UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
For the fiscal year ended December 31, 2021
or
For the transition period from to
INVO
BIOSCIENCE, INC.
(Exact
name of registrant as specified in Charter)
5582
Broadcast CourtSarasota, Florida, 34240
(Address
of Principal Executive Offices)
Registrant’s
telephone number, including area code: (978)878-9505
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value per share INVO The Nasdaq Stock Market LLC
Securities
registered pursuant to Section 12(g) of the Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐NO☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). YES ☒ NO ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging Growth Company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The
aggregate market value of the common equity held by non-affiliates of the registrant, based on the closing price of the shares of common
stock on the Nasdaq Stock Market on June 30, 2021, was $46,939,332.
The
number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of March 31, 2022 was 12,089,298.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
FORM
10-K
INVO
BIOSCIENCE, INC.
TABLE
OF CONTENTS
Page
Part I
Item 1. Business 4
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 19
Item 2. Properties 19
Item 3. Legal Proceedings 19
Item 4. Mine Safety Disclosures 19
Part II
Item 6. [Reserved] 21
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 28
Item 8. Financial Statements and Supplementary Data 29
Item 9A. Controls and Procedures 30
Item 9B. Other Information 30
Part III
Item 10. Directors, Executive Officers and Corporate Governance 30
Item 11. Executive and Director Compensation 34
Item 14. Principal Accountant Fees and Services 39
Part IV
Item 15. Exhibits, Financial Statement Schedules 40
SIGNATURES 43
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives,
and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,”
“plan,” “may,” “will,” “would,” “will be,” “will continue,” “will
likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions
for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for
purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic
conditions, legislative/regulatory changes, availability of capital, interest rates, competition, the impact of the COVID-19 pandemic
on our ability to advance our clinical programs and raise additional financing and generally accepted accounting principles. These risks
and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such
statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Further information concerning our business, including additional factors that could materially affect our
financial results, is included herein and in our other filings with the SEC.
Reverse
Stock Splits
On
May 26, 2020, the Company effected a 1-for-20 reverse stock split of its common stock. All shares, options and warrants throughout these
consolidated financial statements have been retroactively restated to reflect the reverse split.
On
November 9, 2020, the Company effected a 5-for-8 reverse stock split of its common stock. All shares, options and warrants throughout
these consolidated financial statements have been retroactively restated to reflect the reverse split.
Part
I
Item
1. Business
Introduction
This
Annual Report on Form 10-K should be read together and in connection with the other reports that have been filed by us with the SEC for
a comprehensive description of our financial condition and operating results. In the interest of disclosure, we have included in this
Form 10-K certain material events and developments that have taken place through the date of filing of this Form 10-K with the SEC.
In
this Annual Report on Form 10-K, INVO Bioscience, Inc. (INVO Bioscience, Inc., together with its subsidiaries, is referred to in this
document as “we”, “us”, “INVO Bioscience”, “INVO,” or the “Company”), incorporates
by reference certain information from parts of other documents filed with the Securities and Exchange Commission (“SEC”).
The SEC allows us to disclose important information by referring to it in that manner. Please refer to all such information when
reading this Annual Report on Form 10-K. All information is as of December 31, 2021, unless otherwise indicated. For a description
of the risk factors affecting or applicable to our business, see “Risk Factors,” below.
The
Company
We
are a commercial-stage fertility company dedicated to expanding the assisted reproductive technology (“ART”) marketplace
by making fertility care accessible and inclusive to people around the world. Our flagship product is INVOcell, a revolutionary medical
device that allows fertilization and early embryo development to take place in vivo within the woman’s body. Our primary
mission is to implement new medical technologies aimed at increasing the availability of affordable, high-quality, patient-centered fertility
care. This treatment solution is the world’s first intravaginal culture technique for the incubation of oocytes and sperm during
fertilization and early embryo development. This technique, designated as “IVC”, provides patients a more natural, intimate
and more affordable experience in comparison to other ART treatments. The IVC procedure can deliver comparable results at a lower cost
than traditional in vitro fertilization (“IVF”) and is a significantly more effective treatment than intrauterine
insemination (“IUI”). Our commercialization strategy is focused on the opening of dedicated “INVO Centers”
offering the INVOcell and IVC procedure (with three centers in North America now operational), in addition to continuing to sell our
technology solution into existing fertility clinics.
