INVO Bioscience, Inc. - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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x
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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| For the fiscal year ended December 31, 2008 |
or
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¨
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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| For the transition period from to |
INVO
BIOSCIENCE, INC.
(Exact
name of registrant as specified in Charter)
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Nevada
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333-147330
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20-4036208
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(State
or other jurisdiction of
incorporation
or organization)
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(Commission
File No.)
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(IRS
Employee Identification No.)
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100
Cummings Center, Suite 421E, Beverly, MA 01915
(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:
Common
Stock, $0.0001 par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES ¨ NO x
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 x
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 x
NO ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
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Large
Accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO x
The
aggregate market value of the voting stock held by non-affiliates of the
registrant, computed using the closing price as reported on the Over the Counter
Bulletin Board for the Registrant’s Common Stock as of April 9, 2009, was
$11,570,133.
The
number of shares outstanding of the Registrant’s Common Stock, $.0001 par value,
as of April 9, 2009 was 53,703,333.
FORM
10-K
INVO
BIOSCIENCE, INC.
TABLE OF CONTENTS
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Part I
Item 1.
Business
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. The Securities and Exchange
Commission 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, 2008 unless otherwise indicated. For a description
of the risk factors affecting or applicable to our business, see “Risk Factors,”
below.
The
Company
On
December 5, 2008, INVO Bioscience completed a reverse merger in the form of a
share exchange with Emy’s Salsa AJI Distribution Company, Inc.
(“Emy’s”). Emy’s was incorporated on July 11, 2005, under the laws of
the State of Nevada under the name Certiorari Corp. In connection
with the reverse merger, INVO Bioscience became our wholly-owned subsidiary and
the INVO Bioscience Shareholders acquired control of Emys as well as changed the
name of the Company.
INVO
Bioscience was formed in January 2007 under the laws of the Commonwealth of
Massachusetts under the name “Bio X Cell, Inc.,” which was the business
successor to Medelle Corporation (“Medelle”). Dr. Claude Ranoux was
the founder and vice president of Medelle and Kathleen Karloff was a vice
president of Medelle.
Between
2001 and 2006, Medelle raised $8 million in venture capital, which was used to
develop and validate a device called the “INVOcell.” Medelle
conducted pre-clinical safety testing and performed a human efficacy clinical
study. Due to a delay in obtaining U.S. Food and Drug Administration
(“FDA”) clearance for the INVOcell, venture capital investments ceased and, by
the end of 2006, Medelle ceased operations. Medelle assigned all of
its assets to a trustee who liquidated those assets and distributed the proceeds
to creditors. In that process, Dr. Ranoux purchased all of the assets
of Medelle for $20,000 and contributed those assets to Bio X Cell, Inc. upon its
formation in January 2007, including four patents related to the INVOcell
technology.
INVO
Bioscience’s principal business is providing its patented INVOcell technology to
help infertile couples have a baby. We have one principal product,
the manufacturing and distribution of the INVOcell technology. No
sales of the INVO device occurred between the inception of INVO Bioscience
through September 30, 2008. INVO Bioscience invoiced its first sales
of the INVOcell selling 215 units along with 16 INVO Blocks for total
revenue of $38,000 in the fourth quarter of 2008. Further, we
currently have signed contracts for the purchase of INVOcell devices in the
following countries: Turkey, Peru, Pakistan and Canada.
As with
most start-up situations one of the biggest challenges that INVO Bioscience is
facing is raising the appropriate capital to implement its business plan while
opening markets across the globe. The company is actively seeking
funding and is currently in discussions with a couple of Investor Relations
firms who will market the company and other Broker-Dealer firms who will act as
the company’s investment bankers and placement agents in securing the necessary
financing.
This
discussion is qualified in its entirety by the more detailed discussion of our
operations in the “Management’s Discussion and Analysis” section
below.
The
INVOcell Technology
Our sole
line of business is the distribution of the INVOcell medical device designed to
treat infertility at a far lower cost than in vitro fertilization
(“IVF”). The INVOcell technology is a fertility treatment where
either mild ovarian stimulation or no ovarian stimulation is
used. Using a mild stimulation protocol, 1-10 follicles are retrieved
in a physician’s office with the patient under light sedation with, or without,
local anesthesia. The follicle retrieval is performed using a vaginal
probe under ultrasound guidance. Eggs are identified immediately
after retrieval in the follicular fluid. During the INVO procedure,
fertilization and embryo development occurs inside the woman’s vaginal cavity in
a disposable single use device, the INVOcell that holds the eggs, sperm and
culture medium.
Sperm
collection and preparation generally occur before egg
retrieval. Nutrient medium (~1ml) is placed in the inner vessel of
the INVOcell. Eggs and a fraction of motile sperm are placed into the
medium and the inner vessel is closed and secured in the protective outer
vessel. The INVOcell is placed in the patient’s vaginal cavity for an
incubation period of 2-3 days. A retention system can be used to
maintain the INVOcell system in the vagina during the incubation
period. The retention system consists of a diaphragm with holes in
the membrane to allow natural elimination of vaginal secretions. The
INVOcell is designed so that no vaginal fluids penetrate the outer vessel thus
ensuring that the inner vessel is not contaminated. The procedure of
obtaining eggs, sperm and media then inserting them into the INVOcell and then
placing it in the vagina takes approximately 90 minutes.
After 2-3
days, the patient returns to the physician’s office where the retention system
and the INVOcell are removed. The protective outer vessel is
discarded and the inner vessel is placed in INVO Bioscience’s patented holding
block in a vertical position for 15 minutes. Embryos are collected in
the INVOcell’s micro chamber located at the bottom of the inner
vessel. The embryos can be directly viewed in the micro chamber in
the holding block by using a microscope. Embryos can be loaded
directly from the INVOcell device using a transfer catheter. A
trained operator can readily identify the best embryos for
transfer. The embryos to be transferred are aspirated into a standard
catheter for transfer into the patient’s uterus. This second visit
should take approximately 45 minutes. All INVO related medical
procedures could be performed in a physician’s practice with the
proper equipment and staff thereby avoiding the requirement of going to an IVF
facility.
Current
Market Opportunity
According
to the European Society for
Human Reproduction (“ESHRE”) in 2007, there were more than 100 million
infertile couples in the world. While there have been large increases
in the use of IVF, only about one million IVF cycles were performed in 2006,
which amounts to a treatment of less than 1% of the infertile couples
worldwide. Knowing that an average of 2-3 cycles of IVF is performed
per infertile couple, there are only 300,000-500,000 couples treated by
IVF. A survey by “Resolve: The National Infertility
Association,” reveals that the top two reasons couples do not use IVF are
cost and geographical availability. INVO Bioscience can provide a
locally available treatment option at less than half the cost of IVF that will
help millions of infertile couples throughout the world where IVF is not
currently available.
IVF is an
effective treatment option for many infertile couples. INVO
Bioscience’s patented and proven INVO technology is a low cost, unique fertility
treatment option that is much simpler to perform than IVF. The
procedure can be provided without an IVF center and therefore can be available
in many more locations than IVF. INVO is well positioned to capture a
significant share of the unmet market need. With INVO, fertilization
and early embryo development is done within the vaginal cavity rather than an
incubator. Oocytes and sperm are fertilized and developed into
embryos within the INVO device while contained by the woman’s vaginal
cavity.
Currently,
the 1% of infertile couples who receive infertility treatment, including IVF,
intra uterine insemination (“IUI”) and other fertility treatment, represents a
$6 billion worldwide market. This leaves 99% of the infertile couples
untreated with an estimated unmet market opportunity of $594 billion, a portion
of which, we believe will be met by the INVO device. Much of the
unmet market is located in developing countries where many patients cannot
afford, and have limited access to IVF. We believe that developing
countries offer a large and ready market for the INVOcell.
In May
2008, we received notice that the INVOcell device met all of the essential
requirements of the relevant European Directive, and received CE
marking. The CE marking (also known as a CE Mark) is a mandatory
conformity mark on many products placed on the single medical device market in
the European Economic Area, i.e., areas of the world that
accept the CE Mark include Europe, Canada, Australia, New Zealand, and most
parts of Latin America and the Middle East (“EEA”). The CE marking
(an acronym for the French “Conformité Européenne”) certifies that a product has
met Europe’s health, safety and environmental requirements, which ensure
consumer safety. Manufacturers in Europe and abroad must meet CE
marking requirements where applicable in order to market their products in
Europe. With CE marking, we now have the necessary regulatory
authority to distribute our INVOcell device in the EEA.
Currently,
we are establishing agreements with distributors and beginning to train
physicians in the developing world including Latin America Europe, Africa and
the Middle East. While we penetrate the infertility markets in Europe
and Canada along with the certain developing countries, we anticipate also
pursuing the completion of the FDA's “510(k)” process. We have
completed the first step for medical device companies who manufacture Class 2
devices (and a small number of Class 1 and 3 devices)and the filing of a
Premarket Notification with the FDA (i.e., an FDA 510(k)
submission). Technically, the FDA does not “approve” Class 1 and 2
medical devices for sale in the U.S.; rather, they give “clearance” for them to
be sold. We are hoping to receive clearance to market in
the U.S. by 2010 upon completion of our clinical trial. However,
there can be no assurance that we will receive such clearance by that date or
ever.
Operations
Strategy
INVO
Bioscience operates by outsourcing many key operational functions in the
development and manufacturing of the INVOcell device to keep fixed costs to a
minimum. Our most critical management and leadership functions are
carried out by our core team. We have contracted out the following
functions: manufacturing, packaging/labeling and sterilization of the
device. This expedites production and eliminates the need for
in-house capital equipment expenditures.
To date,
we have completed a series of important steps in the development and
manufacturing of the INVOcell:
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▪
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Development: The INVOcell
design and development have been completed and released to
manufacturing.
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▪
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Manufacturing: All parts
and processes have been validated. Manufacturing of inventory
is ongoing. As of April 13, 2009, we have 800 INVOcell devices ready
for sale As well as an additional 10,000 devices molded and
ready for sterilization and
packaging.
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▪
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Clinical
Trials: Safety and efficacy of the INVOcell
device have been tested on 84 patients at six investigational
sites. We are approximately 50 percent completed with our
clinical trials.
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▪
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Support
of Practitioners: Clinicians and laboratory
directors having used the INVO method are enthusiastic about the fact that
it is a patient-friendly procedure, easy to perform, simple and
efficacious.
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▪
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CE
Mark: INVO Bioscience has obtained a CE Mark that
will allow sales of INVO in Europe, Canada and many other
countries.
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▪
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Initiate
FDA Clearance: In parallel to the sale of products in
Europe, Canada and Latin America, INVO Bioscience intends to complete all
clinical and non-clinical studies in the late part of 2009 and thereafter
intends to finalize its FDA 510(k) filing and hoping to receive FDA
clearance by 2010.
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Competition
The
infertility industry is highly competitive and characterized by technological
improvements. New artificial reproductive technology (“ART”)
services, devices and techniques may be developed that may render the INVOcell
obsolete. Competition in the areas of infertility 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. The INVO procedure will offer an alternative
treatment to couples who currently do not have access to treatments because of
cost or location. Infertility clinics can expand their businesses by
offering INVO in satellite centers that can be opened at a substantially lower
cost than an IVF center. We are not aware of any direct competitors
to INVO Bioscience or the INVO process using the INVOcell
device. However, there are existing infertility treatment regimes
that the INVOcell will compete with when the infertile couple, in conjunction
with their physician, is choosing the treatment method for their
infertility. We believe that the menu of currently available clinical
infertility treatment methods is limited to IUI and IVF.
Competing
Treatments
Intra Uterine
Insemination: In
IUI treatments, ovarian stimulation protocols with induction of ovulation are
frequently used to recruit several follicles and improve clinical pregnancy
rates. When monitoring ovulation indicates that the female patient is
ready to ovulate, the male patient will produce a sperm sample in the fertility
doctor’s office. The sperm is then prepared and delivered to the
uterus through a catheter. IUI can only treat approximately 40% of
the causes of infertility. For example, IUI does not address
infertility causes such as tubal disease and other conditions that are treatable
by IVF and INVO. In addition, IUI does not produce the diagnostic
information such as fertilization that an IVF or INVO
cycle produces. Approximately 600,000 IUI cycles are performed
annually by a subset of 5,000 of the 40,000 fertility doctors in the U.S. as
well as by IVF providers. In Europe, at least 550,000 IUI cycles are
performed annually. The cost of a single IUI treatment can range from
$500 to $4,000 per cycle in the U.S. and $500 to $2,000 in
Europe. The intra-country differences in cost depend on the
stimulation protocol and the accuracy of the ovulation monitoring used by
physician.
In Vitro
Fertilization: IVF
addresses tubal factor, ovulatory dysfunction, diminished ovarian reserve,
endometriosis, uterine factor, male factor, unexplained infertility and other
causes. IVF bypasses the function of the fallopian tube by achieving
fertilization within a laboratory environment. Ovarian
hyper-stimulation is common with IVF treatments to recruit numerous follicles
and increase the chances for success. Follicles are retrieved
trans-vaginally using a vaginal probe and ultrasound
guidance. General anesthesia is frequently used due to the number of
follicles retrieved and the resulting discomfort experienced by the
patient. The eggs are identified in the follicular fluid and combined
with sperm and culture medium in culture dishes, which are placed in an
incubator with a temperature and gas environment designed to mimic the condition
of the fallopian tubes. Once the embryos develop, they are
transferred to the uterine cavity. The transfer of several embryos
allows an average success rate for IVF of 27%, but it is also responsible for a
high multiple birth rate of approximately 40% of IVF
pregnancies. Multiple births bring risks to mother and babies and
significant expenses for third party payers. In addition, due to the
high number of embryos produced in IVF, cryo-preservation of excess embryos
occurs in more than 30% of the cycles. In the U.S., there are
approximately 1,000 reproductive endocrinologists who collectively perform more
than 125,000 IVF cycles per year at 430 specialized facilities. In
Europe, nearly 300,000 IVF cycles are reportedly performed at more than 1,000
facilities.
The cost
to the patient for a single IVF cycle (including drugs) averages $12,400 in the
U.S. and can go as high as $20,000 depending on the IVF center. The
cost of drugs for an IVF cycle ranges from $2,500 to $3,500. The
average cost per live birth using IVF can exceed $50,000 since the successful
patient generally requires more than one cycle. Many patients who
would be good candidates for IVF are unable to access it because of the high
cost and lack of insurance reimbursement. Additional obstacles to IVF
often include significant distances to IVF clinics; travel costs; and time off
from work. In addition, some couples experience concerns regarding
IVF such as the possibility of laboratory errors resulting in receiving another
person’s embryo.
Competitors
We
operate in a highly competitive industry, which is subject to
competitive pricing and rapid technological change. The market
for fertility treatment and devices are highly competitive in terms of pricing,
functionality and service quality, the timing of development and introduction
of new products and services and terms of financing. We face
competition from all ART practitioners and device manufacturers. Our
competitors may implement new technologies before we do, allowing them to
offer more attractively priced or enhanced products, services or solutions than
we provide. Some of our competitors may have greater resources in
certain business segments or geographic markets than we do. We may
also encounter increased competition from new market entrants or alternative ART
technologies. Our operating results significantly depend on our
ability to compete in this market environment, in particular on our ability to
adapt to economic or regulatory changes, to introduce new products to the
market and to enhance the functionality while reducing the cost of new and
existing products.
Our
principal ART medical-device competitor is Anecova, a Swiss start-up life
sciences company with an intrauterine device under development for infertility
treatment. This device is a very small silicone tube with 360 micro
perforations. Oocytes are fertilized outside the device and then
placed in the tube, which is placed inside the woman’s uterus for early embryo
development. After 1-5 days, the device is removed and the best
embryo(s) are transferred back into the woman’s uterus. We believe
that the device is much more difficult to use than the INVOcell due to its size
and the requirement to place the device in the uterus, a sterile
environment. The precision manufacturing of the Anecova device will
drive its cost close to $1,500, which is higher than our price. If
the Anecova device is shown to be effective, it is likely that the device would
only be available in hospitals and IVF Centers at a significantly higher cost
than the INVOcell. This procedure still needs the complex equipment
of an IVF center.
