INVO Fertility, Inc. (INVO Bioscience, Inc.) - 10-K Summary
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended December 31, 2010. INVO Bioscience, Inc. is a development-stage company focused on commercializing the INVOcell, a medical device designed to treat infertility. The device facilitates fertilization and embryo development inside the woman's body, offering a lower-cost alternative to In-Vitro Fertilization (IVF) that can be performed in a physician's office rather than a specialized laboratory.
The company obtained CE Marking in May 2008, permitting sales in the European Economic Area and other regions recognizing the mark. As of the reporting date, the company is seeking FDA 510(k) clearance for the U.S. market, a process dependent on additional funding for clinical trials.
Key Financial Metrics (Year Ended Dec 31, 2010)
| Metric | 2010 Value | 2009 Value |
|---|---|---|
| Net Sales/Revenue | $67,648 | $63,204 |
| Cost of Goods Sold | $21,828 | $41,391 |
| Gross Margin | $45,820 (68%) | $21,813 (35%) |
| Operating Expenses | $1,561,200 | $1,864,554 |
| Net Loss | $(153,430) | $(4,661,469) |
| Cash and Equivalents (End of Period) | $12,525 | $79,052 |
| Working Capital Deficiency | $(2,564,000) | $(3,332,000) |
| Stockholders' Deficiency | $(2,481,909) | $(3,237,137) |
Note: The significant reduction in 2010 Net Loss compared to 2009 was primarily driven by a non-cash gain of approximately $1.82 million related to the revaluation of derivative liabilities (warrants and convertible notes) due to the decline in the company's stock price.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by approximately 7% to $67,648, driven by reorder shipments from existing customers and new distributors.
- Cost Efficiency: Cost of sales as a percentage of revenue improved significantly from 65% in 2009 to 32% in 2010 due to alternative shipping resources and slightly higher selling prices.
- Expense Reduction: Selling, General, and Administrative (SG&A) expenses decreased by 16% to $1.56 million. This was achieved by curtailing travel (a 79% reduction in travel costs), reducing staff from seven to five employees, and eliminating advisory board meetings.
- Liquidity: Cash on hand decreased from $79,052 to $12,525. Net cash used in operating activities was $316,000, a significant improvement from the $927,000 used in 2009.
- Debt: The company paid off its $50,000 line of credit with Century Bank in full during 2010. Convertible notes remain outstanding, with some converted to equity.
Guidance, Outlook, and Risks
Outlook and Capital Needs: Management states that the company requires substantial additional capital to continue as a going concern. The company estimates it needs approximately $175,000 per month to fund planned operations. Without additional funding, the company may be forced to curtail or cease operations. The company has a Reserve Equity Financing Agreement (REF) with AGS Capital Group, LLC, allowing for up to $10 million in funding, though drawdowns are subject to conditions and market price floors.
Regulatory Path: The company anticipates completing FDA clinical trials by the end of 2012, subject to funding, with a goal of receiving 510(k) clearance by 2013. Until then, revenue will rely on international markets where CE Marking is recognized.
Key Risks:
- Going Concern: Auditors have expressed substantial doubt about the company's ability to continue as a going concern due to recurring losses and working capital deficiency.
- Litigation: The company and its officers (Dr. Claude Ranoux and Kathleen Karloff) are involved in litigation regarding the 2006 sale of assets from the predecessor company, Medelle Corporation. While claims against the company and Ms. Karloff were dismissed in November 2010, claims of fraud and breach of fiduciary duty against Dr. Ranoux remain pending.
- Regulatory Approval: There is no assurance that the company will secure FDA clearance or that clinical trials will be successful.
- Dilution: Future financing efforts will likely involve the issuance of additional equity, resulting in significant dilution to existing shareholders.
Investor Verification Checklist
- Cash Runway: Verify current cash balances and the status of the $10 million REF agreement with AGS Capital to assess immediate solvency.
- Litigation Status: Monitor the status of the remaining fraud and fiduciary duty claims against Dr. Ranoux, as a negative outcome could impact management stability.
- FDA Timeline: Confirm the progress of the 510(k) submission and the funding status required to complete the anticipated 2012 clinical trial.
- Revenue Realization: Assess the actual conversion of international distribution agreements into recurring revenue, as 2010 revenues were minimal despite global expansion efforts.
- Stock Dilution: Review the terms of outstanding convertible notes and warrants, which have historically caused significant share count increases.