We
were formed on January 5, 2007, under the laws of the Commonwealth of Massachusetts under the name Bio X Cell, Inc. to acquire
the assets of Medelle Corporation (“Medelle”). Dr. Claude Ranoux purchased and contributed all of the assets of Medelle,
including four patents relating to the INVOcell technology, to Bio X Cell, Inc. upon its formation in January 2007.
On
December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and each of the shareholders of INVO Bioscience entered into a
share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation
(“Emy’s”). Upon the closing of the share exchange on December 5, 2008, the INVO Bioscience shareholders transferred
all of their shares of common stock in INVO Bioscience to Emy’s. In connection with the share exchange, Emy’s changed its
name to INVO Bioscience, Inc. and Bio X Cell, Inc. became a wholly owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.).
Recent Developments
In January 2022, we issued 94,623 shares of common
stock to Paradigm Opportunities Fund, LP (“Paradigm”). The shares were issued pursuant to the exemption from registration
provided by Section 4(a)(2) of the Securities Act of 1933, as amended. We received $315,000 in proceeds from this issuance. Pursuant
to its terms, on March 30, 2022, we terminated the stock purchase agreement with Paradigm, under which Paradigm had committed to purchase
600,703 shares of our common stock for an aggregate purchase price of $1,999,740.29. We issued our termination notice when it became
clear that Paradigm would not be able to fulfil its commitment in a timely fashion.
On March 29, 2022, the joint venture agreement
between INVO and Medesole Healthcare and Trading Private Limited, India was terminated by us pursuant to the terms of the joint venture
agreement after mutual agreement with Medesole that Medesole would not be able to fulfil its commitments in a timely fashion.
Operations
We
operate with a core internal team and outsource certain operational functions in order to help accelerate our efforts as well as reduce
internal fixed overhead needs and in-house capital equipment requirements. Our most critical management and leadership functions are
carried out by our core management team. We have contracted out the manufacturing, packaging/labeling and sterilization of the device
to a contract medical manufacturing company that completes final product manufacturing as well as manages the gamma sterilization process
at a U.S. Food and Drug Administration (“FDA”) registered contract sterilization facility.
Employees
As
of December 31, 2021, we had ten full time and two part time employees. We also engage key consultants to further support our operations.
Market
Opportunity
The global ART marketplace is a large, multi-billion
industry growing at a strong pace in many parts of the world as increased infertility rates, increased patient awareness, acceptance
of treatment options, and improving financial incentives such as insurance and governmental assistance continue to drive demand. According
to the European Society for Human Reproduction 2020 ART Fact Sheet, one in six couples worldwide experience infertility problems. Additionally,
the worldwide market remains vastly underserved as a high percentage of patients in need of care continue to go untreated each year for
many reasons, but key among them are capacity constraints and cost barriers. While there have been large increases in the use of IVF,
there are still only approximately 2.6 million ART cycles, including IVF, IUI and other fertility treatments, performed globally each
year, producing around 500,000 babies. This amounts to less than 3% of the infertile couples worldwide being treated and only 1% having
a child though IVF. The industry remains capacity constrained which creates challenges in providing access to care to the volume of patients
in need. A survey by “Resolve: The National Infertility Association,” indicates the two main reasons couples do not use IVF
is cost and geographical availability (and/or capacity).
In the United States, infertility, according to
the American Society of Reproductive Medicine (2017), affects an estimated 10%-15% of the couples of childbearing-age. According to the
Centers for Disease Control (“CDC”), there are approximately 6.7 million women with impaired fertility. Based on preliminary
2020 data from the CDC’s National ART Surveillance System, approximately 326,000 IVF cycles were performed at 449 IVF centers,
leaving the U.S. with a large, underserved patient population, which is similar to most markets around the world.
Competitive
Advantages
We believe that the INVOcell, and the IVC procedure
it enables, have the following key advantages:
Lower
cost than IVF with equivalent efficacy. The IVC procedure can be offered for less than IVF due to lower cost of supplies, labor,
capital equipment and general overhead. The laboratory equipment needed to perform an IVF cycle is expensive and requires ongoing costs
as compared to what is required for an IVC cycle. As a result, we also believe INVOcell and the IVC procedure enable a clinic and its
laboratory to be more efficient as compared to conventional IVF.
