INVO Bioscience, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. The filing identifies the registrant as INVO Bioscience, Inc. Financial statements are unaudited.
Business context
The company is commercializing INVOcell, an FDA-cleared intravaginal culture fertility device and procedure. It reported sales in the U.S. and described expansion efforts through physician training and international partners. Management said it had 50 trained U.S. physician offices or IVF-center satellite facilities; training, adoption, and initial reorders were progressing, but implementation at practices could take several months.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $68,220 | $17,831 | $200,790 | $41,384 |
| Gross profit / margin | $55,393 / 81% | $11,377 / 64% | $159,924 / 80% | $29,383 / 71% |
| SG&A | $199,691 | $218,749 | $603,336 | $1,869,502 |
| Net loss | $148,848 | $210,822 | $500,695 | $1,847,843 |
| Operating cash used | Not presented quarterly | $161,774 | $225,405 |
- Revenue rose about 283% in Q3 and 385% for the nine-month period, from the prior-year periods. Management attributed growth to U.S. commercialization, physician training, and early repeat orders.
- Gross margin improved, which management attributed in part to spreading fixed sales costs over higher revenue. Nine-month SG&A fell substantially, primarily because the comparable 2016 period included higher stock-based compensation.
- At September 30, cash was $35,256, down from $152,404 at December 31, 2016. Nine-month investing cash flow was zero; financing provided $44,626 from common-stock sales. Cash declined by $117,148 over the period.
- Total assets were $200,432; total liabilities were $5,080,276; stockholders’ deficiency was $4,879,844. The company disclosed a $4,781,532 working-capital deficiency.
- Current liabilities were $4,948,554, including $3,867,990 of accrued compensation, $869,676 of accounts payable and accrued liabilities, and $210,888 of related-party notes. Long-term notes payable were $131,722. Convertible notes were reduced to zero after a March 2017 conversion.
- Common shares outstanding were 141,681,268 at September 30, 2017, versus 140,596,646 at December 31, 2016; 141,681,268 were outstanding as of November 10, 2017.
Changes, outlook, and risks
- Funding and going concern: The filing states that recurring losses, minimal revenue, a working-capital deficit, and reliance on additional financing raise substantial doubt about the company’s ability to continue as a going concern. Management said cash resources and operating cash flow would not adequately support 2017 operations, and estimated current operating needs at approximately $150,000 per quarter. It was seeking funding; absent additional capital, it may further curtail spending, downsize, or pursue exit strategies. No quantified revenue or earnings guidance was provided.
- Market development: Management anticipated quarterly sales fluctuations as practices train, determine how to incorporate INVO into their offerings, and build patient demand. Canadian partner operations were starting more slowly than expected; South American procedures had slowed following Zika-related interruptions and recertification requirements, with activity anticipated to resume in Q1 2018. An Indian partner was preparing a dedicated training center.
- Unusual items and financing: The nine-month results include a $40,869 loss on settlement of debt associated with conversion of the final 2009 Bridge Note into 341,000 restricted shares. The company also issued restricted shares for services and raised $44,626 through a restricted-share sale.
- Legal contingency: Plaintiffs appealed a judgment dismissing claims related to the sale of assets of an alleged predecessor. The company said it would vigorously oppose the appeal; the filing does not provide a clear estimate of potential financial exposure.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at September 30, 2017 because a previously identified material weakness remained unremediated. The company cited limited staffing and segregation of duties, while describing steps including a new accounting system and outsourced accounts payable.
- Related parties: The company disclosed loans and business arrangements involving directors, officers, or their relatives, including office rent and printing services. Its former CEO and a director were among the related-party creditors.
Important facts for investors to verify
- Whether the company obtained sufficient financing after the reporting date, and its resulting cash runway and ability to meet obligations.
- Whether physician training converts into sustained procedure volumes, repeat orders, and meaningful revenue growth across U.S. and international markets.
- The composition, timing, and potential settlement or conversion of accrued compensation, related-party notes, and other current liabilities.
- The status and possible financial consequences of the pending appeal, and any subsequent developments in litigation.
- Whether management remediated the disclosed material weakness and improved financial reporting controls.