INVO Bioscience, Inc. (INVO) — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2023; filed November 13, 2023. The filing identifies the registrant as INVO Bioscience, Inc. The company provides fertility services through INVO Centers and acquired IVF clinics, and sells its INVOcell device and related technology.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $974,894 | $235,321 | $1,638,821 | $544,054 |
| Operating loss | $(886,290) | $(2,525,418) | $(5,258,687) | $(7,908,177) |
| Net loss | $(1,248,440) | $(2,549,623) | $(6,039,830) | $(8,125,476) |
| Operating cash used | — | $(4,040,171) | $(5,599,174) | |
| Investing cash used | — | $(2,528,169) | $(89,800) | |
| Financing cash provided | — | $7,533,749 | $289,800 |
- Margins: Q3 cost of revenue exceeded revenue by about $394,000, an approximate gross margin of negative 40%. For the first nine months, gross profit was about $591,000, or 36% of revenue, versus a gross loss of about $72,000 in the prior-year period.
- Cash and liquidity: Cash was $1.06 million at September 30, 2023, up from $90,135 at year-end 2022. Current assets were $1.79 million and current liabilities were $4.88 million; management reported negative working capital of approximately $3.1 million. The company reported stockholders’ equity of $373,000, compared with a deficit of $978,000 at year-end 2022.
- Debt and obligations: Notes payable, net of discounts, totaled approximately $2.80 million. The company also reported $6.01 million in operating lease liabilities and $7.5 million in additional WFI acquisition payments. Debt includes related-party demand notes, convertible notes, a receivables-based cash advance, and a $1.5 million revenue loan with a June 2028 maturity. The balance-sheet presentation of individual current debt lines is unclear in the filing text.
- Per-share loss: Basic and diluted loss per share was $0.70 in Q3 and $5.76 for the first nine months. Share and per-share information reflects the 1-for-20 reverse split effective July 28, 2023.
Material changes versus prior periods
- Q3 revenue increased approximately 314% year over year; nine-month revenue increased approximately 201%. The increase primarily reflects the WFI acquisition and higher clinic revenue, including from the Georgia joint venture.
- WFI was acquired August 10, 2023, for a stated combined purchase price of $10 million. INVO paid $2.5 million at closing, including a $350,000 holdback, and must pay three further $2.5 million installments on successive anniversaries. The sellers may elect shares for some or all of those future installments at specified prices. The preliminary allocation includes $8.22 million of goodwill and $1.75 million of intangible assets.
- SG&A declined year over year: 46% in Q3 and 23% for the nine-month period, primarily due to lower personnel and marketing expenses. R&D also declined; the company says its five-day labeling expansion effort concluded in June 2023.
- Interest expense rose substantially to $352,085 in Q3 and $743,866 for the nine months, primarily from debt discounts, issuance costs, and interest associated with financing. Management says much of the period expense was non-cash.
- Financing activity included approximately $5.7 million of net common-stock proceeds and approximately $3.2 million from convertible notes during the first nine months. The August offering issued 1.58 million shares and 3.16 million warrants at $2.85 per unit/share exercise price, diluting existing holders.
Outlook, risks, and unusual items
- Management plans to open additional INVO Centers and pursue further U.S. IVF clinic acquisitions, while continuing device distribution. It provided no quantified revenue, earnings, or cash-flow guidance.
- The company says it will need additional debt or equity financing until operations generate positive cash flow; financing may not be available on acceptable terms. It reported a $55.8 million accumulated deficit and reiterated substantial doubt about its ability to continue as a going concern, citing the prior-year auditor’s going-concern qualification and expected continuing losses.
- On October 22, 2023, INVO agreed to merge with NAYA Biosciences, subject to extensive conditions. The proposed consideration would give NAYA holders approximately 18.15 million newly designated INVO Class B shares carrying ten votes each, with a change in control and management expected. Conditions include stockholder approvals, financing of at least $5 million, Nasdaq listing requirements, warrant-holder waivers, and other closing requirements; either party may have termination rights, including a $1 million termination fee in specified circumstances.
- Nasdaq had extended the deadline for meeting its $2.5 million stockholders’ equity requirement to November 20, 2023, with no further extension available under the described exception. INVO reported that it regained compliance with the minimum bid-price rule on August 31, 2023, but the equity requirement remained a significant listing risk.
- Shareholders rejected the proposed reduction of the exercise price of Armistice warrants to $2.85 at the October 13, 2023 meeting. INVO subsequently sought waivers from holders of August 2023 warrants regarding payment rights triggered by the proposed merger.
- The filing reports no material legal proceedings and says disclosure controls were effective as of September 30, 2023. It identifies foreign-currency exposure, especially to the Mexican peso, and risks from acquisition integration, financing needs, dilution, and the proposed merger.
Most important facts to verify
- Whether INVO secured sufficient near-term financing and improved liquidity after September 30, given low cash, negative working capital, ongoing losses, and the going-concern warning.
- Whether the company met Nasdaq’s stockholders’ equity requirement by the November 20, 2023 deadline and maintained listing compliance.
- Whether the NAYA merger’s financing, approvals, warrant waivers, listing, and other conditions were satisfied, and the resulting dilution and voting-control effects.
- WFI’s post-acquisition revenue, profitability, integration performance, and ability to fund the remaining purchase installments.
- The terms, cash burden, and repayment status of the revenue loan, merchant cash advance, convertible notes, and related-party demand notes; also clarify the balance-sheet debt-line presentation.
- Actual cash burn, clinic-level margins, and performance against plans to open centers and make additional acquisitions.