The
IVC procedure is currently being offered at practicing clinics at a range of $5,000 - $11,000 per cycle and from $4,500 to $7,000 at
the existing INVO Centers, thereby making it more affordable than conventional IVF (which tends to average $12,000 to $17,000 per cycle
or higher).
Improved
efficiency providing for greater capacity and improved access to care and geographic availability. In many parts of the world,
including the U.S., IVF clinics tend to be concentrated in higher population centers and are often capacity constrained in terms of
how many patients a center can treat, with volume often limited by the number of capital-intensive incubators available in IVF
clinic labs. With the significant number of untreated patients along with the growing interest and demand for services, the industry
remains challenged to provide sufficient access to care and to do so at an economical price. We believe INVOcell, and the IVC
procedure it enables, can play a significant role in helping to address these challenges. According to the 2020 CDC Report, there
are approximately 449 IVF centers in the U.S. We estimate that by adopting the INVOcell, IVF clinics can increase fertility cycle
volume by up to 30% without adding to personnel, space and/or equipment costs. Our own INVO Centers also address capacity
constraints by adding to the overall ART cycle capacity and doing so with comparable efficacy to IVF outcomes as well as at a lower
per cycle price. Moreover, we believe that we are uniquely positioned to drive more significant growth in fertility treatment
capacity in the future by partnering with existing OB/GYN practices. In the U.S., there are an estimated 5,000 OB/GYN offices, many
of which offer fertility services (usually limited to consultation and IUI, but not IVF). Since the IVC procedure requires a much
smaller lab facility, less equipment, and fewer lab personnel (in comparison to conventional IVF), it could potentially be offered
as an extended service in an OB/GYN office. With proper training and a lighter lab infrastructure, the INVOcell could expand the
business for these physicians and allow them to treat patients that are unable to afford IVF and provide patients with a more
readily accessible, convenient, and cost-effective solution. With our three-pronged strategy (IVF clinics, INVO Centers and OB/GYN
practices), in addition to lowering costs, we believe INVOcell and the IVC procedure can address our industry’s key
challenges, capacity and cost, by their ability to expand and decentralize treatment and increase the number of points of care for
patients in need. This powerful combination of lower cost and added capacity has the potential to dramatically open up access to
care for patients around the world.
Greater patient involvement. With the IVC
procedure, the patient uses their own body for fertilization, incubation and early embryo development which creates a greater sense of
involvement, comfort and participation. In some cases, this may also free people from barriers related to ethical or religious concerns,
or fears of laboratory mix-ups.
Sales
and Marketing
Our product commercialization efforts are
focused on identifying distributors and partners within targeted geographic regions that we believe can best promote, market, and
sell the INVOcell and support our efforts to expand access to advanced fertility treatment for the large number of underserved
infertile people hoping to have a baby. We believe that the IVC procedure is an effective and affordable treatment option that
greatly reduces the need for more expensive IVF lab facilities and allows providers to pass on related savings to patients without
compromising efficacy. We have been cleared to sell the INVOcell in the United States since November 2015 after receiving de novo
class II clearance from the FDA. Our primary focus has been on establishing INVO Centers to promote the INVOcell and the IVC
procedure, selling the INVOcell directly to U.S. fertility clinics, and developing key international market partnerships around the
world.
We
anticipate that we will experience quarterly fluctuations in our revenue as we expand the sales of the INVOcell to new markets in
the U.S. and globally. We continue to seek partners that will contractually commit to meeting agreeable performance objectives that
are consistent with our goals and objectives.
Ferring
On
November 12, 2018, we entered into a U.S. Distribution Agreement (the “Ferring Agreement”) with Ferring International Center
S.A. (“Ferring”), which closed on January 14, 2019. Pursuant to the Ferring Agreement, among other things, we granted Ferring
an exclusive license in the United States to market, promote, distribute, and sell the INVOcell. Ferring was responsible, at its own cost,
for all commercialization activities for in the United States. We retained a limited exception to the exclusive license granted to Ferring
allowing us, subject to certain restrictions, to establish up to five INVO Centers in the United States, which as of March 2, 2021, was
amended to seven centers. We retained all commercialization rights for the INVOcell outside of the United States.
On
November 2, 2021, Ferring notified us of its intention to terminate the Ferring Agreement, which required 90-days prior written notice.