Competitive
Advantages
We
believe that the INVOcell has the following competitive advantages:
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·
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Lower
cost than IVF with similar efficacy: INVO will be
substantially less expensive than IVF due to the shorter time to execute
the procedure, lower costs of supplies, labor, capital equipment and
overhead. An IVF center requires at least $500,000 of
laboratory capital equipment and highly trained personnel. In
contrast, the cost of laboratory capital equipment to set-up an INVO
procedure is approximately $30,000. The global success rate for
IVF varies dramatically from 13.6% to 40.5% with an average of 27% per
cycle (ESHRE, ICMART Committee, June 21, 2006). We foresee that
INVO will be offered at approximately $5,000 per cycle with a pregnancy
rate comparable to traditional IVF (20% versus 27%, INVO to IVF,
respectively). In Europe, IUI currently averages $1,000 per
cycle and IVF averages $5,000. INVO in Europe will be offered
at approximately $2,500 per cycle. In Europe, the average cost
per pregnancy for IVF is
$21,354.
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·
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Similar
cost than IUI with greater efficacy: In the U.S. currently, IUI
averages $1,500 per cycle with <10% pregnancy rate while IVF averages
$12,400 per cycle with an average of 27% pregnancy rate. With
INVO, we believe that the Ob/Gyn or reproductive endocrinologist
practitioners will benefit by providing a superior product than IUI with
good financial margins, efficacy rates more than double IUI while treating
the full range of infertility indications. In Europe, the
average cost per pregnancy using IUI is $12,000. The average
cost per pregnancy for IVF is $21,354 while for INVO it is expected to be
only $13,888: a savings of more than $7,000 per
pregnancy. Using INVO could reduce annual infertility costs in
Europe by more than $650
million.
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·
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Greater
geographic availability: There are approximately 430 IVF
centers in the U.S. In Europe, there are more than 1,000 IVF
centers. In addition, by having INVO geographically available
in satellite offices, couples will not have the travel costs and absence
from work associated with IVF treatments. The medical staff at
these centers can be trained to do the INVO procedure and offer it as a
lower cost treatment option for their patients through satellite
centers. There are also 5,000 Ob/Gyn physicians in the U.S. who
offer infertility services (IUI). Since INVO requires
less specialized lab equipment than a conventional IVF laboratory,
it may be offered in a physician’s center or
practice. Therefore, in the U.S. alone, INVO could be 10 times
more available than conventional IVF. This also allows
physician practices worldwide to offer INVO as an
alternative or follow up treatment to IUI and generate a significant new
revenue
stream.
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·
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Greater patient involvement:
With INVO, the patient uses her own body as the incubation
environment. This creates a greater sense of involvement,
comfort and participation for patients who know that the fertilization is
happening within their own bodies. In some cases, this frees
the couples from ethical or religious concerns, or fears of laboratory
mix-ups that could result in a patient receiving another couple’s
embryo(s).
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Sales
and Marketing
Product
Pricing
We
anticipate employing the following pricing system for the INVOcell
technology. These prices were determined through discussions with our
informal advisory board of physicians and potential strategic partners and
reflect the innovative features of the device, the savings in physician’s
laboratory fixed costs and the amount that a physician will receive from
patients to perform INVO.
INVOcell device: Our cost to manufacture,
package, sterilize, test and label the INVOcell device is less than $50 per
unit. We expect to sell the INVOcell device and its retention system
for between $75 and $450 per unit. IVF centers or Ob/Gyn groups
purchasing a large number of devices and promoting the INVO process will receive
discounted prices and a limited amount of free advertising of their facility on
our website. It is expected that the INVOcell will sell for $450 in
the U.S., which grants a single-use license under our patents. When
sold to infertility specialists located in Central and South America and Europe,
the price of the device will be reduced to between $75-$300 to reflect a
generally lower cost of infertility procedures in most of these countries and to
make INVOcell available to populations with lower incomes.
Holding/Warming Blocks: The holding blocks will
be sold as a tool for viewing and retrieving the embryos from the inner
chamber. Each physician will need a minimum of two blocks depending
on the number of cycles he/she performs. The blocks cost $100 per
block, will sell for $200-$400 and will constitute an additional revenue
stream.
Physician Training: The price of the
training has been set at $1,000-$2,000 per physician practice /IVF
center.
Fixed Laboratory Equipment: The equipment used in
the INVO procedure (microscope with video system, bench centrifuge, incubator
without CO2, bench
warmer and laminar flow hood) is readily available in the
market. INVO Bioscience has had initial discussions with an equipment
supplier that has a mobile bench and hood with all the required
equipment. We intend to establish an agreement with this company to
provide INVO Bioscience’s customers with a discount and financing to facilitate
new customer entry into the INVO market in the future, however, there can be no
assurance that we will be successful in this effort. The complete set
up for the INVO procedure is approximately $33,000 in Europe and $50,000 in the
U.S.
Our
Sales Team
We
currently employ two Business Development Managers, who are charged with all of
our sales efforts. We anticipate growing our sales team to six in
2009, however, if we do not raise sufficient capital or generate sufficient
revenue to do so we will not be successful in growing our sales
team. Our sales efforts follow two approaches:
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a.
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Direct Physician Sales
through Distributors -- In many countries, we intend to establish
local distributors to access the countries’ markets. With the
distributor-to-physician model, the distributors will be selling to IVF
centers and physicians directly. In Canada, we have a signed
distribution agreement with the country’s largest infertility products
distributor, Meditech 1st,
who intends to conform to this model. We have signed
distribution agreements in the following countries: Turkey, Peru,
Pakistan and
Thailand.
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|
b.
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Direct Sales to
Physicians -- We are also following a parallel path directly to
leading infertility doctors in regions where there is demand but we have
not yet signed distribution agreements. Part of this path is
the training of physicians on the use of the INVO. To date, we
have completed training infertility doctors in Austria, Germany, India,
Togo, Colombia and the U.K. We believe that the physicians in
these countries are key opinion leaders who are influential in the
fertility industry, which can assist us in launching the INVO procedure in
those regions.
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Target
Markets
Currently
and through 2009, we anticipate that we will launch the sale of the INVOcell
device in Europe, Canada, Latin America and the Middle East. During
2010, or at such time that we receive FDA approval, we anticipate launching the
INVOcell in the U.S. In 2011, we anticipate the launch of
the INVOcell product in China, Russia and other countries where an alternative
treatment is needed.
Worldwide --
According to the European
Society for Human Reproduction (ESHRE, 2007) there are more than 100
million infertile couples in the world. About one million IVF cycles
were performed in 2006, which is less than 1% of the infertile couples
worldwide. More than 99 million infertile couples remain untreated
due to cost, availability, awareness and other factors.
U.S. -- According to
the Centers for Disease Control, 7.3 million people in the U.S. have difficulty
conceiving. With only 350,000 couples receiving fertility treatment,
more than six million couples receive no treatment. According to
Integramed, Inc., a U.S. based network of fertility centers, 97% of the
untreated infertile couples do not receive treatment due to
cost. Working with our advisory board, we estimate that an INVO
procedure in the U.S. will cost approximately $5,000
dollars.
Europe -- Europe has
approximately 10 million infertile couples of which 137,000 are estimated to
have received IVF treatment and 183,000 received IUI (ESHRE) leaving 9.5 million
infertile couples untreated.
Preliminary
Sales Strategy
INVO
Bioscience has received the CE Mark that allows us to sell product in Europe,
Canada and other countries such as in Latin America, the Middle East, India and
other parts of Asia. Our strategy is to launch product in the
developing world first because of the high demand and relatively low IVF
infrastructure.
Franchising
Model
We are
presently establishing and implementing a franchising model in addition to the
foregoing direct sales efforts. We believe that a franchising model
whereby we assist with the establishment of fertility centers offering the
INVOcell technology could be the quickest manner to generate revenue from the
INVOcell. The franchising method offers control and influence over
how our product is distributed, in contrast to a distribution sales force that
sells the product alone. Franchising allows the sale of a standard
and proven business model that is complete with training and marketing material,
equipment, site selection, brand name recognition and a business
plan. We believe that this model could generate greater revenue than
that of the sale of INVOcell alone.
Current
Franchising Agreements
We have a
signed franchise agreement currently with a Turkish IVF product distributor to
introduce the INVO procedure to IVF centers in its regions. Two IVF
centers in Turkey started performing INVO procedures in the first quarter of
2009. We will use the franchising model primarily in the Middle East,
Latin America and the developing nations that have limited access to infertility
treatments.
We are
currently in talks with many other physicians and distributors in many regions
of the world developing this model. Further, we entered into a
written agreement on August 26, 2008, with Galaxy Pharma to set up INVO Centers
in Pakistan. In the first quarter 2009, 2 existing IVF Centers
started using the INVOcell as well as 2 new INVO-based IVF centers opened,
Karachi, Lahore, Sargodha and Islamabad. We anticipate up to 20 new
INVO Centers opening in Pakistan in 2009-2010, however, there is no assurance
that we can achieve this many clinics in this period, if
ever.
Other
Models
Latin
America: INVO Bioscience has started to launch INVO in the
Latin American market in the first quarter of 2009. We
believe that these countries have more than five million infertile couples who
could benefit from our technology. INVO Bioscience initially will
target Colombia, Venezuela, Peru and Ecuador due to market demand in these
countries. In order to sell a class two device, such as the INVOcell,
INVO Bioscience will establish a contract with local distributors who sell
medical devices in these countries. The distributor will complete the
registration of the product, which process permits us to sell the
INVOcell. No clinical trials or FDA approvals are
required.
United
States: Launching INVO in the U.S. market requires 510(k)
clearance, which we hope to receiving in 2010 upon completion of our clinical
trials estimated for 2009. INVO Bioscience has
completed the required human confirmatory study. The births of normal
babies have been confirmed in this study using the INVOcell. It will
take nine months and approximately $500,000 of funding to complete the data
collection on all required subjects, analyze the data, have an independent audit
and submit the full 510(k) to the FDA. The FDA has 90 days to review
the submission from INVO Bioscience. All preclinical data and testing
has been completed and reviewed by FDA. We expect to receive approval
to sell the INVO without further studies at that time. However, there
is no assurance that will be the case. INVO Bioscience will launch
INVO through key IVF centers in the U.S. once FDA clearance is
achieved. Our U.S.-based board of advisors and participants in our
clinical trials has indicated a desire to be among the first to offer INVO to
their patients. The success of these IVF centers with INVO will
assist in expanding INVO Bioscience’s share of the IVF center market in the
U.S. INVO Bioscience will also target the 5,000 Ob/Gyn doctors with
experience in infertility treatment.
Insurance
Reimbursement for Infertility Treatment
Most
European countries have some level of coverage for infertility treatment, but
the level of coverage varies from country to country and even within
countries. For example, the National Health Service in the UK covers
20% of most costs for infertility treatment. However, that standard
is not applied universally throughout the country and some counties provide
almost none. In
the U.S., fifteen states mandate some form of insurance reimbursement for
infertility treatment. Three states mandate reimbursement for IVF,
while other states cover some form of infertility treatment, they may
specifically exclude IVF due to cost. In addition, fifteen other
states are considering mandating some form of coverage for infertility
treatment. Finally, there are bills under consideration in the U.S.
Congress for a federal mandate to provide insurance coverage for infertility
treatments universally across the nation.
We
believe that the INVO treatment will be treated favorably by insurance companies
because it lowers cost and has a high efficacy rate. In Europe, the
average cost per pregnancy using IUI is $12,000 and IUI is appropriate for only
40% of the infertile population. However, for INVO, which is
marginally more expensive at $13,888 per pregnancy, is a more effective
treatment for a majority of infertile couples than IUI. The average
cost per pregnancy for IVF is $21,354. Therefore, there is a savings
of more than $7,000 (over 33%) per pregnancy by using INVO versus
IVF. Using INVO could reduce infertility costs in Europe by more than
$650 million.
Currently,
many third-party payers require that an infertile patient have at least three
cycles of IUI before going on to IVF. The aggregate success rate of
three IUI’s is 25%. Therefore, up to 75% of those patients are often
referred to IVF. In the future, third-party insurance payers could
save more than $7,000 per pregnancy by requiring the patient to try INVO
first.
Branding
and Promotion
We have a
new logo refined for the infertility market. . At the same
time, we are developing a website that includes special pages for clinicians and
patients. The next generation website will include materials that
medical professionals and patients can print, including status reports and news
items. It will include a training video for potential customers who
want to learn exactly how INVO works.
Regulation
Domestic
Regulations
The
manufacture and sale of our products are subject to extensive regulation by
numerous governmental authorities, principally by the FDA and corresponding
foreign agencies. The FDA administers the Federal Food, Drug and
Cosmetic Act and the regulations promulgated there under. We are
subject to the standards and procedures with respect to the manufacture of
medical devices and are subject to inspection by the FDA for compliance with
such standards and procedures. The FDA classifies medical devices
into one of three classes depending on the degree of risk associated with each
medical device and the extent of control needed to ensure safety and
effectiveness. The INVOcell device and process must secure a 510(k)
pre-market notification clearance before it can be introduced into the
United States market. The process of obtaining 510(k) clearance
typically takes several months and may involve the submission of limited
clinical data supporting assertions that the product is substantially equivalent
to an already approved device or to a device that was on the market before the
enactment of the Medical Device Amendments of 1976.
Every
company that manufactures or assembles medical devices is required to register
with the FDA and adhere to certain “good manufacturing practices” in accordance
with the FDA’s Quality System Regulation, which regulates the manufacture of
medical devices, prescribes record-keeping procedures and provides for the
routine inspection of facilities for compliance with such
regulations. The FDA also has broad regulatory powers in the areas of
clinical testing, marketing and advertising of medical devices.
Medical
device manufacturers are routinely subject to periodic inspections by the
FDA. If the FDA believes that a company may not be operating in
compliance with applicable laws and regulations, it can:
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place
the company under observation and re-inspect the
facilities;
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issue
a warning letter apprising of violating
conduct;
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detain
or seize products;
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mandate
a recall;
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enjoin
future violations; and
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assess
civil and criminal penalties against the company, its officers or its
employees.
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International
Regulations
We are
also 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
social security organizations of certain countries require that our products be
qualified before they can be marketed in those countries. Many of the
Asian and Latin American countries we are targeting do not have a formal
approval process.
CE
Mark
INVO
Bioscience’s activities during its development stage have included developing
the business plan, seeking regulatory clearance in Europe and the United States
and raising capital. In May 2008, INVO Bioscience received notice
that the INVOcell product met all the essential requirements of the relevant
European Directive(s), and received CE marking. The CE mark is a
mandatory conformity mark on many products placed on the single market in the
European Economic Area (EEA). The CE mark (an acronym for the French
"Conformité Européenne") certifies that a product has met EU health, safety and
environmental requirements, which ensure consumer safety.
With CE
marking, the Company now has the ability and necessary regulatory authority to
distribute its product in the European Economic Area (i.e., Europe, Canada,
Australia, New Zealand, most parts of the Middle East and Latin
America).
Intellectual
Property
More than
800 cases of an INVO procedure have been documented in peer-reviewed journals
since the 1980s, using an incubation device not specifically designed for the
process but functionally capable of demonstrating success rates equivalent to
IVF at that time. The INVOcell device was specially developed and
manufactured to optimize the ease of use and effectiveness of the procedure at
an affordable price. This product development process has resulted in
five active patents worldwide covering both the INVOcell device and the INVO
process. These patents were transferred to and are the property of
Bio X Cell, Inc, a wholly own subsidiary of INVO Bioscience, Inc.
Patents
The
Company has 4 active worldwide product and process patents that are constantly
being reviewed and new works are in process. We will continue to seek
patents for certain products and technology. Additionally we treat
our products and technology as proprietary and rely on trade secret laws and
internal non-disclosure safeguards.
Employees
As of
December 31, 2008, we have seven full-time employees. We consider our
relationship with our employees to be good.
Available
Information
We
maintain an Internet website at www.invobioscience.com. We make
available, free of charge through our website, our annual report on Form 10-K,
current reports on Form 8-K, future quarterly reports on Form 10-Q will be made
available 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 Securities and Exchange Commission, or 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.
Investing
in our Common Stock involves a high degree of risk. Prospective investors
should carefully consider the risks described below, together with all of the
other information included or referred to in this Annual Report on Form 10-K,
before purchasing our Common Stock. There are numerous and varied
risks, known and unknown, that may prevent us from achieving our goals.
The risks described below are not the only ones we will face. If any
of these risks actually occurs, our business, financial condition or results
of operation may be materially adversely affected. In such case, the
trading price of our Common Stock could decline and investors could lose all or
part of their investment. The risks and uncertainties described below are
not exclusive and are intended to reflect the material risks that are specific
to us , material risks related to our industry and material risks related to
companies that undertake a public offering or seek to maintain a class of
securities that is registered or quoted on an over-the-counter
market.
