INVO Bioscience, Inc. — FY2017 Form 10-K
Period and entity: Annual report for the fiscal year ended December 31, 2017, filed March 29, 2018. The supplied filing identifies the registrant as INVO Bioscience, Inc.; this differs from the request metadata naming INVO Fertility, Inc. The filing compares FY2017 with FY2016.
Business context
The company is commercializing INVOcell, a single-use fertility device used for fertilization and early embryo development inside a patient’s vaginal cavity. It positions the procedure as a lower-cost alternative to IVF that can be offered outside specialized IVF laboratories. The company reported U.S. FDA De Novo Class II clearance and 60 trained U.S. clinics or IVF satellite facilities; its CE Mark recertification was still in process. Operations rely on outsourced manufacturing and a very small staff.
Financial performance and condition
| Metric | FY2017 / Dec. 31, 2017 | FY2016 / Dec. 31, 2016 |
|---|---|---|
| Revenue | $282,145 | $50,901 |
| Cost of goods sold | $51,954 | $15,094 |
| Gross profit and margin | $230,191; approximately 81.6% | $35,807; approximately 70.3% |
| SG&A | $870,612 | $2,146,221 |
| Operating loss | $640,421 | $2,110,414 |
| Net loss | $702,163 | $2,124,252 |
| Cash used in operations | $181,270 | $323,900 |
| Cash | $25,759 | $152,404 |
| Working capital deficiency | $4,892,418 | $4,520,762 |
| Total liabilities | $5,258,525 | $4,903,872 |
| Stockholders’ deficiency | $4,992,112 | $4,617,646 |
Revenue increased about 454% year over year, but remained modest; management says it includes free and introductory-price shipments. SG&A fell by approximately $1.28 million, largely because FY2016 included about $1.264 million of noncash stock compensation for prior services. FY2017 included a $40,869 loss on settlement of the final $10,000 legacy convertible note, which converted to shares. Gross margin improved, but operating costs substantially exceeded gross profit.
Current assets were $234,385 against current liabilities of $5,126,803, indicating very limited short-term liquidity. Current liabilities included $3,955,190 of accrued compensation and $960,725 of accounts payable and accrued liabilities. The company also reported a $131,722 long-term vendor note payable and $210,888 of related-party notes payable. It raised $54,625 from stock sales in FY2017. The filing reports no cash interest or income taxes paid during the year.
Changes, outlook and material risks
- Adoption and sales: Management said new practices typically need six to nine months to establish an ordering pattern. It trained 15 physician/embryologist groups in 2017, versus 10 in 2016, and reported that more than half were still working through integration and patient recruitment.
- Funding and going concern: The auditor and management identified substantial doubt about the company’s ability to continue as a going concern. Management said available resources would not adequately fund FY2018 and that additional capital was required; failure to obtain it could require spending cuts, downsizing or cessation of operations. Management expected continued losses through 2018.
- Plans depend on capital: The company intended to prioritize U.S. clinic recruitment and expand sales, training and product development, but stated growth plans and hiring depended on raising additional funds. International growth was also constrained by registration requirements and limited in-country support.
- Regulatory and product risks: CE Mark recertification remained pending. Medical-device regulation, quality control, reliance on outsourced production, limited suppliers, product liability and the need for further clinical work could affect commercialization.
- Legal contingency: An appeal remained pending in long-running litigation concerning the predecessor’s asset sale. The company intended to oppose it; the filing does not provide a clear estimate of potential financial exposure.
- Controls and governance: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing limited staffing/resources and the lack of a full-time CFO for part of the period. The independent auditor did not attest to internal-control effectiveness. The filing also describes related-party loans and office arrangements.
- Capital structure: Common shares outstanding rose from 140,596,646 at year-end 2016 to 142,132,374 at year-end 2017. The company issued additional restricted shares for services, cash and conversion of debt; further financing could dilute existing holders.
Management cited clinical results and physician feedback as evidence of potential efficacy, but these are company-reported claims and should not be treated as a guarantee of outcomes. The filing gives no quantified revenue or earnings guidance.
Key facts investors should verify
- Cash runway, near-term financing needs, and whether subsequent financing was secured on acceptable terms.
- How much reported revenue came from paid product sales versus free or introductory-price shipments, and the collectability of the $86,697 year-end receivable.
- Clinic utilization, repeat ordering, patient volumes and independently verifiable pregnancy and live-birth outcomes.
- Status and timing of CE Mark recertification and other material country registrations.
- Amounts and timing of accrued compensation and related-party/vendor debt payments, including any further equity settlement or dilution.
- Developments in the pending litigation appeal and any resulting financial exposure.
- Remediation of the disclosed material weakness and the company’s ability to strengthen financial reporting controls.