Accordingly, the Ferring Agreement officially terminated on January 31, 2022. Pursuant to the terms of the Ferring Agreement, upon notice
of termination, Ferring was required to use commercially reasonable efforts to transition any customers to us and otherwise facilitate
the orderly transition of the distribution from Ferring to us. By its terms, our Supply Agreement with Ferring also terminated on January
31, 2022.
The
Ferring license was deemed to be a functional license that provides the counterparty with a “right to access” to our intellectual
property during the subscription period and accordingly, revenue is recognized over a period of time, which is generally the subscription
period. During the years ended December 31, 2021, and 2020, we recognized $3.6 million and $0.7 million of revenue related to the Ferring
license agreement, respectively.
As of December 31, 2021, we had no deferred revenue
related to the Ferring Agreement as it was recognized in the fourth quarter of fiscal year 2021 in relation to the contract termination.
The likelihood of Ferring exercising its rights became remote at the time notice of termination was received therefore INVO recognized
the full remaining amount of the deferred revenue.
International
Distribution Agreements
We
have entered into exclusive distribution agreements for a number of international markets. These agreements usually have an initial term
with renewal options and require the distributors to meet minimum annual purchases, which vary depending on the market. We are also required
to register the product in each market before the distributor can begin importing, a process and timeline that can vary widely depending
on the market.
The
following table sets forth a list of our current international distribution agreements:
INVOcell Registration
Market Distribution Partner Date Initial Term Status in Country
Canada Invaron Pharmaceuticals Inc. July 2020 1-Year Completed
Mexico (a) Positib Fertility, S.A. de C.V. Sept 2020 TBD** Completed
Malaysia iDS Medical Systems Nov 2020 3-year Completed
Jordan Biovate Sept 2019 1-year Completed
Pakistan Galaxy Pharma Dec 2020 1-year In process
Thailand IVF Envimed Co., Ltd. April 2021 1-year Complete
Nigeria G-Systems Limited Sept 2020 5-year Completed
Togolese Republic INVOSOLUX TOGO Nov 2019 1-year In process
Iran Tasnim Behboud Dec 2020 1-year Complete
Sri Lanka Alsonic Limited July 2021 1-year In process
Investment
in Joint Ventures and Partnerships
As
part of our commercialization strategy, we entered into a number of joint ventures and partnerships designed to establish new INVO Centers.
The
following table sets forth a list of our current joint venture arrangements:
Affiliate Name Country Percent (%) Ownership
HRCFG INVO, LLC United States 50 %
Bloom Invo, LLC United States 40 %
Positib Fertility, S.A. de C.V. Mexico 33 %
SNS MURNI INVO Bioscience Malaysia Sendirian Berhad Malaysia 50 %
Ginekalix INVO Bioscience LLC Skopje Republic of North Macedonia 50 %
The
following table sets forth a list of our current partnership arrangements:
Partner Country Partnership Split
Lyfe Medical United States 40 %
Alabama
JV Agreement
On March 10, 2021, our wholly owned subsidiary, INVO
Centers, LLC (“INVO CTR”), entered into a limited liability company agreement with HRCFG, LLC (“HRCFG”) to form
a joint venture for the purpose of establishing an INVO Center in Birmingham, Alabama. The name of the joint venture LLC is HRCFG INVO,
LLC (the “Alabama JV”). The responsibilities of HRCFG’s principals include providing clinical practice expertise, performing
recruitment functions, providing all necessary training, and providing day-to-day management of the clinic. The responsibilities of INVO
CTR include providing certain funding to the Alabama JV and providing access to and being the exclusive provider of the
INVOcell to the Alabama JV. INVO CTR will also perform all required, industry-specific compliance and accreditation functions,
and product documentation for product registration.
The
Alabama JV opened to patients on August 9, 2021, and initial treatment cycles commenced in September 2021.
Georgia
JV Agreement
On June 28, 2021, INVO CTR entered into a
limited liability company agreement (the “Bloom Agreement”) with Bloom Fertility, LLC (“Bloom”) to establish
a joint venture entity, formed as “Bloom INVO LLC” (the “Georgia JV”), for the purposes of commercializing INVOcell,
and the related IVC procedure, through the establishment of an INVO Center (the “Atlanta Clinic”) in the Atlanta, Georgia
metropolitan area.
