callable beginning March 31, 2023. Convertible notes and debentures also carry conversion and warrant terms that may dilute shareholders.
- Common shares outstanding increased from 12,172,214 at December 31 to 13,971,283 at March 31; the filing reported 13,971,283 shares outstanding as of May 15.
Outlook, risks, and unusual items
- Management planned to open additional INVO Centers, complete the Wisconsin Fertility Institute acquisition, and pursue further IVF clinic acquisitions over the next 12 months. The company had signed binding agreements to acquire Wisconsin Fertility for $10 million, payable in four $2.5 million installments; management expected closing in Q2 2023. The filing does not establish that the acquisition subsequently closed.
- Management stated the company will need additional debt or equity financing until it generates positive operating cash flow; financing may not be available on reasonable terms, or at all. The 2022 auditor’s report expressed substantial doubt about the company’s ability to continue as a going concern. Q1 net loss was about $2.6 million, including approximately $0.9 million of non-cash expenses.
- Nasdaq had notified the company of deficiencies in both minimum stockholders’ equity and minimum bid price. The equity-compliance extension ran to May 22, 2023; the bid-price compliance period ran to July 10, 2023. Failure to regain compliance could lead to delisting. The filing contains inconsistent equity figures in this discussion: the balance sheet and MD&A report positive equity of $88,466, while one Nasdaq passage states a deficit of $16,090.
- The planned day-5 INVOcell label-expansion clinical trial had been placed on hold during the COVID-19 pandemic; management said it expected to advance it with revised design parameters and was separately pursuing a 510(k) filing using retrospective data.
- After quarter-end, the company reported mutual termination of its Lyfe Medical I partnership on May 10 and its Ginekaliks Dooel Skopje joint venture on May 12. It also reported that its North Macedonia and Bay Area, California JV arrangements had been terminated for lack of progress. No material legal proceedings were reported. Management concluded disclosure controls were effective at March 31.
Important facts for investors to verify
- Whether Wisconsin Fertility closed, how its purchase installments were funded, and whether its operations meet management’s expectations.
- Subsequent cash use, operating performance, and the timing and terms of any additional financing; confirm the status of the going-concern risk.
- Nasdaq compliance status and reconcile the $88,466 positive equity reported in the financial statements with the $16,090 deficit cited in the Nasdaq discussion.
- Outstanding and potentially issuable shares, including the exercise, conversion, and anti-dilution terms of warrants, pre-funded warrants, and convertible securities.
- Progress on day-5 labeling and the 510(k) effort, as well as operating trends at the INVO Centers and joint ventures.