INVO Bioscience, Inc. — Form 10-Q Summary
Period: Quarter ended March 31, 2016. The filing identifies the registrant as INVO Bioscience, Inc.; the request metadata names INVO Fertility, Inc. The unaudited filing was signed September 5, 2017.
Business context and results
The company markets INVOcell, an FDA-cleared intravaginal culture device and procedure for fertility treatment. U.S. marketing began after FDA clearance in November 2015, and management described the first-quarter activity as a soft launch, including physician outreach and training.
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Product revenue | $18,107 | $3,625 |
| Gross profit / margin | $14,942 / 83% | $1,417 / 39% |
| Selling, general and administrative expense | $195,606 | $133,260 |
| Operating loss | $180,664 | $131,843 |
| Net loss | $181,312 | $144,658 |
| Net cash used in operating activities | $68,677 | $19,155 |
Revenue increased 399%, which management attributed to FDA clearance and initial market sales. Gross margin rose from 39% to 83%, primarily because higher sales absorbed more fixed manufacturing costs. SG&A increased 47%, which management attributed to U.S. physician training and related travel. The net loss increased about 25%; interest expense declined to $648 from $12,815.
Financial position and liquidity
- At March 31, 2016, cash was $423,327; total current assets were $529,670 and total assets were $549,277.
- Current liabilities were $4,487,591, including $3,219,390 of accrued compensation, $1,047,313 of accounts payable and accrued liabilities, $210,888 of related-party notes, and $10,000 of convertible notes. Working capital deficit was $3,957,921; stockholders’ deficiency was $3,938,314.
- Total liabilities were $4,487,591, all classified as current; no long-term notes payable were reported on the balance sheet. The filing says certain 2009 bridge notes were past due; the remaining convertible-note principal was $10,000.
- Cash decreased $68,677 during the quarter, from $492,004 to $423,327. There was no financing cash inflow in Q1 2016; the comparable 2015 quarter included $25,000 from common-stock sales.
- Cash used in operations was higher year over year, reflecting increased receivables and cash used to pay vendors, partly offset by increases in accrued liabilities and compensation.
Outlook, risks, and other material matters
- Going concern: The filing states that recurring losses, minimal revenue, the working-capital deficit, stockholders’ deficiency, and operating cash use raise substantial doubt about the company’s ability to continue as a going concern. Management says additional capital is needed; without it, the company may further curtail spending, downsize operations, or pursue exit strategies.
- Management estimated current operating needs at approximately $70,000 per quarter, but said cash resources and other available sources would not adequately support operations during fiscal 2017. It gave no quantified revenue or earnings guidance and cautioned that sales may fluctuate significantly with physician training and market adoption.
- The company planned to expand U.S. marketing, training, insurance outreach, international regulatory approvals, and product development, subject to funding. Management offered no assurance that financing would be available on acceptable terms.
- Management reported a slowdown in INVO procedures by South American partners because of the Zika virus. The Indian partner continued marketing in eastern India.
- Disclosure controls and internal control over financial reporting were reported ineffective as of March 31, 2016, with an unremediated material weakness attributed to limited staffing and resources. Management described control improvements underway.
- Litigation relating to the sale of assets of alleged predecessor Medelle remained subject to an appeal. The filing says claims against INVO and others had been dismissed by final judgment in 2016, but plaintiffs appealed; the company said it intended to oppose the appeal.
- Related-party arrangements include notes payable and below-market, month-to-month office rent from an entity owned by a director’s brother. No options or warrants were outstanding at March 31, 2016.
Important facts for investors to verify
- Current cash, obligations falling due, and the status and terms of any subsequent financing, given the going-concern warning and large working-capital deficit.
- Whether the INVOcell launch is translating into sustained sales, physician adoption, and collections; first-quarter revenue was only $18,107.
- The status of the Medelle-related appeal and any potential financial exposure.
- Whether the disclosed material weakness in financial reporting controls has been remediated.
- The filing’s dates and entity naming: it covers Q1 2016 but was signed in September 2017, and the filing names INVO Bioscience, Inc.