In consideration for INVO’s commitment
to contribute up to $800,000 within the 24-month period following execution of the Bloom Agreement to support the start-up operations
of the Georgia JV, the Georgia JV issued 800 of its units to INVO CTR and in consideration for Bloom’s commitment to contribute
physician services having an anticipated value of up to $1,200,000 over the course of a 24-month vesting period, the Georgia JV issued
1,200 of its units to Bloom.
The responsibilities of Bloom include providing
all medical services required for the operation of the Atlanta Clinic. The responsibilities of INVO CTR include providing certain funding
to the Georgia JV, lab services quality management, and providing access to and being the exclusive provider of the INVOcell to the Georgia
JV. INVO CTR will also perform all required, industry specific compliance and accreditation functions, and product documentation for
product registration.
The
Georgia JV opened to patients on September 7, 2021, and commenced initial treatment cycles in November 2021.
Mexico
JV Agreement
Effective
September 24, 2020, INVO CTR entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”)
and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO CTR and Arredondo, the “Shareholders”)
under which the Shareholders will commercialize the IVC procedure and offer related medical treatments in Mexico. Each party owns one-third
of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico JV”).
The
Mexico JV will operate in Monterrey, Nuevo Leon, Mexico and any other cities and places in Mexico as approved by the Mexico JV’s
board of directors and Shareholders. In addition, the Shareholders agreed that the Mexico JV will be our exclusive distributor in Mexico.
The Shareholders also agreed not to compete directly or indirectly with the Mexico JV in Mexico.
The
Mexico JV opened to patients on November 1, 2021, and commenced initial treatment cycles beginning in January 2022.
Malaysia
JV Agreement
On
November 23, 2020, we entered into a joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated
in Malaysia, to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market technologies related to the INVOcell
and IVC Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Centers in Malaysia. The
joint venture is co-managed and owned 50% by each of INVO Bioscience and SNS Murni. As of December 31, 2021, no joint venture entity
had been formed.
North
Macedonia JV Agreement
On
November 23, 2020, we entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company
incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote,
and market technologies related to the INVOcell and IVC procedure in the Republic of North Macedonia, and (ii) establish an INVO
Center. The joint venture will be co-managed and owned 50% by each of INVO and Ginekaliks. As of December 31, 2021, no joint venture
entity had been formed.
Lyfe
Medical Center I, LLC Partnership agreement
On
April 9, 2021, we entered into a partnership agreement (the “Lyfe Agreement”) with Lyfe Medical Center I, LLC (“Lyfe”)
in connection with Lyfe’s intention to establish an INVO Center in the Bay Area of California (the “Bay Area Clinic”).
Pursuant to the Lyfe Agreement, we will provide embryology laboratory services in connection with the IVC procedure and other fertility-related
treatments (the “Lab Services”) to be provided by Lyfe to its patients at the Bay Area Clinic. Under the terms of the Lyfe
Agreement, we will receive 40% of the net income received by the Bay Area Clinic for the performance of the Lab Services. As of December
31, 2021, the Bay Area Clinic was not yet operational.
Competition
The fertility treatment regimens that the INVOcell
and IVC procedure compete with when infertile people, in conjunction with their physician, are choosing the treatment method
include drug-only stimulation, IUI, and conventional IVF. The fertility industry is highly competitive and characterized by long-standing
well-entrenched procedures as well as technological improvements. Our INVOcell enables the first new advanced treatment alternative in
over forty years. We face competition from all ART practitioners and device manufacturers. To date, most advancements in the ART market
have been limited to incremental improvements to the various products designed to simply support conventional IVF.
Our
principal ART medical device competitor for INVOcell is an intrauterine device called AneVivoTM, developed by Anecova, a Swiss life
sciences company. The principal difference between the INVOcell and AneVivoTM is its placement inside the woman’s uterus for
early embryo development. We believe that placing the device in the uterus may be more invasive and thus may increase the risk to patients
compared to the INVOcell, which is placed in the vaginal cavity. Currently, AneVivoTM has obtained a CE Mark, but has not received
FDA approval.
For
additional information about competition, see Risk Factors in Item 1A of this Annual Report on Form 10-K.
Government
Regulation
In
November 2015, FDA granted our petition for de novo classification of the INVOcell. The INVOcell is intended for use in preparing, holding,
and transferring human gametes or embryos during IVC procedure with or without intra-cytoplasmic sperm injection fertilization (“ICSI”).
