INVO Bioscience, Inc. — Q2 2017 Form 10-Q
The filing is for the quarter and six months ended June 30, 2017; financial statements are unaudited. The filing registrant is INVO Bioscience, Inc. (the request metadata identifies INVO Fertility, Inc.). The company is commercializing INVOcell, an FDA-cleared intravaginal culture fertility device and procedure.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $80,330 | $5,446 | $132,570 | $23,553 |
| Gross profit / margin | $66,136 / 82% | $3,064 / 56% | $104,531 / 79% | $18,006 / 76% |
| SG&A | $198,549 | $1,455,147 | $403,645 | $1,650,753 |
| Net loss | $136,974 | $1,455,709 | $351,847 | $1,637,021 |
| Operating cash used | Not separately stated | Not separately stated | $134,329 | $168,390 |
- At June 30, cash was $18,075; current assets were $146,947 versus current liabilities of $4,854,275, a working-capital deficit of $4,707,328. Total assets were $181,785, total liabilities $4,985,997, and stockholders’ deficiency $4,804,212.
- Debt included $210,888 in related-party notes payable and $131,722 in long-term notes payable. The last $10,000 Bridge Note was converted into restricted shares in March 2017; the conversion resulted in a $40,869 loss on debt settlement.
- Operating cash use was partly offset by working-capital movements; no investing or financing cash flows were reported for the first half. Management estimated operations require about $125,000 per quarter, before planned expansion.
Material changes and operating developments
- First-half revenue increased 463% year over year, attributed to U.S. commercialization after FDA clearance and product marketing. Q2 growth also reflected physician training and initial customer reorders. Management reported 50 trained U.S. physician offices or IVF satellite facilities.
- Gross margin rose to 82% in Q2, which management attributed to higher sales spreading fixed costs. First-half margin rose three percentage points; the filing cites higher revenue offset by a lower introductory price.
- Losses narrowed substantially, chiefly because 2016 SG&A included approximately $1.264 million of noncash stock compensation for services in 2015–2016. In 2017, first-half noncash stock compensation was $107,341.
- The company reported that its Canadian partner had opened a Calgary center and obtained clinical and laboratory accreditation. South American procedures slowed amid Zika-related concerns; an Indian partner planned to open a dedicated training center.
Outlook, risks, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing minimal revenue, recurring losses, a $4.7 million working-capital deficit, and dependence on additional capital. The company said existing resources would not adequately fund 2017 operations. It was seeking financing; without it, further spending cuts, downsizing, or possible exit strategies could be required. No specific revenue or earnings guidance was provided.
- Management anticipated quarterly sales fluctuations depending on physician training and adoption. Potential growth plans included expanding sales and training, pursuing insurance coverage discussions and international regulatory approvals, and developing future products; execution depends on financing.
- A long-running dispute concerning the sale of predecessor Medelle’s assets remained subject to an appeal. The company said it intended to oppose it; the filing does not provide a clear estimate of potential financial exposure.
- Disclosure controls and internal control over financial reporting were deemed ineffective as of June 30, 2017, and a previously identified material weakness had not been remediated. Management cited limited staffing and resources and described remediation steps underway.
- The filing marked “No” to whether the company had filed all required Exchange Act reports during the preceding 12 months and to whether required Interactive Data Files had been submitted and posted. These check-box disclosures merit verification.
- During the period, the company issued 347,162 restricted shares for professional services and 341,000 shares for settlement of convertible debt and accrued interest. Common shares outstanding were 141,284,808 as of August 10, 2017.
Most important facts for investors to verify
- Whether the company obtained adequate financing after the reporting date, given $18,075 of quarter-end cash and stated quarterly operating needs of approximately $125,000.
- Whether physician training converted into sustained device orders and recurring revenue, and whether international launches progressed.
- The status and potential exposure of the Medelle-related appeal.
- Progress in remediating ineffective financial reporting controls and clarifying the filing’s “No” compliance check boxes.
- The aging, payment terms, and potential settlement or conversion of accrued compensation and other obligations, including related-party balances.