INVO Bioscience, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company operates fertility clinics and distributes INVOcell, a device used in its intravaginal culture (IVC) fertility procedure. Its strategy emphasizes INVO Centers, acquisitions of IVF clinics, and device sales. Three INVO Centers were operational at quarter-end.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $315,902 | $146,135 | $663,927 | $308,733 |
| Operating loss | $2.07 million | $2.68 million | $4.37 million | $5.38 million |
| Net loss | $2.24 million | $2.80 million | $4.79 million | $5.58 million |
| Net loss per share | $3.06 | $4.62 | $7.07 | $9.23 |
- Clinic revenue drove growth: Q2 clinic revenue was $254,364 and first-half clinic revenue was $551,745, primarily from the consolidated Georgia joint venture. Product revenue was $61,538 in Q2 and $112,182 for the first half.
- Cost of revenue was $235,714 in Q2 and $466,719 for the first half. Gross profit was approximately $80,000 in Q2 (25% of revenue) and $197,000 for the first half (30%).
- First-half SG&A declined 12% to $4.37 million; R&D declined to $157,370. Lower personnel, marketing, and noncash stock-compensation costs contributed to the SG&A decrease. Interest expense rose to $391,781 for the first half, largely from debt discounts, issuance costs, and convertible-note interest.
- Operating cash use was $2.79 million in the first half, versus $3.95 million in 2022. Investing cash use was $270,000, mainly for Tampa Center buildout. Financing provided $3.09 million, primarily from stock and note proceeds.
- Cash was $112,485 at June 30. Current assets were $842,125 and current liabilities $4.47 million; management reported negative working capital of approximately $3.6 million. Total liabilities were $8.34 million, including $4.10 million of lease liabilities. The notes disclose $1.03 million of notes payable, net of discounts, including $770,000 of related-party demand notes. Stockholders’ deficit was $1.71 million.
Changes, outlook, and material developments
- Compared with the prior-year periods, revenue increased 116% in Q2 and 155% for the first half, mainly due to the Georgia clinic. Net losses narrowed, while first-half interest expense increased substantially.
- Management said it planned additional INVO Centers, including a Tampa Center expected to open in the second half of 2023, and further IVF-clinic acquisitions. The company reported no quantified forward revenue or earnings guidance.
- FDA clearance in June expanded INVOcell labeling to allow a five-day incubation period. Management said supporting data demonstrated improved patient outcomes.
- On August 10, 2023, after quarter-end, the company completed its first acquisition, Wisconsin Fertility Institute. The stated combined purchase price was $10 million, with $2.5 million due at closing (partly held back), three further $2.5 million annual installments, and assumption of a $528,756 intercompany loan. The sellers may elect stock for some later installments. The clinic reported more than $5 million revenue and approximately $1.7 million net income for fiscal 2022.
- The August public offering raised approximately $4.5 million gross, according to the detailed subsequent-events disclosure. Proceeds funded the acquisition’s initial payment, a $1 million fee to Armistice, and debt repayments; remaining net proceeds were intended for working capital and general purposes. The filing’s MD&A describes gross proceeds as approximately $4 million, a discrepancy to verify.
- The company disclosed substantial doubt about its ability to continue as a going concern in the auditor’s 2022 report. It reported continuing losses, dependence on debt and equity financing, and stated additional funding would be required; such financing may not be available on reasonable terms or at all.
- After quarter-end, the company entered a merchant cash advance: $356,250 net proceeds against $543,750 of receivables, with weekly payments of $19,419.64 and a security interest in accounts and receivables. Related-party demand notes were extended to September 30, 2023.
- Nasdaq granted continued-listing relief subject to compliance with its stockholders’ equity and minimum-bid-price rules by September 29, 2023. The company effected a 1-for-20 reverse split on July 28. The August offering included 1.58 million shares and warrants for 3.16 million additional shares; the filing also reports 2,449,662 common shares outstanding on August 14.
- Two executives voluntarily reduced annual base salaries temporarily, effective August 16: the CEO from $260,000 to $105,000 and the CFO from $215,000 to $105,000. Management reported disclosure controls were effective at June 30, 2023. No material legal proceedings were reported.
Important facts for investors to verify
- Near-term liquidity, cash burn, debt maturities and repayment demands, and the availability and cost of further financing.
- Whether the company meets Nasdaq’s equity and bid-price conditions by the stated deadline and remains listed.
- Actual post-acquisition operating results, integration costs, deferred purchase installments, and the possible stock dilution from seller elections.
- Fully diluted share exposure from offering warrants, existing warrants, options, and convertible notes, including anti-dilution provisions.
- The conflicting descriptions of August offering gross proceeds ($4.5 million in the detailed disclosure versus approximately $4 million in MD&A) and the effect of fees and earmarked uses on usable cash.