The special controls include clinical and non-clinical performance testing, biocompatibility, sterility and shelf-life testing, and labeling.
These special controls also apply to competing products that seek 510(k) clearance under the classification regulation for IVC systems,
including our own 510(k) effort to expand the labeling on INVOcell from a 3-day incubation period to up to a 5-day incubation
period.
We
are subject to regulation in each of the foreign countries where our products are sold. Many of the regulations applicable to our products
in such countries are similar to those of the FDA. The national health or regulatory organizations of certain countries require that
our products be qualified before they can be marketed in those countries. Many of the countries we are targeting either do not have a
formal approval process of their own or will rely on either FDA clearance or the European approval, the CE mark – although many
of these countries do require specific registration processes in order to list the INVOcell and make it available for sale.
With
our CE marking, we have the necessary regulatory authority to distribute our product, after registration, in the European Economic Area
(i.e., Europe, Australia, and New Zealand). In addition, we will have the ability to market in various parts of the Middle East, Asia
and South America. Every country has different regulatory and registration requirements, and we have begun or completed registrations
in a number of countries. In general, we are registering the product based on the size of the market and our ability to service it given
our resources as well as based on interest received from, and the execution of, agreements with distribution and joint venture partners.
We may be subject to healthcare fraud, waste,
and abuse regulation and enforcement by the federal government and the governments in the states and foreign countries in which we might
conduct our business. The federal laws and many state laws generally apply only to entities or individuals that provide items or services
for which payment may be made under a government healthcare program. These include laws that prohibit:
These laws are subject to extensive and increasing
enforcement by numerous federal, state, and local government agencies including the Office of Inspector General, the Department of Justice,
the Centers for Medicare & Medicaid Services, and various state authorities. At present, the Company’s products and services
are not reimbursable under any government healthcare program. If, however, that changes in the future and it were determined that the
Company was not in compliance with these federal fraud, waste, and abuse laws, the Company would be subject to liability.
We are subject to the requirements of the Health
Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act of 2009
(“HITECH Act”), and related implementing regulations (together, “HIPAA”). Under HIPAA, the Company must have
in place administrative, physical, and technical standards to guard against the misuse of individually identifiable health information.
In the ordinary course of our business as a Business Associate, and soon with INVO Centers, as a Covered Entity, we may use, collect,
and store sensitive data, including protected health information (“PHI”). We face risks relative to protecting this critical
information, including loss of access risk, inappropriate disclosure risk, inappropriate modification risk, and the risk of being unable
to adequately monitor our controls. Our information technology and infrastructure may be vulnerable to attacks by hackers or viruses
or breached due to employee error, malfeasance, or other disruptions. Failure to comply with HIPAA, including through a breach of PHI,
could result in penalties and sanctions, and materially harm our business.
For
additional information about government regulation applicable to our business, see Risk Factors in Item 1A.
Intellectual
Property
We
rely on a combination of patent, copyright, and trademark laws in the United States and other countries to obtain and maintain our intellectual
property. We protect our intellectual property by, among other methods, filing patent applications with the U.S. Patent and Trademark
Office and its foreign counterparts on inventions that are important to the development of our business.
Our product development process has resulted in
the development of one (1) patent currently live and in good standing covering the INVOcell device, which is set to expire on July 14,
2024 (US Pat. No. 7,759,115). We completed a redesign of the INVOcell device as well as process improvements on the IVC procedure, which
supported a new patent application that was filed on November 11, 2020 and is currently pending. We also filed a PCT (Patent Cooperation
Treaty) application for the new U.S. application on January 18, 2021 to further expand patent protection in strategic locations across
the globe.
Our portfolio of U.S. registered trademarks includes:
● Registration Nos. 6146631 and 3757982
for INVOCELL
● Registration No. 4009827 for INVO
● Registration No. 4009828 for INVO BIOSCIENCE
We also have pending U.S. applications to register
the trademarks INVO CENTER (App. No. 88564596), and Life Begins Within (App. No. 90803801).
For additional information about our intellectual
property, see Risk Factors in Item 1A of this Annual Report on Form 10-K.
Available
Information
We
maintain an internet website at www.invobio.com. We make available, free of charge through our website, our annual report on Form 10-K,
current reports on Form 8-K, quarterly reports on Form 10-Q and each amendment to these reports. Each such report is posted on our website
as soon as reasonably practicable after such report is filed with the SEC via the EDGAR system.
