Business Context and Reporting Period
INVO Bioscience, Inc. (the registrant named in the filing) reported unaudited results for the quarter ended March 31, 2018. The company commercializes INVOcell, an intravaginal culture device and fertility procedure. Revenue in both comparison periods came solely from domestic physicians.
Financial Results and Liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $104,140 | $52,240 |
| Gross profit / margin | $89,716 / 86% | $38,395 / 73% |
| SG&A | $229,999 | $205,096 |
| Operating loss | $140,283 | $166,701 |
| Net loss | $144,723 | $214,873 |
| Cash used in operations | $37,353 | $112,755 |
At March 31, cash was $35,406; current assets were $276,776 and current liabilities were $5,084,119, resulting in a $4,807,343 working-capital deficit. Total liabilities were $5,215,841, including $4,037,390 of accrued compensation. Notes payable totaled $342,610, of which $210,888 was related-party debt. Stockholders’ deficiency was $4,908,171.
Financing provided $47,000 from common-stock sales during the quarter. Shares outstanding rose to 143,994,700 from 142,132,374 at year-end. The filing reports no investing cash flows. Basic and diluted loss per share were each reported as $(0.00).
Changes Versus the Prior Comparable Period
- Revenue increased 99%, which management attributed to repeat orders from practices trained in 2017 and initial orders from new practices. The company shipped 300 INVOcell units, including samples, demonstration and training devices, and discounted and full-price products.
- Gross margin rose to 86% from 73%; management cited higher reorder pricing compared with 2017 introductory promotions.
- Net loss narrowed by $70,150. The prior-year period included a $40,869 loss on debt settlement; the 2018 period did not.
- SG&A increased about 12%, primarily due to costs related to three independent directors and investor-awareness activities. Cash used in operations decreased, while the company raised $47,000 through equity sales.
Outlook, Risks, and Unusual Items
- Management reported 68 trained physician offices or IVF-center satellite facilities across 18 states and increased training capacity. It expects quarterly sales to fluctuate as practices integrate the procedure into their offerings; no quantified revenue or earnings guidance was provided.
- Management estimated current operating needs at approximately $125,000 per quarter and said existing cash and operating resources would not support fiscal 2018 operations. It is seeking financing; without additional capital, it may further curtail spending, reduce operations, or pursue exit strategies.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, limited revenue, the working-capital deficit, and reliance on raising capital. The financial statements include no adjustments that might be required if the company cannot continue as a going concern.
- Subsequent to quarter-end, the company reported issuing $965,000 of 9% convertible notes due in 36 months in April and May, and said it had raised over $1 million by the filing date. It also issued shares for services and sold 150,000 shares for $30,000 in May. These transactions may affect debt and share dilution.
- Disclosure controls and internal control over financial reporting were deemed ineffective at March 31, 2018; a previously identified material weakness had not been remediated. The company cited limited staff and resources and described steps underway to improve controls.
- An appeal remains pending in long-running litigation concerning the sale of a predecessor company’s assets. The company says it will oppose the appeal; the filing gives no clear estimate of any potential financial exposure.
Important Facts for Investors to Verify
- Whether post-quarter financing was completed, its terms and conversion effects, and the company’s current cash runway.
- Whether revenue growth and repeat ordering continue, and whether physician training converts into sustained product sales.
- The status and potential exposure of the pending litigation appeal.
- Progress in remediating the material weakness and improving ineffective disclosure and financial-reporting controls.
- The timing and settlement of large accrued compensation and related-party obligations.