Except
for historical matters, matters discussed in this Annual Report on Form 10-K
contains forward looking statements that involve risks and uncertainties,
principally in the sections entitled “Description of Business,” “Risk Factors,”
and “Management’s Discussion and Analysis of Financial Condition or Plans of
Operations.” All statements other than statements of historical fact
contained in this Annual Report on Form 10-K, including statements regarding
future events, our future financial performance, business strategy and plans and
objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements
by terminology including “anticipates,” “believes,” “can,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“should,” or “will” or the negative of these terms or other comparable
terminology. Although we do not make forward-looking statements
unless we believe we have a reasonable basis for doing so, we cannot guarantee
their accuracy.
These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks outlined under “Risk
Factors” or elsewhere in this Current Report on Form 10-K, which may cause our
or our industry’s actual results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements. Moreover, we operate in a very competitive and rapidly
changing environment. New risks emerge from time to time and it is
not possible for us to predict all risk factors, nor can we address the impact
of all factors on our business or the extent to which any factor, or combination
of factors, may cause our actual results to differ materially from those
contained in any forward-looking statements.
We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy, short term
and long-term business operations, and financial needs. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this Annual Report on Form 10-K, and in particular, the risks
discussed below and under the heading “Risk Factors” and those discussed in
other documents we file with the Securities and Exchange Commission (“SEC”) that
are incorporated into this Annual Report on Form 10-K by
reference.
The
following discussion should be read in conjunction with our consolidated
financial statements and notes thereto. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Annual Report on
Form 10-K may not occur and actual results could differ materially and adversely
from those anticipated or implied in the forward-looking statement.
Our
business has posted net operating losses, has limited operating history and will
need capital to grow and finance its operations.
From the
inception of our operating subsidiary, BioXcell Inc., until December 31, 2008,
INVO Bioscience had a net loss of $2,087,000. INVO Bioscience has a
limited operating history and is essentially an early-stage
operation. We will continue to be dependent on having access to
working capital that will allow us to finance operations during its growth
period. Continued net operating losses together with limited working
capital make investing in our Common Stock a high-risk proposal. The
adverse effects of a limited operating history include reduced management
visibility into forward sales, marketing costs, customer acquisition and
retention, which could lead to missing targets for achievement of
profitability.
We
require substantial additional capital to continue as a going concern which if
not obtained could result in a need to curtail or cease operations.
As
reflected in the accompanying financial statements, the Company is in the
development stage with minimal revenues, had a net loss of $1,873,000, a working
capital deficiency of $690,000, a stockholder deficiency of $676,600, and cash
used in operations of $1,066,000 for the year ended December 31, 2008. This
raises substantial doubt about its ability to continue as a going
concern. The ability of the Company to continue as a going concern is
dependent on the Company’s ability to raise additional capital and implement its
business plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
We
require substantial additional funding to meet our future operating and capital
expenditure requirements. To execute on our business plan
successfully, we will need to raise additional money in the
future. The exact amount of funds raised, if any, will determine how
aggressively we can grow and what additional projects we will be able to
undertake. No assurance can be given that we will be successful that
we will be able to raise capital when needed or at all, or that such capital, if
available, will be on terms acceptable to us. If we are not able to
raise additional capital, our business will likely suffer.
Our
business is subject to significant competition.
The
infertility industry is highly competitive and characterized by technological
improvements. New artificial reproductive technology (“ART”)
services, devices and techniques may be developed that may render obsolete the
INVOcell. Competition in the areas of infertility 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 continual change. New health care providers
and medical technology companies entering the market may reduce our market
share, patient volume and growth rates. Additionally, increased
competitive pressures may require us to commit more resources to our marketing
efforts, thereby increasing our cost structure and affecting our
profitability. There can be no assurance that we will not be able to
compete effectively nor can there be assurance that additional competitors will
not enter the market, or that such competition will not make it more difficult
for us to enter into additional contracts with fertility clinics or open
profitable INVOcell clinics.
We
need to manage growth in operations to maximize our potential
growth.
In order
to maximize potential growth in our current and potential markets, we believe
that we must expand the scope of our services in the bioscience
industry. This expansion will place a significant strain on our
management and our operational and sales systems. We expect that we
will need to continue to improve our INVO 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
the revenues we expect.
Our
internal growth strategy may not be successful which may result in a negative
impact on our growth, financial condition, results of operations and cash
flow.
One of
our strategies is to grow internally through increasing the customers we
target. However, many obstacles to this expansion exist, including,
but not limited to, increased competition from similar businesses, unexpected
costs, costs associated with marketing efforts and maintaining a strong client
base. Therefore, we cannot assure you that we will be able to
successfully overcome such obstacles and establish our services in any
additional markets. Our inability to implement this internal growth
strategy successfully may have a negative impact on our growth, future financial
condition, results of operations or cash flows.
We
may be unable to implement our strategies in achieving our business
objectives.
Our
business plan is based on circumstances currently prevailing and the bases and
assumptions that certain circumstances will or will not occur, as well as the
inherent risks and uncertainties involved in various stages of
development. However, there is no assurance that we will be
successful in implementing our strategies or that our strategies, even if
implemented, will lead to the successful achievement of our
objectives. If we are not able to implement our strategies
successfully, our business operations and financial performance may be adversely
affected.
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 four patents, there can be no assurance that any of these
patents will not be challenged, invalidated or circumvented, or that any rights
granted under these patents will in fact provide competitive advantages to
us. The U.S. or Europe could place restrictions on the patentability
of medical devices. Any limitations on the patentability of medical
devices may materially affect our business. We utilize a combination
of trade secrets, confidentiality policies, non-disclosure and other contractual
arrangements in addition to relying on patent, copyright and trademark laws to
protect our intellectual property rights. However, these measures may
not be adequate to prevent or deter infringement or other
misappropriation. Moreover, we may not be able to detect unauthorized
use or take appropriate and timely steps to establish and enforce our
proprietary rights. In fact, 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 the technology increases, the possibility of functional
overlap and inadvertent infringement of intellectual property rights also
increases.
We
must defend our intellectual property rights from infringement through extensive
legal action.
Third
parties may assert in the future, claims against us alleging that we infringe
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 or licensing agreements. However, we
cannot be certain that any such licenses, if available at all, will be
available to us on commercially reasonable terms.
We regard
our trade secrets, patents and similar intellectual property as critical to our
success. We rely on patent and trade secret law, as well as
confidentiality and license agreements with certain of our employees, customers
and others to protect our proprietary rights. No assurance can be
given that our patents will not be challenged, invalidated, infringed or
circumvented, or that our intellectual property rights will provide competitive
advantages to us. In addition, we intend to defend our intellectual
property rights from infringement through legal action if needed, which could be
very costly which would adversely affect our profitability. Our
limited capital resources could put us at a disadvantage if we are required to
take legal action to enforce our intellectual property rights.
We
face potential liability as a provider of a medical device. These
risks may be heightened in the area of artificial reproduction.
The
provision of medical devices entails the substantial risk of potential claims of
tort injury claims. The Company does not engage in the practice of
medicine or assume responsibility for compliance with regulatory requirements
directly applicable to physicians. Although we currently maintain
product liability insurance that we believe is adequate as to risk and amount,
successful claims could exceed the limits of our insurance and could have a
material adverse effect on our business, financial condition or operating
results. Moreover, there can be no assurance that we will be able to
obtain such insurance on commercially reasonable terms in the future or that any
such insurance will provide adequate coverage against potential
claims. Further, a claim asserted against us could be costly to
defend, could consume management resources and
could adversely affect our reputation and business, regardless of
the merit or eventual outcome of such claim.
There are
inherent risks specific to the provision of infertility and ART
services. For example, the long-term effects on women of the
administration of fertility medication, integral to most infertility and ART
services, are of concern to certain physicians and others who fear
the medication may prove to be carcinogenic or cause other medical
problems. Currently, fertility medication is critical to most
infertility and ART services and a ban by the FDA or foreign regulatory or other
limitation on its use would have a material adverse effect on our
business.
If
we fail to maintain adequate quality standards for our products, our business
may be adversely affected and our reputation harmed.
Our
customers are expecting that our products will perform as we
claim. Our manufacturing companies and packaging processes will be
relied up on heavily. A failure to sustain the specified quality
requirements could result in the loss of demand for our
products. Delays or quality lapses in our production lines could
result in substantial economic losses to us. Although we believe that
our continued focus on quality throughout the Company adequately addresses these
risks, there can be no assurance that we will not experience occasional or
systemic quality lapses in our manufacturing and service
operations. We have limited manufacturing capabilities, and if our
manufacturing capabilities are insufficient to produce an adequate supply of
products at appropriate quality levels, our growth could be limited and our
business could be harmed. If we experience significant or prolonged
quality problems, our business and reputation may be harmed, which may result in
the loss of customers, our inability to participate in future customer product
opportunities and reduced revenue and earnings.
We
heavily rely on third party package delivery services, and a significant
disruption in these services or significant increases in prices may disrupt our
ability to import or export materials, increase our costs and lower our
profitability.
We ship a
significant portion of our products to our customers through independent package
delivery companies. If any of our key third party package delivery
providers experience a significant disruption such that any of our products,
components or raw materials cannot be delivered in a timely fashion or such that
we incur additional shipping costs that we could not pass on to our customers,
our costs may increase and our relationships with certain of our customers may
be adversely affected. In particular, if our third party package
delivery providers increase prices and we are not able to find comparable
alternatives or adjust our delivery network, our profitability could be
adversely affected.
We
depend on our key management personnel and the loss of their services could
adversely affect our business.
We place
substantial reliance upon the efforts and abilities of our executive officers,
Kathleen Karloff and Claude Ranoux. The loss of the services of our
executive officers could have a material adverse effect on our business,
operations, revenues or prospects. We do not maintain key man life
insurance on the lives of these individuals.
We
will need additional, qualified personnel in order to expand our
business. Without additional personnel, we will not be able to expand
our business.
Expanding
our business entails increasing the number of persons engaged in activities for
the sale and marketing of our products as well as clinical training personnel
for the proper training of the INVO procedures. Upon receiving
funding, we are planning to hire employees in both of these
areas. However, we cannot be sure that we will able to find, attract
and retain potential employees with the proper background and
training matching the skills required for the positions.
Our
revenues and operating results could fluctuate significantly from quarter to
quarter, which may cause our stock price to decline.
Since our
inception, we have recognized minimal revenue. Our results from
year-to-year and from quarter-to-quarter are expected to vary significantly
based on ordering cycles of distributors and physicians who we plan to pursue
for sales, and the payment cycle of such organizations. As a result
of these and other factors, we believe that period-to-period comparisons of our
operating results will not be meaningful and that you should not rely upon our
performance in a particular historical period as an indication of our
performance in any future period.
Currency
exchange fluctuations may affect the results of our operations.
We intend
to distribute our INVOcell product throughout the world. We intend to
transact our international sales in U.S. dollars, and European, Latin American
and Asian currencies. Our results of operations thus will be affected
by fluctuations in currency exchange rates. Although we may enter
into foreign currency exchange forward contracts from time to time to reduce our
risk related to currency exchange fluctuation, our results of operations might
still be negatively affected by foreign currency exchange
rates. Because we do not anticipate that we will hedge against all of
our foreign currency exposure, our business will continue to be susceptible to
adverse foreign currency fluctuations.
We
are subject to risks in connection with changes in international, national and
local economic and market conditions because of global
developments.
Our
business is subject to risks in connection with changes in international,
national and local economic and market conditions because of global
developments. Beyond the risks of doing business internationally,
there is also the potential impact of changes in the international, national and
local economic and market conditions as a result of global developments,
including the effects of global financial crisis, effects of terrorist acts and
war on terrorism, U.S. and Canadian presence in Iraq and Afghanistan, potential
conflict or crisis in North Korea or Middle East and current global credit
crisis, negatively affecting infertile couples’ ability to pay for fertility
treatment around the world.
International
sales will account for a significant part of our revenue especially in this
period as we pursue FDA clearance. We will experience additional
risks associated with these sales, which include:
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political
and economic instability;
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export
controls;
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changes
in legal and regulatory requirements;
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United
States and foreign government policy changes affecting the markets for our
products; and
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changes
in tax laws and tariffs.
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Any of
these factors could have a material adverse effect on our business, results of
operations and financial condition. We sell our products in certain
international markets mainly through independent distributors. If a
distributor fails to meet annual sales goals, it may be difficult and costly to
locate an acceptable substitute distributor. If a change in our
distributors becomes necessary, we may experience increased costs, as well as a
substantial disruption in operations and a resulting loss of
revenue.
We
have only two directors, which limits our ability to establish effective
independent corporate governance procedures and increases the control of our
president.
We have
only two directors, one of which is also our President and Treasurer and the
other, the Chief Executive Officer (CEO). Accordingly, we have not
established board committees comprised of independent members to oversee
functions like compensation or audit issues.
Until we
have a larger board of directors, which would include some independent members,
there will be limited oversight of our President and CEO ’s decisions and
activities and little ability for minority shareholders to challenge or reverse
those activities and decisions, even if they are not in the best interests of
minority shareholders.
We
are subject to significant regulation by the government and other regulatory
authorities.
Our
business is heavily regulated in the United States and
internationally. In addition to the FDA, various other federal, state
and local regulations also apply. If we fail to comply with FDA or
other regulatory requirements, we could be subjected to civil and criminal
penalties, or even required to suspend or cease operations. Any such
actions could severely curtail our sales. In addition, more
restrictive laws, regulations or interpretations could be adopted, which could
make compliance more difficult or expensive or otherwise adversely affect our
business. We devote substantial resources to complying with laws and
regulations; however, the possibility cannot be eliminated that interpretations
of existing laws and regulations will result in findings that we have not
complied with significant existing regulations. Such a finding could
materially harm the business. Moreover, healthcare reform is
continually under consideration by regulators, and the Company does not know how
laws and regulations will change in the future.
We
are conducting clinical trials related to newer technologies that may prove
unsuccessful and have a negative impact on future sales.
We are
conducting clinical trials related to the INVOcell. While we are
confident in the future outcomes of these trials, an unsuccessful trial could
affect the marketability of this product in the future and to the receipt of FDA
clearance in particular.
Changes
in the healthcare industry may require us to decrease the selling price for our
products or could result in a reduction in the size of the market for our
products, each of which could have a negative impact on our financial
performance.
Trends
toward managed care, healthcare cost containment and other changes in government
and private sector initiatives in the U.S. and other countries in which we do
business could place increased emphasis on the delivery of more cost-effective
medical therapies, which could work in our favor unless more cost-effective
devices become available, which could adversely affect the sale and/or the
prices of our products. There are proposed and existing laws and
regulations in domestic and international markets regulating pricing and
profitability of companies in the healthcare industry. There have
been initiatives by third-party payers to challenge the prices charged for
medical products, which could affect our ability to sell products on a
competitive basis in the future. There has been a consolidation among
healthcare facilities and purchasers of medical devices in the U.S. who prefer
to limit the number of suppliers from whom they purchase medical products, and
these entities may decide to stop purchasing our products or demand discounts on
our prices. Both the pressure to reduce prices for our products in
response to these trends and the decrease in the size of the market because of
these trends could adversely affect our levels of revenues and profitability of
sales, which could have a material adverse effect on our business.
Recent economic trends could adversely affect
our financial performance.
Economic
downturns and declines in consumption in our markets may affect the levels of
both our sales and profitability. As widely reported, the domestic
and global financial markets have been experiencing extreme disruption in recent
months, including severely diminished liquidity and credit
availability. Concurrently, economic weakness has begun to
accelerate. We could be negatively impacted if these conditions exist
for a sustained period, or if there is further deterioration in financial
markets and major economies. The current tightening of credit in
financial markets may adversely affect the ability of our customers and
suppliers to obtain financing, which could result in a decrease in, or deferrals
or cancellations of, the sale of our products and services. In
addition, weakening economic conditions and outlook may result in a decline in
spending for ART and fertility assistance that could adversely affect our
results of operations and liquidity. We are unable to predict the
likely duration and severity of the current disruption in the domestic and
global financial markets and the related adverse economic
conditions.
Risks
Relating to the Share Exchange
Our
Chief Executive Officer, Kathleen Karloff, beneficially owns 10.9% and our
President , Dr. Claude Ranoux, owns 47.5% of our outstanding Common Stock, which
gives them control over certain major decisions on which our stockholders may
vote.