The
information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered a part
of this Annual Report. Our website address is included in this Annual Report as an inactive textual reference only.
Item
1A. Risk Factors
You
should carefully consider the following risk factors, in addition to the other information in this report on Form 10-K, including the
section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our financial statements and related notes. If any of the events described in the following risk factors and the risks described
elsewhere in this report on Form 10-K occurs, our business, operating results and financial condition could be seriously harmed. This
report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
The
following is a summary of certain important factors that may make an investment in our company speculative or risky. You should carefully
consider the full risk factor disclosure set forth in Item 1A of this Annual Report, in addition to the other information herein, including
the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our financial statements and related notes.
● Our business is subject to significant competition.
● We are subject to risks associated with doing business globally.
● We do not expect to pay any dividends to shareholders.
Risks
Relating to Our Business
Our
business has posted net operating losses, has a limited operating history, and needs additional capital to grow and finance its operations.
From
the inception of our consolidated subsidiary BioXcell Inc. on January 5, 2007, through December 31, 2021, we had an accumulated
net loss of $38.9 million. We have a limited operating history and are essentially an early-stage operation. We will continue
to be dependent on having access to additional new capital or generating positive operating cash flow primarily through increased device
sales and the development of our INVO Centers in order to finance the growth of our operations. Continued net operating losses together
with limited working capital make investing in our common stock a high-risk proposal. Our limited operating history may make it difficult
for management to provide effective insight into future activities, marketing costs, and customer acquisition and retention. This could
lead to INVO missing targets for the achievement of profitability, which could negatively affect the value of your investment.
We
may require additional capital to continue as a going concern and to continue executing our business plan, which if not obtained could
result in a need to curtail operations.
As
reflected in the accompanying financial statements for the year ended December 31, 2021, we continue to make progress toward commercialization
of our INVOcell and the development of our INVO Centers, although revenue is not yet sufficient to cover our current operations.
Longer term, based on our projected cash needs, we will be dependent on generating sufficient sales, entering into new distribution agreements,
the profitability of our INVO Centers, and/or raising additional debt or equity capital to support our operations. No assurance can be
given that we will be successful in raising capital in the amounts or at the rates required to continue operations, or that such capital,
if available, will be available on terms acceptable to us. If we are not able to raise additional capital at the rate and in the amounts
needed, our business may be significantly impacted, which could materially adversely affect the value of your investment.
Our existing INVO Centers were established as joint ventures with
medical partners. Future INVO Centers may also be established as joint ventures. These joint ventures will be important to our business.
If we are unable to maintain any of these joint ventures, or if they are not successful, our business could be adversely affected.
We
have established, and plan to establish additional, entered into, and may enter into additional, joint ventures for the operation of
our INVO Centers. Our existing and any future joint ventures may have a number of risks, including that our joint venture partners:
● may not perform their obligations as expected;
● may dispute the amounts of payments owed;
Additionally,
if one of our joint venture partners seeks to terminate its agreement with us, we may find it difficult to attract new joint venture
partners and the perception of our INVO Centers in the business and financial communities could be adversely affected.
Our
business is subject to significant competition.
The
fertility industry is highly competitive and characterized by well entrenched and long-standing practices as well as technological improvements
and advancements. New ART services, devices and techniques may be developed that may render the INVOcell obsolete. Competition in the
areas of fertility and ART services is largely based on pregnancy rates and other patient outcomes. Accordingly, the ability of our business
to compete is largely dependent on our ability to achieve adequate pregnancy rates and patient satisfaction levels. Our business operates
in highly competitive areas that are subject to change. New health care providers and medical technology companies entering the market
may reduce our and our INVO Centers’ market share, patient volume and growth rates, and could force us to alter our planned pricing
and INVO Center service offerings. Additionally, increased competitive pressures may require us to commit more resources to our and our
INVO Centers’ marketing efforts, thereby increasing our cost structure and affecting our ability to achieve, or the timing of achieving,
profitability. There can be no assurance that we will not be able to compete effectively, nor can there be any assurance that
additional competitors will not enter the market. Such competition may make it more difficult for us to enter into additional contracts
with fertility clinics or open profitable INVO Centers.
