INVO Bioscience, Inc. — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018; filed April 16, 2019. The filing identifies the registrant as INVO Bioscience, Inc. (not INVO Fertility, Inc.). Financial statements are audited under U.S. GAAP and compared with FY 2017.
Business context
The company develops and sells INVOcell, a fertility-treatment device that supports fertilization and early embryo development in a woman’s vaginal cavity. It markets the procedure as a lower-cost alternative to IVF that may be offered outside specialized IVF laboratories. The company had FDA De Novo Class II clearance for U.S. marketing and reported 89–90 U.S. clinics or satellite facilities offering or referring patients to the procedure by year-end 2018.
Financial performance and position
| Metric | FY 2018 / Dec. 31, 2018 | FY 2017 / Dec. 31, 2017 |
|---|---|---|
| Revenue | $494,375 | $282,145 |
| Gross profit; gross margin | $404,008; 81.7% | $230,191; 81.6% |
| Operating expenses (SG&A) | $3,038,068 | $870,612 |
| Operating loss | $(2,634,060) | $(640,421) |
| Interest and financing expense | $442,031 | $20,873 |
| Net loss | $(3,076,091) | $(702,163) |
| Cash used in operations | $(652,971) | $(181,270) |
| Cash and cash equivalents | $212,243 | $25,759 |
| Current assets / current liabilities | $731,109 / $3,501,570 | $234,385 / $5,126,803 |
| Working capital | $(2,770,000) approximately | $(4,892,000) approximately |
| Total liabilities | $3,501,570 | $5,258,525 |
| Stockholders’ deficiency | $(2,724,223) | $(4,992,112) |
Revenue increased about 75%, reflecting early market penetration, introductory pricing and physician outreach. Gross margin remained roughly 82%. The net loss widened substantially: SG&A rose by about $2.17 million, primarily due to stock issued for services, and interest expense increased with 2018 convertible-note financing and discount amortization. The company reported no funded R&D in either year. Shares outstanding increased from 142.1 million to 154.3 million; 2018 included substantial share-based compensation and service issuances.
At year-end, the balance sheet showed approximately $730,000 of convertible-note principal outstanding per the risk-factor disclosure; the balance sheet carried current convertible notes at approximately $166,000 net of discounts. Other borrowings included a $131,722 vendor note and related-party notes. The filing reports no off-balance-sheet arrangements.
Material developments, outlook and risks
- Ferring agreement: Signed November 12, 2018 and closed January 14, 2019, after year-end. Ferring received exclusive U.S. commercialization rights and is responsible for U.S. commercialization costs. INVO retained international rights and a restricted option to establish up to five U.S. clinics. The company received a $5 million upfront payment at closing; a further $3 million is conditional on obtaining an FDA five-day incubation-label enhancement and other agreement conditions. The upfront payment was not cash on hand at December 31, 2018.
- Liquidity and going concern: The auditor highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and stockholders’ deficiency. Management said year-end cash and operating cash flow would not fund FY 2019 operations; it expected the Ferring payment and anticipated sales to provide resources for roughly 12–24 months, while noting that additional funding may still be needed. The company estimated normal operating needs at about $200,000 per month. No assurance was given that funding would be sufficient or available on acceptable terms.
- Management outlook: No quantified revenue or earnings guidance was provided. Management expected continued losses through 2019, increased spending as sales and marketing expand, and difficult-to-forecast results. Priorities included supporting Ferring in the U.S., developing international distribution, hiring commercial personnel, and pursuing additional regulatory approvals. The potential $3 million milestone is uncertain.
- Commercial and regulatory risks: Physician adoption may take 6–9 months; the company described limited sales history and uneven clinic uptake. CE Mark recertification was still in process, and international sales depend on registrations and distributors. The company relies on outsourced manufacturing and disclosed reliance on a single manufacturing provider.
- Controls and governance: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing limited resources, few employees and lack of a full-time CFO. The auditor did not attest to internal controls. The company also disclosed a long-running litigation appeal concerning the acquisition of predecessor Medelle’s assets; it intends to oppose the appeal. Management characterized the underlying claims as baseless.
- Other risks: Thinly traded OTCQB stock, potential dilution from convertible debt and registered resale shares, competition, product liability, intellectual-property challenges, and dependence on key personnel. Management and directors held approximately 24% of outstanding shares. The company paid no dividends and did not expect to do so in the near term.
Important facts for investors to verify
- Whether the $5 million Ferring payment was deployed as planned, the company’s subsequent cash runway, and its need for further financing.
- Ferring’s commercialization progress, product purchase volumes and any minimum-revenue requirements; whether the conditional $3 million milestone is achieved.
- Post-year-end revenue, clinic adoption, repeat ordering and international distributor performance.
- The principal, conversion terms and maturity of outstanding notes, potential dilution, and the status of registered resale shares.
- Progress on CE Mark recertification and other regulatory approvals, as well as manufacturing capacity and supplier continuity.
- Remediation of the disclosed internal-control weaknesses and the status and potential consequences of the outstanding litigation appeal.