As a
result of the Share Exchange, two of our officers and directors beneficially own
58.4% of our outstanding shares. The interests of these two individuals
may differ from the interests of other stockholders. As a result, these
officer s and director s will have the right and ability to control virtually
all corporate actions requiring stockholder approval, irrespective of how our
other stockholders may vote, including the following actions:
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Electing
or defeating the election of directors;
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Amending
or preventing amendment of our Articles of Incorporation or
bylaws;
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Effecting
or preventing a merger, sale of assets or other corporate transaction;
and
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Controlling
the outcome of any other matter submitted to the stockholders for
vote.
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The
Company’s stock ownership profile may discourage a potential acquirer from
seeking to acquire shares of our Common Stock or otherwise attempting to obtain
control of us, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
As
a publicly traded company, INVO Bioscience is subject to the reporting
requirements of U.S. federal securities laws, which can be
expensive.
INVO
Bioscience is a public reporting company and, accordingly, is subject to the
information and reporting requirements of the Exchange Act and other federal
securities laws, including compliance with the Sarbanes-Oxley Act. The
costs of preparing and filing annual and quarterly reports, proxy statements and
other information with the SEC and furnishing audited reports to stockholders
will cause our expenses to be higher than they would be if INVO Bioscience had
remained privately-held and did not consummate the Share Exchange. In
addition, it may be time consuming, difficult and costly for us to develop and
implement the internal controls and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls and other finance personnel in order to develop and
implement appropriate internal controls and reporting procedures. If we
are unable to comply with the internal controls requirements of the
Sarbanes-Oxley Act, we may not be able to obtain the independent accountant
certifications required by the Sarbanes-Oxley Act.
Public
company compliance may make it more difficult to attract and retain officers and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. As
a public entity, we expect these rules and regulations to increase compliance
costs and to make certain activities more time consuming and costly. As a
public entity, we also expect that these new rules and regulations may make it
more difficult and expensive for us to obtain director and officer liability
insurance in the future and it may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and
retain qualified persons to serve as directors or as executive
officers.
Because
INVO Bioscience became public by means of a share exchange, we may not be able
to attract the attention of major brokerage firms.
There may
be risks associated with INVO Bioscience becoming public through a share
exchange. Specifically, securities analysts of major brokerage firms
may not provide coverage of our business since there is no incentive to
brokerage firms to recommend the purchase of our Common Stock. No
assurance can be given that brokerage firms will, in the future, want to conduct
any secondary offerings on our behalf.
Risks
Related to Our Common Stock
Our
Articles of Incorporation provide for indemnification of officers and directors
at our expense and limit their liability, which may result in major costs to
us.
Our
Articles of Incorporation and applicable Nevada law provide for the
indemnification of our directors, officers, employees and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them in
any litigation to which they become a party arising from their association with
or activities on our behalf. We will also bear the expenses of such
litigation for any of our directors, officers, employees, or agents, upon such
person's written promise to repay us if it is ultimately determined that any
such person shall not have been entitled to indemnification. This
indemnification policy could result in substantial expenditures by us, which we
will be unable to recoup.
We have
been advised that, in the opinion of the SEC, indemnification for liabilities
arising under federal securities laws is against public policy as expressed in
the Securities Act of 1933, as amended (the “Securities Act”) and is, therefore,
unenforceable. In the event that a claim for indemnification for
liabilities arising under federal securities laws, other than the payment by us
of expenses incurred or paid by a director, officer or controlling person
in the successful defense of any action, suit or proceeding, is asserted by a
director, officer or controlling person in connection with the securities being
registered, we will (unless in the opinion of our counsel, the matter has been
settled by controlling precedent) submit to a court of appropriate jurisdiction,
the question whether indemnification by us is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such
issue. The legal process relating to this matter if it were to occur is likely
to be very costly and may result in us receiving negative publicity, either
of which factors
is likely to materially reduce the market and price for our shares, if such a
market ever develop.
Our
shares of Common Stock are very thinly traded, and the price may not reflect our
value; there can be no assurance that there will be an active market for our
shares now or in the future.
We have a
trading symbol for our Common Stock (“IVOB”), which permits our shares to be
quoted on the Over-the-Counter Bulletin Board (“OTCBB”), which is a quotation
medium for subscribing members, not an issuer listing
service. However, our shares of Common Stock are very thinly traded,
and the price, if traded, may not reflect our value. There can be no
assurance that there will be an active market for our shares of Common Stock
either now or in the future. The market liquidity will be dependent
on the perception of our operating business and any steps that our management
might take to bring us to the awareness of investors. There can be no
assurance given that there will be any awareness
generated.
Consequently,
investors may not be able to liquidate their investment or liquidate it at a
price that reflects the value of the business. If a more active
market should develop, the price may be highly volatile. Because
there may be a low price for our shares of Common Stock, many brokerage firms
may not be willing to effect transactions in the securities. Even if
an investor finds a broker willing to effect a transaction in the shares of our
Common Stock, the combination of brokerage commissions, transfer fees, taxes, if
any, and any other selling costs may exceed the selling
price. Further, many lending institutions will not permit the use of
such shares of Common Stock as collateral for any loans.
Shareholders
may be diluted significantly through our efforts to obtain financing and from
issuance of additional shares of our Common Stock for services.
We have
no committed source of financing. We may issue shares or incur debt,
which may be convertible into shares of our Common Stock to satisfy our
financial obligations. In addition, if a trading market develops for
our Common Stock, we may attempt to raise capital by selling shares of our
Common Stock, possibly with warrants, which may be issued or exercised at a
discount to the market price for our Common Stock. These actions will
result in dilution of the ownership interests of existing shareholders, and may
further dilute the Common Stock book value, and that dilution may be
material. Such issuances may also serve to enhance existing
management’s ability to control INVO because the shares may be issued to our
officers, directors, new employees, or related parties and may be on a non-arms
length basis.
We
may be subject to the penny stock rules, which will make the shares of our
Common Stock more difficult to sell.
We may be
subject now and in the future to the SEC’s “penny stock” rules if our shares of
Common Stock sell below $5.00 per share. Penny stocks generally are
equity securities with a price of less than $5.00. The penny stock
rules require broker-dealers to deliver a standardized risk disclosure document
prepared by the SEC, which provides information about penny stocks and the
nature and level of risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information must
be given to the customer orally or in writing prior to completing the
transaction and must be given to the customer in writing before or with the
customer's confirmation.
In
addition, the penny stock rules require that prior to a transaction the broker
dealer make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. The penny stock rules are burdensome and may reduce
purchases of any offerings and reduce the trading activity for shares of our
Common Stock. As long as our shares of Common Stock are subject to
the penny stock rules, the holders of such shares of Common Stock may find it
more difficult to sell their securities.
Sales
of our currently issued and outstanding Common Stock may become freely tradable
pursuant to rule 144 and may dilute the market for your shares and have a
depressive effect on the price of the shares.
A
substantial majority of our outstanding shares of Common Stock are “restricted
securities” within the meaning of Rule 144 under the Securities
Act. As restricted shares, these shares may be resold only pursuant
to an effective registration statement or under the requirements of Rule 144 or
other applicable exemptions from registration under the Securities Act and as
required under applicable state securities laws. A sale under Rule
144 or under any other exemption from the Securities Act, if available, or
pursuant to subsequent registrations of our shares of Common Stock (which we
tend to pursue), may have a depressive effect upon the price of our shares of
Common Stock in any active market that may develop.
The
market for penny stocks has experienced numerous frauds and abuses, which could
adversely affect investors in our stock.
We
believe that the market for penny stocks has suffered from patterns of fraud and
abuse. Such patterns include:
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Control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
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Manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
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“Boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales persons;
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Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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Wholesale
dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the inevitable
collapse of those prices with consequent investor
losses.
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We
believe that many of these abuses have occurred with respect to the promotion of
low price stock companies that lacked experienced management, adequate financial
resources, an adequate business plan and/or marketable and successful business
or product.
We
may never pay any dividends to shareholders.
We have
never paid any dividends and have not declared any dividends to date in
2008. Our board of directors does not intend to distribute dividends
in the near future. The declaration, payment and amount of any future
dividends will be made at the discretion of the board of directors, and will
depend upon, among other things, the results of our operations, cash flows and
financial condition, operating and capital requirements, and other factors as
the board of directors considers relevant. There is no assurance that
future dividends will be paid, and, if dividends are paid, there is no assurance
with respect to the amount of any such dividend.
We
may have difficulty raising necessary capital to fund operations because of
market price volatility for our shares of Common Stock.
In recent
years, and indeed in recent months in particular, the securities markets in the
U.S. and around the world have experienced a high level of price and volume
volatility, and the market price of securities of many companies have
experienced wide fluctuations that have not necessarily been related to the
operations, performances, underlying asset values or prospects of such
companies. For these reasons, our shares of Common Stock can also be
expected to be subject to volatility resulting from purely market forces over
which we will have no control. If our business development plans are
successful, we may require additional financing to continue to develop and
exploit existing and new products and services related to our industries and to
expand into new markets. The exploitation of our services may be
dependent therefore upon our ability to obtain financing through debt and equity
or other means.
Failure
to comply with internal control attestation requirements could lead to loss of
public confidence in our financial statements and negatively impact our stock
price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include
in this annual report, management’s assessment of the effectiveness of our
internal control over financial reporting. Furthermore, beginning
with the fiscal year ending on December 31, 2009, our independent registered
public accounting firm will be required to attest to whether management’s
assessment of the effectiveness of internal controls over financial reporting is
fairly stated in all material respects and separately report on whether it
believes we maintained, in all material respects, effective internal control
over financial reporting. If we fail to timely complete the
development of our internal controls and management is unable to make this
assessment, or, once required, if the independent registered public accounting
firm cannot timely attest to this assessment, we could be subject to regulatory
sanctions and a loss of public confidence in our internal control and the
reliability of our financial statements, which ultimately could negatively
impact our stock price.
Any
future acquisitions and other material changes in our operations likely will
require us to expand and possibly revise our disclosure controls and procedures,
internal controls and related corporate governance policies. In
addition, the new and changed laws and regulations are subject to varying
interpretations in many cases due to their lack of specificity and, as a result,
their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies. If our efforts to comply with new
or changed laws and regulations differ from the conduct intended by regulatory
or governing bodies due to ambiguities or varying interpretations of the law, we
could be subject to regulatory sanctions, our reputation may be harmed and our
stock price may be adversely affected.
Item 2.
Properties
We
currently do not own any property. Our principal executive office is
located at 100 Cummings Center, Suite 421E, Beverly, Massachusetts 01915,
pursuant to a lease entered into by INVO Bioscience in January 2007 (the
“lease”) for 3,294 square feet of general office space. The lessor is
Cummings Properties, LLC and the lease commenced in January 2007 and has been
renewed to December 31, 2010. The Company paid a security deposit of
$3,000, which was repaid to the Company in equal $500 installments over the
first six months of the lease. The Company received no rent
incentives or improvement allowances under this agreement. The lease
requires the Company to pay minimum lease payments of $2,000 per month for the
duration of the lease. The lease is subject to a cost of living
increase equal to the Boston, Massachusetts Consumer Price Index at the
beginning of each calendar year. As of January 1, 2009, the Company’s
lease payments increased over the base year by 3.53% to $2,070.60.
Neither
we, nor BioXcell Inc, our wholly owned subsidiary, either direct or indirectly,
including INVO Bioscience are involved in any lawsuit outside the ordinary
course of business, the disposition of which would have a material effect upon
either our results of operations, financial position or cash flows.
Item 4.
Submission of Matters to a Vote of Security
Holders
During
the fourth quarter of the fiscal year ended December 31, 2008, the
shareholders of INVO Bioscience were requested to vote on the Share Exchange
between Emy’s Salsa Aji Distribution Company, Inc. and BioXcell,
Inc. The shareholders of both companies approved the
transaction.
Part II
Item 5. Market for Registrant s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market
Information
Our
Common Stock is quoted on the Over the Counter Bulletin Board (OTCBB) under the
symbol “IVOB.” Before February 17, 2009, our symbol on the OTCBB was
“EMYS.” The table below sets forth the high and low sales prices for
the periods shown.
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2008
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2007
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Fiscal Year
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Fiscal
Year 2007
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High
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Low
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High
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Low
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First
Quarter
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$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |||||||
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Second
Quarter
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$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |||||||
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Third
Quarter
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$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |||||||
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Fourth
Quarter
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$ | 5.50 | $ | 0.40 | $ | 0.00 | $ | 0.00 | |||||||
Our
Common Stock was not eligible for trading in 2007, therefore we have no sales
prices for 2007. The EMYS Common Stock was first quoted on November
11, 2008 at a price of $0.40 per share for 10,000 Common Stock
shares. On December 5, 2008, the day of the closing of the Share
Exchange, 1,000 shares of Common Stock were traded at $1.50
share. For the quarter ending December 31, 2008, the high and low
closing price per share of our Common Stock was $5.50 and $0.40
respectively.
Stockholders
On April
9, 2009, there were approximately 67 stockholders of record.
Dividend
Policy
We have
never declared or paid a dividend on our Common Stock. We intend to
retain future earnings to fund development and growth of our
business.
Compensation
Plan
We do not
have any equity compensation plans in place at this time. We intend
to implement an equity compensation plan in 2009. Both shares and
options have been promised to employees as consideration for services but have
not been granted nor approved by the Board of Directors. These shares
will be granted upon the approval and implementation of the equity compensation
plan.
Item 6. Selected Financial Data
We are
not required to provide the information as to selected financial data as we are
considered a smaller reporting company.
Item
7. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking
Statements
This
discussion includes certain forward-looking statements about our business and
our expectations, including statements relating to revenues, international
revenues, revenue growth rates, gross margin, operating expenses, amortization
expense, earnings per share, available cash and operating cash
flow. Any such statements are subject to risk that could cause the
actual results to vary materially from expectations. For a further
discussion of the various risks that may affect our business and expectations,
see the section titled “Risk Factors” contained in Item 1A of Part I of
this Annual Report on Form 10-K. The risks and uncertainties
discussed therein do not reflect the potential future impact of any mergers,
acquisitions or dispositions. In addition, any forward-looking
statements represent our estimates only as of the day this Annual Report was
filed with the SEC and should not be relied upon as representing our estimates
as of any subsequent date. While we may elect to update
forward-looking statements at some point in the future, we specifically disclaim
any obligation to do so, even if our estimates change.
Background
The
previous management of Emy’s (our predecessor) determined that it was in the
best interests of Emy’s shareholders to agree to the Share Exchange and acquire
Bio X Cell, Inc., a Commonwealth of Massachusetts company (d/b/a/ “INVO
Bioscience”) that has developed its patented technology, the INVOcell and the
INVO procedure, which are designed to be less expensive and an alternative to
conventional in vitro fertilization. As part of the Share Exchange,
Emys ceased the salsa distribution business and INVO Bioscience became a wholly
owned subsidiary of Emy’s.
The Share
Exchange was accounted for as a “reverse merger” because the INVO Bioscience
Shareholders now own a majority of the outstanding shares of Common Stock
immediately following the Share Exchange. INVO Bioscience is deemed
the acquirer in the reverse merger. Consequently, the assets and
liabilities and the historical operations that are reflected in the financial
statements prior to the Share Exchange are those of INVO Bioscience and are
recorded at the historical cost basis of INVO Bioscience and the consolidated
financial statements after completion of the Share Exchange include the assets
and liabilities of INVO Bioscience, historical operations of INVO
Bioscience. The financial results summarized below are based on INVO
Bioscience’s audited balance sheet as of December 31, 2008 and 2007 and
related audited statements of operations and stockholders’ deficiency and
statements of cash flows for the periods ended December 31, 2008 and 2007,
respectively.
Overview
As INVO
Bioscience, we operate in the medical device industry and developed the INVO
technology to assist infertile couples in having a baby. In-vitro
fertilization (IVF) is an effective treatment option for most infertile
couples. Our patented and proven INVOcell technology is a low cost
alternative to IVF that is much simpler to perform. It can be
provided in a physician’s office and, therefore, can be available in many more
locations than IVF. INVO uses a device, the INVOcell, which we
currently intend to price between $75-$350 to distributors in the developing
countries around the world and $200-$450 in Europe and the U.S. We
can manufacture, assemble, package, sterilize and ship an INVOcell for under
$50.