We
are subject to risks associated with doing business globally.
Our
operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws,
regulations and customs of various jurisdictions and geographies. Our operations outside the United States are subject to special risks
and restrictions, including, without limitation: fluctuations in currency values and foreign-currency exchange rates; exchange control
regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import
or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental
domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the U.S. Foreign Corrupt
Practices Act and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign
Assets Control. Acts of terror or war may impair our ability to operate in particular countries or regions and may impede the
flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become
more expensive for them to purchase imported products in their local currency, or sell at competitive prices, and we may be unable to
collect receivables from such customers. Further, changes in exchange rates may affect our net earnings, the book value of our assets
outside the United States and our stockholders’ equity. Failure to comply with the laws and regulations that affect our global
operations could have an adverse effect on our business, financial condition or results of operations.
Failure
to comply with the United States Foreign Corrupt Practices Act or similar laws could subject us to penalties and other adverse consequences.
We
are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies, including their suppliers,
distributors and other commercial partners, from engaging in bribery or other prohibited payments to foreign officials for the purpose
of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time
in the countries in which we distribute products. We have adopted formal policies and procedures designed to facilitate compliance with
these laws. If our employees or other agents, including our distributors or suppliers, are found to have engaged in such practices, we
could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and
results of operations.
We
need to manage growth in operations, and we may not be successful in implementing our growth strategy.
In
order to maximize potential growth in our current and potential markets, we may need to expand the scope of our services in the medical
device/bioscience industry. We continue to seek additional market strategies to increase the adoption of INVOcell, including the establishment
of stand-alone INVO Centers and our efforts to bring the INVOCell and IVC procedure into the existing OB/GYN infrastructure. Such expansion
will place a significant strain on our management, operational and sales systems. As a result, we plan to continue to improve our INVOcell
technology, operating procedures and management information systems. We will also need to effectively train, motivate and manage our
employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating revenues at the levels
we expect.
Many
factors including, but not limited to, increased competition from similar businesses, unexpected costs, costs associated with marketing
efforts and maintaining a strong client base may interfere with our ability to expand successfully. Our inability to implement our internal
strategy successfully may have a negative impact on our growth, future financial condition, results of operations and/or cash flows.
Our
products incorporate intellectual property rights developed by us that may be difficult to protect or may be found to infringe on the
rights of others.
While
we currently own U.S. and international patents, these patents may be challenged, invalidated or circumvented, and will ultimately expire.
In addition, the rights granted under these patents may not provide the competitive advantages we currently anticipate. Certain countries,
including the United States and in Europe, could place restrictions on the patentability of various medical devices which may materially
affect our business and competitive position. Additionally, the laws of some foreign countries, in particular China and India, do not
protect our proprietary rights to the same extent or in the same manner as U.S. laws, and we may encounter significant problems in protecting
and defending our proprietary rights in these countries. In addition to relying on patent, copyright and trademark laws, we also utilize
a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements to protect our intellectual
property rights. However, these measures may not be adequate to prevent or deter infringement or other misappropriation. Further, our
intellectual property rights may be found to infringe on intellectual property rights of third parties. Moreover, we may not be able
to detect unauthorized use or take appropriate and timely steps to establish and enforce our proprietary rights. Existing laws of some
countries in which we conduct business offer only limited protection of our intellectual property rights, if at all. As the number of
market entrants as well as the complexity of technology in the fertility marketplace increases, the possibility of functional overlap
and inadvertent infringement of intellectual property rights also increases.
We
may be forced to defend our intellectual property rights from infringement through expensive legal action.
Third
parties may in the future assert claims against us alleging infringement on their intellectual property rights. Defending such claims
may be expensive, time consuming and divert the efforts of our management and/or technical personnel. Because of litigation, we could
be required to pay damages and other compensation, develop non-infringing products or enter into royalty and/or licensing agreements.
However, we cannot be certain that any such licenses, will be made available to us on commercially reasonable terms.
We
regard our trade secrets, patents and similar intellectual property as critical to our successful operations. To protect our proprietary
rights, we rely on intellectual property and trade secret laws, as well as confidentiality and license agreements with certain employees,
customers and third parties. No assurance can be given that our intellectual property will not be challenged, invalidated, infringed
or circumvented. If necessary, we intend to defend our intellectual property rights from infringement through legal action, which could