Currently,
we are establishing agreements with distributors and beginning to train
physicians in the developing world including Latin America Europe, Africa and
the Middle East. While we penetrate the infertility markets in Europe
and Canada along with the certain developing countries, we anticipate also
pursuing the completion of the FDA's “510(k)” process. We have
completed the first step for medical device companies who manufacture Class 2
devices (and a small number of Class 1 and 3 devices) and the filing of a
Premarket Notification with the FDA (i.e., an FDA 510(k)
submission). Technically, the FDA does not “approve” Class 1 and 2
medical devices for sale in the U.S. they give “clearance” for them to be
sold. We are hoping to receive clearance to market in the
U.S. by 2010 upon completion of our clinical trial. However, there
can be no assurance that we will receive such clearance by that date or
ever.
On
October 16, 2009, we entered into a signed an exclusive distributor agreement
with a distributor in Turkey providing for distribution throughout Turkey and
other countries in the region. We also have signed distribution
agreements with pharmaceutical distributors in Canada, Thailand, Peru and
countries in the Middle East and are in negotiations with other distributors in
Europe, India and Latin America.
INVO
Bioscience was founded in January 2007. We are a development stage
company, as defined by Statement of Financial Accounting Standards (“SFAS”) No.
7. The Company’s primary activities during the development stage have
included developing the business plan, seeking regulatory clearance in the
European Union and the United States and raising capital. We started sales of
our products in December 2008. We have been focusing our
efforts on introducing the INVOcell into new markets outside of the US as we
work toward FDA approval in the U.S. To that end, we have signed contracts
for the purchase of the INVOcell device with distributors and doctors in
Pakistan, Turkey Canada and Peru. For the fourth quarter 2008, INVO
Bioscience has revenues of approximately $38,000 for the sale of the INVOcell,
selling 155 units along with INVO Blocks and associated
accessories.
Operational,
general and administrative expenses were $1,889,000 and $211,000 for the years
ended December 31, 2008 and 2007, respectively. During 2008, we
started to hire staff, in the fourth quarter we hired resources in the following
areas, clinical training, government regulations, sales and
accounting.
We
currently are incurring a net loss as we continue to market our product and
proprietary process as we endeavor to increase our revenue base. It is
expected that we will continue to generate net losses into the first half of
2010.
We cannot
predict what our level of activity will be over the next 12
months. However, INVO Bioscience anticipates that it will launch the
sale of the INVOcell device in Canada, Europe, Latin America, India and the
Middle East through established distributors, IVF centers and
physicians. With the cost of the INVO procedure being less than half
the cost of IVF, we believe we can penetrate 5% of the currently untreated
infertility market, though there can be no assurance that we will be successful
in doing so.
To
achieve this plan, we require additional financing. As we expand our
distribution base, our costs and expenses will exceed the cash flow being
generated and therefore we will require additional capital.
Due to
our early stage of growth, each of the items from our Statement of Operations
may not be indicative of future levels of activity. As such, we
expect our costs and losses to increase in future periods as we seek to ramp up
sales and incur infrastructure costs. As we move forward, the Company
expects to expand its sales force and clinical trainers and continuing to travel
to support our distributors and physicians. Additionally, the Company
expects to upgrade its computer software in 2009 in the areas of customer
relationship management, material requirements planning/inventory tracking and
financial reporting.
The
amounts and timing of our actual expenditures may vary significantly from our
expectations depending upon numerous factors, including our results of
operation, financial condition and capital requirements. Accordingly, we will
retain the discretion to allocate the available funds among the identified uses
described above, and we reserve the right to change the allocation available
funds among the uses described above.
We had a
net loss of $1,873,000, a working capital deficiency of $690,000, a stockholder
deficiency of $676,600, and cash used in operations of $1,067,000 for the year
ended December 31, 2008. This raises substantial doubt about our
ability to continue as a going concern. Our ability to continue as a
going concern is dependent on our ability to raise additional capital and
implement our business plan. Our financial statements attached do not
include any adjustments that might be necessary if we are unable to continue as
a going concern.
Critical
Accounting Policies and Estimates
The
discussion and analysis of INVO Bioscience’s financial condition presented
in this section are based upon the audited consolidated financial statements of
INVO Bioscience, which have been prepared in accordance with the generally
accepted accounting principles in the United States. During the
preparation of the financial statements, INVO Bioscience is required to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, INVO Bioscience evaluates based
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. A summary
of significant accounting policies are included below. Management
believes that the application of these policies on a consistent basis enables us
to provide useful and reliable financial information about our operating results
and financial condition.
Stock
Based Compensation
The
Company accounts for stock-based compensation under the provisions of SFAS
123R, Share-Based
Payment (“SFAS 123R”). This statement requires the Company to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the
award. That cost is recognized over the period in which the employee
is required to provide service in exchange for the award, which is usually the
vesting period.
Revenue
Recognition
The
Company will recognize revenue on arrangements in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements” and No. 104, “Revenue Recognition”. In all
cases, revenue is recognized only when the price is fixed and determinable,
persuasive evidence of an arrangement exists, the service is performed and
collectability of the resulting receivable is reasonably
assured.
Recent
Accounting Pronouncements
For
information regarding recent accounting pronouncements and their effect on the
Company, see “Recent Accounting Pronouncements” in Note 1 of the Notes to
Consolidated Financial Statements contained herein.
Results
of Operations
Fiscal
2008 Compared to Fiscal 2007
Net
Sales and Revenues
Net sales
and revenues for 2008 increased 100% to $38,000 compared to no revenues in
2007. The increase was due to starting international shipments of
small orders to our newly signed distributors as well as direct shipments to
physicians who wanted to use the INVOcell.
Cost
of Sales and Revenues
Cost of
sales as a percentage of revenues was 27% for 2008 This is
slightly higher than we expect in the future as we are producing small lot
quantities and have higher shipping cost per unit as a result of the small
volume shipments. There were no sales or costs in 2007 to compare
to.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were $1,837,600 in 2008 as compared to
$177,200 in 2007. We experienced higher general and administrative
costs in 2008 due to hiring the Company’s first employees and all the associated
expenses that relate to them, including benefits, a stock compensation charge
for common stock grants and travel, these items totaled approximately
$1,070,000. During the year ended December 31, 2008, the Company
incurred considerable travel costs as its employees started to go across the
globe to introduce the INVOcell and the INVO process to physicians and
distributors in Europe, the Mid-East, Asia and South America travel related
expenses totaled $150,000. The Company continued to protect its
patent rights throughout the world, legal and filing fees associated with this
were $54,000. As stated previously, the Company completed a reverse
merger during 2008 and the accounting and legal costs in preparing for and
completing the merger were approximately $375,000.
Research and Development
Expenses
Research
and development expenses increased to $51,800 in 2008 from $33,400 in
2007. The increase in research and development expense was a result
of the Company’s efforts to continually understand the regulations and
guidelines for selling the INVOcell in foreign countries.
Interest
Income and Expense, Net
We had
net interest expense of $11,900 in 2008 as compared to $3,600 in 2007 as a
result of having our loans for all of 2008 versus only part of
2007.
Income
Taxes
The
Company's aggregate unused net operating losses approximate $1,800,000, expire
at various times through 2028, subject to limitations of Section 382 of the
Internal Revenue Code, as amended. The deferred tax asset related to
the carry forward is approximately $540,000. T he Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earning history of
the Company, it is more likely than not that the benefits will not be
realized.
Liquidity
and Capital Resources
As of
December 31, 2008, we had $15,716 in cash and no cash
equivalents.
Net cash
used by operating activities was $1,066,700 for the year ended December 31,
2008, compared to net cash used by operating activities was $116,000 for the
year ended December 31, 2007. The increase in net cash used was due to the
significant costs of hiring staff and starting to market our product in
2008.
Net cash
used by investing activities was $73,900 for the year ended December 31, 2008,
compared to cash used by investing activities of $46,000 for the year ended
December 31, 2007 The increase in cash used during 2008 resulted
primarily from the purchases of manufacturing molds for our product and
continuing to protect our proprietary products through patent
expansion.
Net cash
provided by financing activities was $1,156,000 for the year ended December 31,
2008, through the sale of Common Stock.
The
Company maintains a $50,000 working capital line of credit with Century
Bank. Interest is payable monthly at the rate of 0.24% above the
bank’s prime lending rate. As of December 31, 2008, the rate was
3.79%. This line of credit matures May 31, 2010. At
December 31, 2008 and 2007, the balance outstanding on the line of credit was
$50,000 and $49,221 respectively.
Our
registered independent certified public accountants have stated in their report
dated April 15, 2009, the Company has a generated negative cash outflows from
operating activities, experienced recurring net operating losses, and is
dependent on securing additional equity and debt financing to support its
business efforts. These factors among others may raise substantial doubt about
our ability to continue as a going concern.
Management
believes that its existing cash resources, cash flow from operations and
short-term borrowings on the existing credit line will not provide adequate
resources for supporting operations during fiscal 2009. The Company is actively
seeking the funding it needs to continue to execute its business
plan, Although there can be no assurance that we will find additional
sources of funding, management believes that it will be able to find sources of
funds on commercially acceptable terms.
Off
Balance Sheet Arrangements
Under SEC
regulations, we are required to disclose our off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, such as changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. An off-balance sheet
arrangement means a transaction, agreement or contractual arrangement to which
any entity that is not consolidated with us is a party, under which we
have:
|
|
Any
obligation under certain guarantee contracts;
|
|
|
|
Any
retained or contingent interest in assets transferred to an unconsolidated
entity or similar arrangement that serves as credit, liquidity or market
risk support to that entity for such assets;
|
|
|
|
Any
obligation under a contract that would be accounted for as a derivative
instrument, except that it is both indexed to our stock and classified in
stockholder’s equity in our statement of financial position;
and
|
|
|
|
Any
obligation arising out of a material variable interest held by us in an
unconsolidated entity that provides financing, liquidity, market risk or
credit risk support to us, or engages in leasing, hedging or research and
development services with us.
|
We do not
have any off-balance sheet arrangements that we are required to disclose
pursuant to these regulations. In the ordinary course of business, we
enter into operating lease commitments, purchase commitments and other
contractual obligations. These transactions are recognized in our
financial statements in accordance with generally accepted accounting principles
in the United States.
Inflation
We
believe that inflation has not had a material effect on our operations to
date.
The
financial statements and supplementary data are included herein under
Item 6 and in the Consolidated Financial Statements and related notes
thereto. See Item 15 of this Form 10-K.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
Changes
in Registrant’s Certifying Accountant.
Before
December 5, 2008, the Company (formerly as Bio X Cell, Inc.) had no reporting
obligations under the Securities Exchange Act of 1934, as amended (the “1934
Act”). On December 5, 2008, Bio X Cell entered into a Share Exchange
and reverse merger with Emy’s Salsa Aji Distribution Co. Inc. with reporting
obligations under the 1934 Act, with the Company as the surviving
entity. Thereafter, the Company assumed Emy's reporting
obligations to the Securities and Exchange Commission under the 1934
Act. On December 5, 2008, the Company dismissed Berman & Company,
P.A. (“Berman & Co.”) as its independent auditor. The decision to
change independent accountants was approved by the Board of Directors of the
Company.
In
connection with the dismissal of Berman & Co., the Company engaged Webb
& Company, P.A. (“Webb & Co.”), a Florida based accounting firm, as its
independent registered public accounting firm on December 5, 2008. On
February 23, 2009, the Company terminated Webb & Co. as the
Company’s auditors, which dismissal was approved by the Board of
Directors. The Board of Directors also ratified the Company’s
selection of RBSM, LLP (“RBSM”), a certified accounting firm, as the Company's
new independent registered public accounting firm for the fiscal year ending
December 31, 2008. The Company formally retained RBSM pursuant to an
engagement letter dated March 2, 2009.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) that are designed to be effective in providing reasonable assurance that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission (the “ SEC”),
and that such information is accumulated and communicated to our management to
allow timely decisions regarding required disclosure.
The
Company’s management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial (and principal accounting)
Officer, carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31,
2008. Based upon that evaluation and the identification of the
material weakness in the Company’s internal control over financial reporting as
described below under “Management’s Report on Internal Control over Financial
Reporting,” the Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures were ineffective as of the
end of the period covered by this report.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Management, with the participation of our
principal executive officer and principal financial officer, has evaluated the
effectiveness of our internal control over financial reporting as of December
31, 2008 based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, because of the Company’s limited resources
and limited number of employees, management concluded that, as of December 31,
2008, our internal control over financial reporting is not effective in
providing reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles.
To
mitigate the current limited resources and limited employees, we rely heavily on
direct management oversight of transactions, along with the use of legal and
accounting professionals. As we grow, we expect to increase our number of
employees, which will enable us to implement adequate segregation of duties
within the internal control framework.
This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management's report in this annual report.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include, but are not limited to, the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
Changes
in Internal Control over Financial Reporting
There
were no changes to our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other
Information
None.
Part III
The
Company’s Directors are elected annually by our stockholders at the annual
meeting. Each director holds his office until his successor is
elected and qualified or his earlier resignation or removal. INVO
Bioscience's executive officers are elected annually by our Board of
Directors. Each executive officer holds his office until they resign,
is removed by the Board, or their successor is elected and
qualified. Information regarding our executive officers is presented
below.
| NAME |
AGE
|
POSITION | ||
|
Ms.
Kathleen Karloff
|
53
|
Director
and Chief Executive Officer, Secretary
|
||
|
Dr.
Claude Ranoux, MD
|
57
|
Director,
President and Treasurer
|
||
|
Mr.
Robert Bowdring
|
51
|
Chief
Financial Officer
|
||
Kathleen
Karloff, Chief Executive Officer, Secretary and Director
Ms.
Karloff co-founded INVO Bioscience in January 2007. Since this time,
Kathleen has obtained ISO certification and the CE mark for the INVOcell device
and has implemented manufacturing and distribution systems. From 2000
through 2003, Kathleen was the Vice President of Operations for a start-up
company Control Delivery Systems developing an intra-ocular drug therapy for
Uveitus and Diabetic Macular Edema. The Company was acquired by
Psivida LTD. From 2004 until September 2006, Kathleen was the Vice
President of Operations for Medelle Corporation. Prior to that, she
has held various positions at Boston Scientific during 13 years of dynamic
growth from 1983 to 1997 her last position being the Director of
Manufacturing. Since leaving Boston Scientific, she has been Vice
President of Operations on start-up teams of three device/pharmaceutical
companies. Ms. Karloff earned her B.S. in microbiology from Montana
State University and attended Northeastern University for MBA
coursework.
Claude
Ranoux, M.D., M.S., President, Treasurer and Director
Dr.
Ranoux co-founded INVO Bioscience in January 2007. He has more than
30 years of experience in the research and treatment of infertility; he is the
inventor and developer of the INVO™ procedure and INVOcell
device. From 2000 through 2005, Dr. Ranoux was president of Medelle
Corporation and worked on development of the INVOcell. Dr. Ranoux has
built and run 12 IVF centers worldwide and has established 12 reproductive
centers worldwide. Before founding INVO Bioscience and recruiting the
highly experience management team, Dr. Ranoux had 6 years of experience in
creating and finding financing for a start-up company. He
has been scientific consultant for a new instrument (Immuno1) from Bayer
Corporation. During this collaboration, the North West area became
the first area for the sales of the instrument 2 years in a row. Dr. Ranoux was the
founder of several non-profit organizations and foreign trade advisor in the New
England area. Dr. Ranoux earned his M.D. and his M.S. in Reproductive
Biology from the Medical University of Paris (V & XI) where he was an
Associate Professor. Dr. Ranoux has served as a scientific consultant
for eight other centers and is the author of numerous
scientific publications as first author. He has given numerous
invited lectures, conferences and workshops and is the author of five medical
and scientific theses and mentor for several others. He is co-author
of six scientific and medical films. He received a prize for the one
of the best scientific presentation at the Fifth World Congress in IVF, in
Norfolk, VA, and is the recipient of several other awards. Dr.
Ranoux is the main inventor in six international patents.
Robert
J. Bowdring, Chief Financial Officer
Mr. Bowdring joined the Company as its
Corporate Controller in October 2008. In January 2009, the Company
appointed Mr. Bowdring as its Chief Financial Officer. From April
2003 to August 2008, Mr. Bowdring served as Vice President of Finance and
Administration for Cyphermint, Inc., a software development
firm. For the fourteen prior years, he was the Controller and Vice
President of Lifeline Systems Inc., a public manufacturing and service company
(NASDAQ: LIFE) in the personal emergency response market. Mr.
Bowdring has a strong history in senior financial management with more than 25
years experience serving in capacities such as chief financial officer, vice
president of finance and controller. Rob has been in both public and
private manufacturing and service companies during his career. Mr.
Bowdring has a Bachelors degree in Accounting from the University of
Massachusetts in Amherst.
Code
of Ethics
We
currently do not have a code of ethics that applies to our officers, employees
and directors, including our Chief Executive Officer and senior executives,
however, we intend to adopt one in the near future.
Cumulative
voting is not provided for in our articles of incorporation or any amendments
thereto, which means that the majority of the shares voted can elect all of the
directors then standing for election. The Common Stock is not
entitled to preemptive rights and is not subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or
winding-up, the holders of shares of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and satisfaction of
preferential rights of any outstanding preferred stock. There are no
sinking fund provisions applicable to the Common Stock.
Summary
Compensation Table
The
following Summary Compensation Table sets forth, for the years indicated, all
cash compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by the Company’s chief executive
officer and president who received or was entitled to receive remuneration in
excess of $100,000 during the stated periods. As reflected below,
none of our officers received cash compensation during fiscal 2007.
SUMMARY
COMPENSATION TABLE
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Award
($) (4)
|
Option
Award ($)
|
Non-Equity
Incentive Plan Compensation Earnings ($)
|
Non-Qualified
Deferred Compensation Earnings ($)
|
All
other Compensation ($)
|
Total
($)
|
|||||||||||||||||||||||||
|
Kathleen
Karloff, CEO/Director (1)
|
2008
|
93,074 | 0 | 0 | 0 | 0 | 0 | 0 | 93,074 | |||||||||||||||||||||||||
|
2007
|
0 | 0 | 4,498 | 0 | 0 | 0 | 0 | 4,498 | ||||||||||||||||||||||||||
|
Claude
Ranoux
President/Director
(2)
|
2008
|
91,974 | 0 | 0 | 0 | 0 | 0 | 0 | 91,974 | |||||||||||||||||||||||||
|
2007
|
0 | 0 | 19,731 | 0 | 0 | 0 | 0 | 19,731 | ||||||||||||||||||||||||||
|
Philip
Warren (3)
Former
CEO
|
2008
|
43,980 | 0 | 0 | 0 | 0 | 0 | 0 | 43,980 | |||||||||||||||||||||||||
|
2007
|
0 | 0 | 2,761 | 0 | 0 | 0 | 0 | 2,761 | ||||||||||||||||||||||||||
|
(1)
|
Kathleen
Karloff was elected as the chief executive officer, secretary and member
of the Board of Directors of the Company effective upon the resignation of
Andrew Uribe in connection with the acquisition of INVO Bioscience on
December 5, 2008. During 2007, Ms. Karloff received shares of
Common Stock valued at $0.2857 per share for services rendered in 2007 and
awarded in 2008.
|
|
(2)
|
Claude
Ranoux was elected as the president, treasurer and member of the Board of
Directors effective upon the resignation of Andrew Uribe, in connection
with the acquisition of INVO Bioscience on December 5,
2008. During 2007, Dr. Ranoux received shares of Common Stock
valued at $0.2857 per share for services rendered in 2007 and awarded in
2008.
|
|
(3)
|
Philip
Warren served as the Chief Executive Officer of INVO Bioscience from May
2007 to September 2008. During 2007, Mr. Warren received shares
of Common Stock valued at $0.2857 per share for services rendered in 2007
and awarded in 2008.
|
|
(4)
|
The
dollar value reported was based upon a per share price of
$0.2857. The per share price was determined in accordance with
the relevant facts of BioXcell in February 2008. BioXcell was a
start-up company, in a pre-revenue stage and without any third-party
investment.
|
Compensation
of Directors
None.
Stock
Option Grants
Since
January 1, 2008, the Company has signed agreements for officers, executives and
service providers of the Company. As of December 31, 2008, a
total of 303,500 shares of Common Stock and three year vesting options to
purchase an additional 500,000 (including 461,000 of employee incentive stock
options) of the Company’s Common Stock were agreed to be issued, the price will
be determined on date of grant. As of December 31, 2008, the Company
has not issued the committed shares and has recorded an accrued liability of
$313,500. As of December 31, 2008, the Company has not obtained
shareholder approval for the equity compensation plan and has not deemed the
500,000 options as granted until the plan is approved.
Employment
Contracts
Kathleen
Karloff, chief executive officer, secretary and member of the Board of
Directors, has executed an employment agreement with INVO Bioscience effective
as of February 1, 2008. The agreement provides for an annual salary
of $175,000 and health and life insurance and retirement plan along with the
reimbursement of expenses. In the event that Ms. Karloff’s employment
is terminated other than for good cause (as defined in the employment
agreement), she will receive her salary and full medical benefits for twelve
(12) months thereafter. Kathleen Karloff voluntarily agreed to a
salary reduction from February 1, 2008 through September 1, 2008 to $101,061 per
year, however, that reduction is no longer in effect.
Dr.
Claude Ranoux, president, Treasurer and member of the Board of Directors, has
executed an employment agreement with INVO Bioscience effective as of February
1, 2008. The agreement provides for an annual salary of $175,000 and
health and life insurance and retirement plan along with the reimbursement of
expenses. In the event that Dr. Ranoux’s employment is terminated
other than for good cause (as defined in the employment agreement), he will
receive his salary and full medical benefits for twelve (12) months
thereafter. Claude Ranoux voluntarily agreed to a salary reduction
from February 1, 2008 through September 1, 2008 to $86,478 per year, however,
that reduction is no longer in effect.
Robert
Bowdring, chief financial officer, has executed an employment agreement with
INVO Bioscience effective as of October 27, 2008. The agreement
provides for an annual salary of $135,000 and health and life insurance and
retirement plan along with the reimbursement of expenses. In the
event that Mr. Bowdring’s employment is terminated other than for cause (as
defined in the employment agreement), he will receive a severance package of two
months of salary and full medical benefits per service year.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
following table sets forth the names and beneficial ownership of the 53,703,333
shares of our Common Stock as of April 13, 2009, by each of our directors, all
of our directors and executives as a group, and to the best of our knowledge,
all holders of 5% or more of the issued and outstanding shares of the Company’s
voting stock. Unless otherwise noted, the address of all of the
individuals and entities named below is care of INVO Bioscience, Inc., 100
Cummings Center, Suite 421E, Beverly, Massachusetts 01915:
|
Name
and Address of Beneficial Owner (1)
|
Nature
of
Security
|
Number
of
Shares
|
Percentage
of Common
Stock
|
|||||||
|
Directors
and Officers:
|
||||||||||
|
Kathleen
Karloff
|
Common
Stock
|
5,862,159
|
10.92
|
%
|
||||||
|
Claude
Ranoux
|
Common
Stock
|
25,501,473
|
47.49
|
%
|
||||||
|
All
directors and executive officers as a group (2 persons)
|
31,363,632
|
58.40
|
%
|
|||||||
|
|
||||||||||
|
Other
5% or more Shareholders:
|
||||||||||
|
Phillip
Warren
|
Common
Stock
|
3,570,778
|
6.65
|
%
|
||||||
|
|
||||||||||
|
Christopher
Esposito (2)
|
Common
Stock
|
6,896,200
|
12.84
|
%
|
||||||
|
(1)
|
Beneficial
ownership is determined in accordance with Rule 13d-3(a) of the Securities
Exchange Act of 1934 and generally includes voting or investment power
with respect to securities. Except as indicated by footnotes
and subject to community property laws, where applicable, the person named
above has sole voting and investment power with respect to all shares of
the Common Stock shown as beneficially owned by him or
her.
|
|
(2)
|
Christopher Esposito has
sole or shared decision-making power over the following: Christopher
Esposito (4,796,200), Donna
Esposito (100,000) and Lionshare Venture Holdings LLC
(2,000,000)
|
Changes
in Control
There are
no present arrangements or pledges of the Company’s securities, which may result
in a change in control of the Company.
Conflicts
of Interest
Certain
potential conflicts of interest are inherent in the relationships between our
officers and directors, and us. From time to time, one or more of our
affiliates may form or hold an ownership interest in and/or manage other
businesses both related and unrelated to the type of business that we own and
operate. These persons expect to continue to form, hold an ownership
interest in and/or manage additional other businesses which may compete with
ours with respect to operations, including financing and marketing, management
time and services and potential customers. These activities may give
rise to conflicts between or among the interests of us and other businesses with
which our affiliates are associated. Our affiliates are in no way
prohibited from undertaking such activities, and neither our shareholders nor we
will have any right to require participation in such other
activities.
Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, potential conflicts may arise between the
respective interests of us and these related persons or entities. We
believe that such transactions will be effected on terms at least as favorable
to us as those available from unrelated third parties.
With
respect to transactions involving real or apparent conflicts of interest, we
intend to require that: (i) the fact of the relationship or interest giving rise
to the potential conflict be disclosed or known to the directors who authorize
or approve the transaction prior to such authorization or approval, (ii) the
transaction be approved by a majority of our disinterested outside directors,
and (iii) the transaction be fair and reasonable to us at the time it is
authorized or approved by our directors.
Directors’
and Officers’ Liability Insurance
We have
an insurance policy to insure directors and officers against certain
liabilities.
Effective March 2, 2009, our
independent registered public accounting firm is RBSM LLP. Our
independent registered public accounting firm was Webb & Company, P.A. for
2007. Set forth below are the fees and expenses invoiced
by Webb & Company, P.C. for the following services provided to us in 2008
and 2007, respectively. The following table summarizes the
approximate aggregate fees billed to us or expected to be billed to us by our
independent auditors for our 2008 and 2007 fiscal years:
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||
|
December
31, 2008
|
December
31, 2007
|
||||||
|
Audit
Fees
|
$ | 25,000 | $ | - | |||
|
Audit
Related fees
|
$ | - | $ | - | |||
|
Tax
Fees
|
$ | 1,600 | $ | - | |||
|
All
Other Fees
|
$ | - | $ | - | |||
As of
December 31, 2008, the Company did not have a formal documented pre-approval
policy for the fees of the independent registered public accounting
firm. The percentage of hours expended on the independent registered
public accounting firm engagement to audit our financial statements for the most
recent fiscal year that were attributed to work performed by persons other than
the independent registered public accounting firm's full-time, permanent
employees was approximately 0%.
Part IV
Item 15. Exhibits and Financial Statement Schedules
|
(a)
|
Financial
Statements
|
The
following are filed as a part of this report:
1.
Financial Statements
|
|
|
Page
|
|
|
F-1
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
2.
Financial Statement Schedules
Information
required by Schedule II is shown in the Notes to Consolidated Financial
Statements. All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and therefore
have been omitted.
|
(b)
|
Exhibits
|
The
Exhibits filed as part of this Annual Report on Form 10-K are listed on the
Exhibit Index following the audit report to this Annual Report on Form 10-K and
are incorporated herein by reference.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board of
Directors
INVO
Bioscience, Inc.
Beverly,
MA
We have
audited the accompanying consolidated balance sheet of INVO Bioscience, Inc.
(“the Company”) , a development stage company, as of December 31,
2008, and the related consolidated statements of losses, stockholders'
deficiency, and cash flows for the year ended December 31, 2008 and the period
January 5, 2007 (date of inception) through December 31, 2008. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
financial statements based upon our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe our audit provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Invo Bioscience, Inc. a
development stage company, at December 31, 2008 and the results of its
operations and its cash flows for the year ended December 31, 2008 and for the
period January 5, 2007 (date of inception) through December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2,
the Company has a generated negative cash outflows from operating activities,
experienced recurring net operating losses, and is dependent on securing
additional equity and debt financing to support its business
efforts. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regards
to this matter are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
|
/s/
RBSM
LLP
|
||||
|
RBSM
LLP
|
||||
|
New
York, New York
April
15, 2009
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of:
BioXcell,
Inc.
We have
audited the accompanying balance sheet of BioXcell, Inc. (A Development Stage
Company) as of December 31, 2007, and the related statements of operations,
changes in stockholders’ equity and cash flows for the period January 5, 2007
(Inception) to December 31, 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly in all
material respects, the financial position of BioXcell, Inc. (A Development Stage
Company) as of December 31, 2007 and the results of its operations and its cash
flows for the period January 5, 2007 (Inception) to December 31, 2007 in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company is in the development stage with no operations and has a
net loss of $214,089, stockholders’ deficiency of $100,926, and cash used in
operations of $116,041 for the period from January 5, 2007 (inception) to
December 31, 2007. This raises substantial doubt about its ability to
continue as a going concern. These factors raise substantial doubt
about the Company's ability to continue as a going
concern. Management's plans concerning these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
WEBB
& COMPANY, P.A.
Certified
Public Accountants
Boynton
Beach, Florida
November
6, 2008, except for Note 8, to which the date is December 10, 2008
|
INVO Bioscience, Inc.
|
||||||||
|
(A
DEVELOPMENT STAGE COMPANY)
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
Assets
|
||||||||
|
December
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Current
Assets:
|
||||||||
|
Cash
|
$
|
15,716
|
$
|
-
|
||||
|
Accounts
receivable
|
34,195
|
|||||||
|
Other
receivable
|
7,500
|
|||||||
|
Inventory
|
70,722
|
-
|
||||||
|
Prepaid
expenses
|
73,785
|
3,349
|
||||||
|
Total
current assets
|
201,918
|
3,349
|
||||||
|
Property
and equipment, net
|
41,245
|
-
|
||||||
|
Other
Assets:
|
||||||||
|
Deferred
financing costs, net
|
-
|
9,153
|
||||||
|
Capitalized
patents, net
|
68,392
|
43,270
|
||||||
|
Total
other assets
|
68,392
|
52,423
|
||||||
|
Total
assets
|
$
|
311,555
|
$
|
55,772
|
||||
|
Liabilities
and Stockholders' Deficiency
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$
|
226,861
|
$
|
10,351
|
||||
|
Accrued
expenses
|
614,799
|
3,581
|
||||||
|
Line
of credit
|
50,000
|
|
49,221
|
|||||
|
Total
current liabilities
|
891,660
|
63,153
|
||||||
|
Long
Term Liabilities:
|
||||||||
|
Note
payable- related party
|
96,462
|
93,545
|
||||||
|
Total
long term liabilities
|
96,462
|
93,545
|
||||||
|
Total
liabilities
|
988,122
|
156,698
|
||||||
|
Commitments
and Contingencies
|
||||||||
|
Stockholders'
Deficiency:
|
||||||||
|
Preferred
Stock, $.0001 par value; 100,000,000 shares authorized;
No
shares issued and outstanding as of December 31, 2008 and
2007
|
-
|
-
|
||||||
|
Common
Stock, $.0001 par value; 200,000,000 shares authorized; 53,620,000 and
24,991,379 issued and outstanding as of December 31, 2008 and 2007,
respectively.
|
5,362
|
2,499
|
||||||
|
Additional
paid-in capital
|
1,855,565
|
110,664
|
||||||
|
Stock
subscription receivable
|
(450,000)
|
-
|
||||||
|
Accumulated
deficit during the development stage
|
(2,087,494
|
)
|
(214,089
|
)
|
||||
|
Total
stockholders' deficiency
|
(676,567
|
)
|
(100,926
|
)
|
||||
|
Total
liabilities and stockholders' deficiency
|
$
|
311,555
|
$
|
55,772
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
INVO Bioscience, Inc.
|
||||||||||||
|
(A
DEVELOPMENT STAGE COMPANY)
|
||||||||||||
|
Consolidated
Statements of Losses
|
||||||||||||
|
Year
|
From
January 5, 2007
|
From
January 5, 2007
|
||||||||||
|
Ended
|
(Inception) to
|
(Inception) to
|
||||||||||
|
December 31, 2008
|
December 31,
2007
|
December 31, 2008
|
||||||||||
|
Revenue:
|
||||||||||||
|
Product
Revenue
|
$ | 37,995 | $ | - | $ | 37,995 | ||||||
|
Cost
of Goods Sold:
|
||||||||||||
|
Product
Costs
|
10,088 | 10,088 | ||||||||||
|
Gross
Margin:
|
27,907 | 27,907 | ||||||||||
|
Operating
Expenses:
|
||||||||||||
|
Research
and development
|
51,761
|
|
33,350
|
85,111
|
||||||||
|
Selling,
general and administrative
|
1,837,606
|
177,170
|
2,014,776
|
|||||||||
|
Total
Operating Expenses
|
1,889,367
|
210,520
|
2,099,887
|
|||||||||
|
Loss
from operations
|
(1,861,460
|
)
|
(210,520
|
)
|
(2,071,980
|
)
|
||||||
|
Other
Expenses:
|
||||||||||||
|
Interest
expense
|
11,945
|
3,569
|
15,514
|
|||||||||
|
Total
other expenses
|
11,945
|
3,569
|
15,514
|
|||||||||
|
Loss
before income taxes
|
(1,873,405
|
)
|
(214,089
|
)
|
(2,087,494
|
)
|
||||||
|
Provisions
for income taxes
|
-
|
-
|
-
|
|||||||||
|
Net
Loss
|
$
|
(1,873,405
|
)
|
$
|
(214,089
|
)
|
$
|
(2,087,494
|
)
|
|||
|
Basic
and diluted net loss per weighted average shares of common
stock
|
$
|
(0.05
|
)
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
|||
|
Basic
and diluted Weighted average number of shares of common
stock
|
36,691,176
|
24,649,031
|
30,841,278
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
INVO Bioscience, Inc.
|
|||||||||||||||||||||
|
Consolidated
Statement of Stockholders' Deficiency
|
|||||||||||||||||||||
|
For
the Period January 5, 2007 (Date of Inception) to December 31,
2008
|
|||||||||||||||||||||
|
Common
Stock
|
|
||||||||||||||||||||
|
Shares
|
Amount
|
Additional
Paid in Capital
|
Subscription
Receivable
|
Accumulated Deficit
during Development Stage |
Total
|
||||||||||||||||
|
Stock
issuance to founder in January 2007
|
24,991,379 | $ | 2,499 | $ | 17,501 | - | $ | 20,000 | |||||||||||||
|
In
Kind contribution of services in December 2007
|
- | - | 90,865 | - | 90,865 | ||||||||||||||||
|
In
Kind contribution of interest in December 2007
|
- | - | 2,298 | - | 2,298 | ||||||||||||||||
|
Net
Loss for the period January 5, 2007 (Inception)to December 31,
2007
|
- | - | - | $ | (214,089 | ) | (214,089 | ) | |||||||||||||
|
|
|||||||||||||||||||||
|
Balance,
December 31, 2007
|
24,991,379 | $ | 2,499 | $ | 110,664 | $ | (214,089 | ) | $ | (100,926 | ) | ||||||||||
|
Common
stock issued for services in March 2008
|
10,728,442 | 1,073 | 11,978 | - | 13,051 | ||||||||||||||||
|
Common
stock issued for cash in April 2008
|
312,392 | 31 | 31,969 | - | 32,000 | ||||||||||||||||
|
Common
stock issued for cash in May 2008
|
365,588 | 37 | 54,963 | - | 55,000 | ||||||||||||||||
|
Common
stock issued for cash in June 2008
|
431,994 | 43 | 64,957 | - | 65,000 | ||||||||||||||||
|
Common
stock issued for cash in July 2008
|
399,148 | 40 | 59,960 | - | 60,000 | ||||||||||||||||
|
Common
stock issued for cash in August 2008
|
365,588 | 37 | 54,963 | - | 55,000 | ||||||||||||||||
|
Common
stock issued for cash in September 2008
|
1,136,751 | 114 | 174,886 | - | 175,000 | ||||||||||||||||
|
In
Kind Contribution of services in September 2008
|
- | - | 160,821 | - | 160,821 | ||||||||||||||||
|
In
Kind Contribution of interest in September 2008
|
- | - | 3,690 | - | 3,690 | ||||||||||||||||
|
Common
stock issued for cash in October 2008
|
1,118,186 | 112 | 199,826 | - | 199,938 | ||||||||||||||||
|
Common
stock issued for services in November 2008
|
265,623 | 27 | 40,029 | - | 40,056 | ||||||||||||||||
|
Forfeited
common stock for services not fully rendered during 2008
|
(2,239,585 | ) | (224 | ) | (1,568 | ) | - | (1,792 | ) | ||||||||||||
|
Common
stock issued for cash in November 2008
|
431,994 | 43 | 64,957 | - | 65,000 | ||||||||||||||||
|
Common
stock issued to Registrant’s shareholders in December
2008
|
14,937,500 | 1,494 | 448,506 |
(450,000
|
) | - | - | ||||||||||||||
|
Common
stock issued for Cash in December 2008
|
375,000 | 38 | 374,962 | - | 375,000 | ||||||||||||||||
|
Net
Loss, for the year ended December 31, 2008
|
- | - | - |
-
|
$ | (1,873,405 | ) | (1,873,405 | ) | ||||||||||||
|
Balance,
December 31, 2008
|
53,620,000 | $ | 5,362 | $ | 1,855,565 | $ | (450,000 | ) | $ | (2,087,494 | ) | $ | (676,567 | ) | |||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
INVO Bioscience, Inc
|
||||||||||||
|
(A
DEVELOPMENT STAGE COMPANY)
|
||||||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||||
|
For
the Year Ended
|
From
January 5, 2007
|
From
January 5, 2007
|
||||||||||
|
December
31, 2008
|
(Inception)
to December 31,
2007
|
(Inception)
to December 31, 2008
|
||||||||||
|
Net
Loss
|
$ | (1,873,405 | ) | $ | (214,089 | ) | $ | (2,087,494 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Non-cash
stock compensation issued for services
|
51,585 | - | 51,585 | |||||||||
|
In
kind contribution to employees
|
160,821 | 90,865 | 251,686 | |||||||||
|
In
kind interest on loan payable- related party
|
3,690 | 2,298 | 5,988 | |||||||||
|
Depreciation
and amortization
|
7,509 | 6,152 | 13,661 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Receivables
|
(41,695 | ) | - | (41,695 | ) | |||||||
|
Inventories
|
(70,721 | ) | - | (70,721 | ) | |||||||
|
Prepaid
expenses and other current assets
|
(70,436 | ) | (15,199 | ) | (85,635 | ) | ||||||
|
Accounts
payable
|
216,240 | 10,351 | 226,591 | |||||||||
|
Other
accrued expenses
|
549,784 | 3,581 | 553,365 | |||||||||
|
Net
cash used in operating activities
|
(1,066,629 | ) | (116,041 | ) | (1,182,670 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of property and equipment
|
(42,858 | ) | - | (42,858 | ) | |||||||
|
Purchase
of intangible assets
|
(31,017 | ) | (46,725 | ) | (77,742 | ) | ||||||
|
Net
cash used in investing activities
|
(73,875 | ) | (46,725 | ) | (120,600 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from demand note payable
|
779 | 49,221 | 50,000 | |||||||||
|
Proceeds
from loan payable- insurance
|
70,587 | - | 70,587 | |||||||||
|
Proceeds
from loan payable- related party
|
9,344 | 93,545 | 102,889 | |||||||||
|
Repayment
of loan payable- related party
|
(6,428 | ) | - | (6,248 | ) | |||||||
|
Proceeds
from the issuance of common stock
|
1,081,938 | 20,000 | 1,101,938 | |||||||||
|
Net
cash provided by financing activities
|
1,156,221 | 162,766 | 1,318,986 | |||||||||
|
Net
increase in cash and cash equivalents
|
15,716 | - | 15,716 | |||||||||
|
Cash
and cash equivalents at beginning of period
|
- | - | - | |||||||||
|
Cash
and cash equivalents at end of period
|
15,716 | - | 15,716 | |||||||||
|
Supplemental
disclosure of non-cash financing activity:
|
||||||||||||
|
Cash
paid for interest
|
8,255 | 1,243 | 9,498 | |||||||||
|
Cash
paid for taxes
|
- | - | - | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
INVO BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as of DECEMBER 31, 2008 and DECEMBER 31,
2007
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
|
(A)
General
INVO
Bioscience, Inc. (“the Company”) intends to commercialize its proven and
patented technology that will revolutionize the treatment of
infertility. The Company’s device, the INVOcell and the INVO
procedure are designed to be simple for the patient and the clinician, less
expensive and simpler to perform than conventional in vitro
fertilization. The simplicity of INVO means that it may be performed
in a physician’s practice and therefore it will be available in many more
locations than conventional IVF. INVO also allows conception and
embryo development to take place inside the woman's body; an attractive feature
for most women.
We are a
development stage company, as defined by Statement of Financial Accounting
Standards (“SFAS”) No. 7. The Company’s Activities during the
development stage include developing the business plan, seeking regulatory
clearance in the European Union and the United States and raising
capital.
Through
December 31, 2008, we have generated minimal sales revenues, have incurred
significant expenses and have sustained losses. Consequently, our
operations are subject to all the risks inherent in the establishment of a new
business enterprise.
In May
2008, the Company received notice that the INVOcell product meets all the
essential requirements of the relevant European Directive(s), and received CE
Marking. The CE marking (also known as CE mark) is a mandatory
conformity mark on many products placed on the single market in the European
Economic Area (EEA). The CE marking (an acronym for the French
“Conformité Européenne”) certifies that a product has met EU health, safety and
environmental requirements, which ensure consumer safety.
With CE
Marking, the Company now has the ability and necessary regulatory authority to
distribute its product in the European Economic Area (Includes: The European
Union, Canada, Australia, New Zealand, and most parts of the Middle
East). The Company has sold 785 units of INVOcell to
date.
(B) Basis
of Presentation (Reverse Merger and Corporate Structure)
On
December 5, 2008, the Company completed a merger transaction with Emy’s Salsa
Aji Distribution Company, Inc. (“Emy’s”) an inactive publicly registered shell
corporation with no significant assets or operations. Emy’s was
incorporated on July 11, 2005, under the laws of the State of Nevada under the
name Certiorari Corp. In connection with the reverse merger, INVO
Bioscience became our wholly-owned subsidiary and the INVO Bioscience
Shareholders acquired control of Emy’s.
For
accounting purposes, the Company accounted for the transaction as a
recapitalization and the Company is the surviving entity. In
connection with the reverse merger, 14,937,500 shares were retained by Emy’s
shareholders.
Effective
with the Agreement, all previously outstanding shares of common owned by the
Company's shareholders were exchanged for an aggregate of 38,307,500 shares of
Emy’s common stock.
Effective
with the Agreement, Emys changed its name to INVO Bioscience Inc.
All
references to Common Stock, share and per share amounts have been retroactively
restated to reflect the exchange ratio of 357.0197 shares of INVO Bioscience
Common Stock for 1 shares of the acquirer's Common Stock outstanding immediately
prior to the merger as if the exchange had taken place as of the beginning of
the earliest period presented.
The
accompanying financial statements present the historical financial condition,
results of operations and cash flows of the Company prior to the merger with
Emys.
The
accompanying consolidated financial statements present on a consolidated basis
the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as of DECEMBER 31, 2008 and DECEMBER 31,
2007
(C) Use of
Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
(D) Cash and Cash
Equivalents
The
Company considers all highly liquid temporary cash investments with an original
maturity of three months or less to be cash equivalents. As of
December 31, 2008 and 2007, the Company had $15,716 and $0 cash equivalents
respectively.
(E)
Inventory
Inventories
consist of finished products and are stated at the lower of cost or market;
using the first-in, first-out (FIFO) method as a cost flow
convention.
(F) Property and
Equipment
The
Company records property and equipment at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
economic lives of the assets, which are from 3 to 7 years. The Company
capitalizes the expenditures for major renewals and improvements that extend the
useful lives of property and equipment. Expenditures for maintenance
and repairs are charged to expense as incurred. The Company reviews the
carrying value of long-lived assets for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of long-lived assets is
measured by a comparison of its carrying amount to the undiscounted cash flows
that the asset or asset group is expected to generate. If such assets
are considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property, if any, exceeds its fair
market value.
(G) Stock Based
Compensation
The
Company accounts for stock-based compensation under the provisions of SFAS
123R, Share-Based
Payment (“SFAS 123R”). This statement requires the Company to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the
award. That cost is recognized over the period in which the employee
is required to provide service in exchange for the award, which is usually the
vesting period.
(H) Loss Per
Share
We use
SFAS No. 128, “Earnings Per Share” for calculating the basic and diluted
loss per share. We compute basic loss per share by dividing net loss
and net loss attributable to common shareholders by the weighted average number
of common shares outstanding. Common equivalent shares are excluded
from the computation of net loss per share if their effect is
anti-dilutive. There were 120,000 common share equivalents at
December 31, 2008 and none at December 31, 2007. For the year ended
December 31, 2008, these potential shares were excluded from the shares used to
calculate diluted earnings per share as their inclusion would reduce net loss
per share.
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as of DECEMBER 31, 2008 and DECEMBER 31,
2007
(I) Identifiable Intangible
Assets
Intangible
assets are stated at cost net of accumulated amortization and
impairment. During the period December 31, 2008, the Company
purchased $31,000 of additional patents that establish and protect its
proprietary technology and product in several countries. The Company
intends to amortize these costs over the useful life of the patents.
(J)
Fair
Value of Financial Instruments
SFAS No.
107, “Disclosures About Fair Value of Financial Instruments,” requires
disclosure of the fair value of certain financial instruments. The
carrying value of cash and cash equivalents, accounts payable and borrowings, as
reflected in the balance sheets, approximate fair value because of the
short-term maturity of these instruments.
Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value
Measurements (SFAS 157), which provides a framework for measuring fair
value under GAAP. SFAS 157 defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement
date. SFAS 157 requires that valuation techniques maximize the use of
observable inputs and minimize the use of unobservable inputs.
(K) Income
Taxes
The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting
for Income Taxes” (“SFAS 109”). Under SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
In July
2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the recognition threshold and measurement of a tax position taken on a
tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. FIN 48 also requires expanded disclosure with
respect to the uncertainty in income taxes.
(L) Business
Segments
The
Company operates in one segment and therefore segment information is not
presented.
(M) Concentration of Credit
Risk
The
Company at times has cash in banks in excess of FDIC insurance
limits. The Company had no amounts in excess of FDIC insurance limits
as of December 31, 2008 and December 31, 2007.
(N) Revenue
Recognition
The
Company will recognize revenue on arrangements in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements” and No. 104, “Revenue Recognition”. In all
cases, revenue is recognized only when the price is fixed and determinable,
persuasive evidence of an arrangement exists, the service is performed and
collectability of the resulting receivable is reasonably assured.
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as of DECEMBER 31, 2008 and DECEMBER 31,
2007
(O) Long- Lived
Assets
Long-lived
assets and certain identifiable assets related to those assets are periodically
reviewed for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be
recoverable. If the non-discounted future cash flows of the
enterprise are less than their carrying amount, their carrying amounts are
reduced to the fair value and an impairment loss recognized. There
was no impairment recorded from January 5, 2007 (inception) to December 31,
2008.
(P) Research and
Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 (“SFAS 2”), “Accounting for Research and Development
Costs.” Research and development costs include expenses incurred by
the Company for research, design and development of our proprietary technology
and are charged to operations as incurred. Accordingly, internal
research and development costs are expensed as incurred. Total
expenditures on research and product development for 2008 and 2007 were
approximately $52,000 and $33,000 respectively.
(Q)
Recent Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51.” This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS No. 160
affects those entities that have an outstanding noncontrolling interest in one
or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is
prohibited. The adoption of this statement is not expected to have a
material effect on the Company's financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance and cash flows. SFAS 161 applies to
all derivative instruments within the scope of SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments. Entities with
instruments subject to SFAS 161 must provide more robust qualitative disclosures
and expanded quantitative disclosures. SFAS 161 is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
permitted. We are currently evaluating the disclosure implications of
this statement.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and provides entities with a framework for selecting the
principles used in preparation of financial statements that are presented in
conformity with GAAP. The current GAAP hierarchy has been criticized
because it is directed to the auditor rather than the entity, it is complex, and
it ranks FASB Statements of Financial Accounting Concepts, which are subject to
the same level of due process as FASB Statements of Financial Accounting
Standards, below industry practices that are widely recognized as generally
accepted but that are not subject to due process. The Board believes
the GAAP hierarchy should be directed to entities because it is the entity (not
its auditors) that is responsible for selecting accounting principles for
financial statements that are presented in conformity with GAAP. SFAS
162 is effective 60 days following the SEC’s approval of PCAOB Auditing Standard
No. 6, Evaluating Consistency of Financial Statements
(AS/6). The adoption of FASB 162 is not expected to have a material
impact on the Company’s financial position.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No.
60.” Diversity exists in practice in accounting for financial
guarantee insurance contracts by insurance enterprises under FASB Statement No.
60, Accounting and Reporting by Insurance Enterprises. This results
in inconsistencies in the recognition and measurement of claim
liabilities. This Statement requires that an insurance enterprise
recognize a claim liability prior to an event of default (insured event) when
there is evidence that credit deterioration has occurred in an insured financial
obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. SFAS 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods for those fiscal years. The accounting and
disclosure requirements of the Statement will improve the quality of information
provided to users of financial statements. The adoption of FASB 163
is not expected to have a material impact on the Company’s financial
position.
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as of DECEMBER 31, 2008 and DECEMBER 31,
2007
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets.” The Company is required to adopt FSP 142-3 on
January 1, 2009. The guidance in FSP 142-3 for determining the
useful life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after adoption, and the disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. The Company is currently evaluating the
impact of FSP 142-3 on its consolidated financial position, results of
operations or cash flows.
In May
2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP
APB 14-1 requires the issuer of certain convertible debt instruments that
may be settled in cash (or other assets) on conversion to separately account for
the liability (debt) and equity (conversion option) components of the instrument
in a manner that reflects the issuer's non-convertible debt borrowing
rate. FSP APB 14-1 is effective for fiscal years beginning after
December 15, 2008 on a retroactive basis. The Company is
currently evaluating the potential impact, if any, of the adoption of FSP
APB 14-1 on its consolidated financial position, results of operations or
cash flows.
In June
2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5), Determining Whether an Instrument
(or Embedded Feature)
is Indexed to an Entity’s Own Stock. EITF 07-5 requires
entities to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock by assessing the instrument’s contingent
exercise provisions and settlement provisions. Instruments not
indexed to their own stock fail to meet the scope exception of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, paragraph 11(a), and should be
classified as a liability and marked-to-market. The statement is
effective for fiscal years beginning after December 15, 2008 and is to be
applied to outstanding instruments upon adoption with the cumulative effect of
the change in accounting principle recognized as an adjustment to the opening
balance of retained earnings. The Company is assessing the impact of
this EITF for the year ended December 31, 2009.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company's present or future
consolidated financial statements.
|
NOTE 2
|
GOING
CONCERN
|
As
reflected in the accompanying consolidated financial statements, the Company is
in the development stage and has just commenced operations in December 2008, has
a net loss of $1,873,000 a working capital deficiency of $690,000, a stockholder
deficiency of $677,000 and cash used in operations of $1,067,000 for the year
ended December 31, 2008. This raises substantial doubt about its
ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company’s ability to raise additional
capital and implement its business plan.
|
NOTE 3
|
INVENTORY
|
As of
December 31, 2008 and 2007, the Company recorded the following inventory
balances:
|
December
31,
2008
|
December
31,
2007
|
||||||
|
Raw
Materials
|
$
|
-
|
$
|
-
|
|||
|
Work
in Process
|
55,466
|
-
|
|||||
|
Finished
Goods
|
15,257
|
-
|
|||||
|
Total
Inventory
|
$
|
70,722
|
$
|
-
|
|||
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as
of DECEMBER 31, 2008 and 2007
|
NOTE 4
|
PROPERTY AND
EQUIPMENT
|
The
estimated useful lives and accumulated depreciation for furniture, equipment and
software are as follows:
|
Estimated
Useful Life
|
|
|
Molds
|
3 to 7 years
|
|
Computers
and Software
|
3 to 5 years
|
|
December
31,
2008
|
December
31,
2007
|
||||||
|
Manufacturing
Equipment- Molds
|
$
|
35,263
|
$
|
-
|
|||
|
Less:
Accumulated Depreciation
|
980
|
||||||
|
Network/IT
Equipment
|
7,595
|
-
|
|||||
|
Less:
Accumulated Depreciation
|
633
|
||||||
|
$
|
41,245
|
$
|
-
|
||||
During the periods December 31, 2008 and 2007, the Company
recorded $1,613 and $0 in depreciation expense,
respectively.
|
NOTE 5
|
PATENTS
|
As of
December 31, 2008 and 2007, the Company recorded the following patent
costs:
|
December
31, 2008
|
December
31,
2007
|
|||||||
|
Total
Patents
|
$
|
77,743
|
$
|
46,725
|
||||
|
ACCUMULATED
AMORTIZATION
|
(9,351
|
)
|
(3,455
|
)
|
||||
|
Patent
costs, net
|
$
|
68,392
|
$
|
43,270
|
||||
During
the periods December 31, 2008 and 2007, the Company recorded $ 5,896 and $3,455,
respectively in amortization expenses.
|
NOTE 6
|
WORKING LINE OF
CREDIT
|
At December 31, 2008, the Company had a
$50,000 working capital line of credit with Century Bank, interest payable
monthly 0.24% above the bank’s prime lending rate on 12/31/08 the rate was
3.79%, maturing May 31, 2010. At December 31, 2008 and 2007, the
balance outstanding on the line of credit was $50,000 and $49,221,
respectively.
|
NOTE 7
|
NOTE PAYABLE AND OTHER RELATED PARTY
TRANSACTIONS
|
On
September 18, 2008, the Company entered into a related party transaction with
Dr. Claude Ranoux. Dr. Ranoux is the President, Director and Chief
Scientific Officer of the Company. Dr. Ranoux had loaned funds to the
Company to sustain its operations since January 5, 2007
(inception). Ranoux’s total cumulative investment at December 31,
2008 is $96,462 (“the Principal Amount”) in INVO Bioscience. On December
1, 2008, Dr. Ranoux executed a letter agreement with the Company to amend the
Promissory Note to allow conversion into shares of Emy’s Common Stock following
the Closing. On March 26, 2009, the Company and Dr Ranoux agreed to
re-write the agreement to a non-convertible note payable bearing interest at 5%
per annum and extended the repayment date to March 31, 2010. The Company
and Dr. Ranoux can jointly decide to repay the loan earlier without prepayment
penalties.
For the
years ended December 31, 2008 and 2007, the Company charged an in-kind
contribution related to interest expense totaling $3,690 and $2,298,
respectively.
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as
of DECEMBER 31, 2008 and 2007
|
NOTE 8
|
STOCKHOLDERS’
EQUITY
|
For the
period from January 5, 2007 (inception) through December 31, 2007, BioXcell
(INVO Bioscience) issued 70,000 shares of common stock for $20,000, at
$.2857/share. This was retroactively restated to 24,991,379 shares due to the
reverse merger on December 29, 2008.
On
December 29, 2008, the Company filed an amended and restated articles
of incorporation with the Secretary of State of Nevada. The
Company’s authorized capital stock was changed from 75,000,000 shares, all
of which were shares of Common Stock, par value $.0001 per share, to
authorized Common Stock of 200,000,000 shares, par value $.0001, and
100,000,000 newly created shares of undesignated preferred stock, par value
$.0001.
On
November 7, 2008, Emy’s Board of Directors approved a 5-1 forward stock split
(the “Forward Split”) of our Common Stock with a record date of November 10,
2008 for the Company’s issued and outstanding shares and not its authorized
shares. The Forward Split was payable on November 12,
2008. Emys had 12,387,500 shares outstanding prior to the Forward
Split and 61,937,500 shares outstanding thereafter.
The
Company had 61,937,500 shares issued and outstanding immediately prior to the
Share Exchange. Our charter does not authorize any shares of
preferred stock. Pursuant to the Share Exchange Agreement, certain
shareholders of Emy’s agreed to cancel 47,000,000 shares of Emy’s Common Stock
and Emys agreed to issue 38,307,500 newly-issued shares of Common Stock to INVO
Bioscience shareholders. As of December 5, 2008 and immediately after
Closing, an aggregate of 53,245,000 shares of Common Stock were outstanding,
including shares issued pursuant to the Closing.
After the
consummation of the transaction contemplated by the Share Exchange Agreement, on
the day of the Closing, we entered into the Securities Purchase Agreement with
the investors pursuant to which, the investors contributed $375,000 in exchange
for 375,000 shares of our Common Stock at a price of $1.00 per
share. The investors have piggyback registration rights that permit
them to register their Common Stock on any registration statement filed by the
Company.
During
the period from January 1, 2008 through November 30, 2008, the Company issued an
aggregate of 4,561,641 shares of Common Stock for cash totaling $706,938 for
share prices ranging from $0.15 to $1.50.
In March
2008, the Company
issued an aggregate of 8,488,857 shares of Common Stock (net of forfeitures) for
services rendered totaling $11,259. In November 2008, the Company
issued an aggregate of 265,623 shares of Common Stock for services rendered
totaling $40,056.
Since
January 1, 2008, the Company has signed agreements for officers, executives and
service providers of the Company. As of December 31, 2008, a
total of 303,500 shares of Common Stock and options to purchase an additional
500,000 (including 461,000 of employee incentive stock options) of the Company’s
Common Stock were agreed to be issued. As of December 31, 2008, the
Company has not issued the committed shares and has recorded an accrued
liability of $313,500. As of December 31, 2008, the Company has not
obtained shareholder approval for the employee incentive stock option plan and
has not deemed the 500,000 options as granted until the plan is
approved.
During
the years ended December 31, 2008 and 2007, the Company recorded related party
contributed services and interest of $164,511 and $93,163,
respectively.
Non-Statutory
Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s Common Stock issued. These
options were granted in lieu of cash compensation for services
performed.
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||||
|
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
|
$
|
1.00
|
140,000
|
2.9
|
|
$ |
-
|
$
|
-
|
|||||||||||||
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as
of DECEMBER 31, 2008 and 2007
Transactions
involving warrants are summarized as follows:
|
|
Number
of
Shares
|
Weighted
Average
Price
Per
Share
|
|||||
|
Outstanding
at January 5, 2007
|
-
|
$
|
-
|
||||
|
Granted
|
-
|
-
|
|||||
|
Exercised
|
-
|
-
|
|||||
|
Canceled
or expired
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2007
|
-
|
$
|
-
|
||||
|
Granted
|
140,000
|
1.00
|
|||||
|
Exercised
|
-
|
-
|
|||||
|
Canceled
or expired
|
-
|
-
|
|||||
|
Outstanding
at December 31, 2008
|
140,000
|
$
|
1.00
|
||||
Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2008 was
$630,000. Aggregate intrinsic value represents the difference between
the Company's closing stock price on the last trading day of the fiscal period,
which was $5.50 as of December 31, 2008, and the exercise price multiplied by
the number of options outstanding. As of December 31, 2008, total
unrecognized stock-based compensation expense related to stock options was
$210,000. During the year ended December 31, 2008, the Company did
not charged to operations related to recognized stock-based compensation expense
for the above stock options.
|
NOTE 9
|
INCOME
TAXES
|
The
Company has adopted Financial Accounting Standard number 109, which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Temporary differences
between taxable income reported for financial reporting purposes and income tax
purposes are insignificant.
For
income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $1,800,000, expire at various times through 2028, subject to
limitations of Section 382 of the Internal Revenue Code, as
amended. The deferred tax asset related to the carry forward is
approximately $540,000. The Company has provided a valuation reserve
against the full amount of the net operating loss benefit, since in the opinion
of management based upon the earning history of the Company, it is more likely
than not that the benefits will not be realized.
|
NOTE 10
|
COMMITMENTS
|
|
A)
|
Operating
Leases
|
On
January 1, 2007, the Company entered into an operating lease (the “lease”) with
Cummings Properties, LLC, to lease 3,294 square feet of general office
space. The lease commenced on January 1, 2007 and was automatically
extended in October 2008 until December 31, 2010. The Company agreed
to pay a security deposit of $3,000 on January 1, 2007, which was repaid to the
Company in equal $500 installments over the first six months of the
lease. The Company received no rent incentives or improvement
allowances under this agreement. The lease requires the Company to
pay minimum lease payments of $2,000 per month for the duration of the
lease. The lease is subject to a cost of living increase equal to the
Boston, MA Consumer Price Index at the beginning of each calendar
year. As of January 1, 2009, the Company’s lease payments under this
agreement increased 3.53% to $2,070.60.
Fiscal
Year Minimum
Future Lease Payments
2009 $24,847
2010 $24,847
INVO
BIOSCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
as of DECEMBER 31, 2008 and 2007
|
B)
|
Consulting
agreements
|
On
October 22, 2007, the Company entered into a fee agreement with Business Growth
Resources, LLC (“BGR”), 28 Aspenwood St., Suite 215, Simsbury, CT to assist the
Company with raising operating capital. The Company agreed to pay
Business Growth Resources a retainer of $7,500 payable as follows: $2,500 upon
execution of the agreement, and $2,500 every thirty days
thereafter. The Company also agreed to pay Business Growth Resources,
LLC 5% of any investment proceeds that were introduced to the Company by
BGR. Because of BGR’s inability to introduce viable investment
opportunities to the Company, the two parties separated the agreement on August
9, 2008. The Company paid $5,000 for BGR’s efforts.
|
|
On
December 5, 2008 in conjunction with the closing of the Securities
Exchange Agreement the Company signed a term sheet with Lionshare Ventures
LLC (“LSV”). The terms of the agreement were such that LSV
agreed to invest the balance of its original commitment to the Company
dated May 19, 2008 in the amount of $450,000. 2,000,000 shares
of Common Stock were escrowed until the money was funded to the Company.
As of today, LSV has delivered $200,000 and the Company released
1,000,000 of common shares from
escrow.
|
|
C)
|
Anti-Dilution and Piggyback Registration
Rights
|
On
December 5, 2008, we entered into the Securities Purchase Agreement with the
certain investors who have piggyback registration rights that permit them to
register their Common Stock on any registration statement filed by the
Company. In addition, pursuant to certain anti-dilution rights granted
under the Securities Purchase Agreement to the investors, the Company may be
obligated to issue additional shares of its Common Stock to the investors in the
event it issues Common Stock to future investors at a per share purchase price
less than $1.00. The number of additional shares to be issued in such
event is equal to that number of shares that the investors would have acquired
at such price had that price been offered at the time of their original
investment, minus the number of shares acquired in their original
investment. Further, pursuant to the letter agreement, LSV and its
managing member, Christopher Esposito, have agreed to forfeit to us, one share
of our Common Stock for every two shares we would be required to issue up to the
maximum of 562,5000 shares, which number of shares are being held in escrow by
us until December 5, 2010.
|
D)
|
Employee
Agreements
|
Since
January 1, 2008, the Company has signed nine employee agreements for officers,
executives and employees of the Company. Three of these agreements
were with the founders of the Company.
The
remaining six of the agreements were executed with executives and staff of the
Company. These employees were issued common shares and options to
purchase common shares of the Company. Under the terms of these
employee agreements, these shares only vest upon the completion of the Exchange
Agreement and the implementation of the Company’s Employee Stock Plan. The
Exchange Agreement closed on December 5, 2008, the Company has yet to implement
an Employee Stock Plan, it is planning to do so in the second quarter of
2009. As of today, a total of 303,500 shares of Common Stock and
options to purchase an additional 700,000 shares of the Company’s Common Stock
have been promised but not issued.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on April 15, 2009.
|
INVO
Bioscience, Inc.
|
|||
|
Date:
April 15,
2009
|
By:
|
/s/ Kathleen Karloff | |
| Kathleen Karloff | |||
|
Chief
and Principal Executive Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on April 15, 2009
|
Signature
|
|
Capacity
|
|
/s/Kathleen
Karloff
Kathleen
Karloff
|
|
Chief
and Principal Executive Officer, Director
|
|
|
||
|
/s/ Dr.
Claude Ranoux
Dr.
Claude Ranoux
|
|
President,
Treasurer and Director
|
|
|
||
|
/s/Robert
J. Bowdring
Robert
J. Bowdring
|
|
Chief
Financial Officer (Principal Financial and Accounting
Officer)
|
|
/s/Dr.
Claude
Ranoux
Dr.
Claude Ranoux
|
|
Director
|
|
/s/Kathleen
Karloff
Kathleen
Karloff
|
|
Director
|
EXHIBIT INDEX
|
Exhibit No.
|
Description
|
||||
|
3.01
|
Articles
of Incorporation(1) (3.1)
|
||||
|
3.01
|
Restated
Articles of Incorporation(2)
|
||||
|
3.03
|
Bylaws(1) (3.2)
|
||||
|
3.04
|
Share
Exchange Agreement, dated December 5, 2008, by
and among Emy’s, INVO Bioscience and INVO Bioscience Shareholders.
(1) (2.1)
|
||||
|
3.05
|
Securities
Purchase Agreement dated December 5, 2008, between
Emy’s and the investors named therein(1) (2.2)
|
||||
|
10.01
|
|||||
|
10.02
|
|||||
|
10.03
|
|||||
|
10.04
|
|||||
|
10.05
|
|||||
|
10.06
|
|||||
|
31.01
|
|||||
|
31.02
|
|||||
|
32.00
|
|||||
|
(1)
|
Incorporated
by reference to our Form 8-K filed with the SEC on December 12,
2008.
|
|
| (2) | Incorporated by reference to our Form 8-K filed with the SEC on December 29, 2008 |