UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-K

 


 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fis cal year ended December 31, 2018

 

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                                to                                      

         

INVO BIOSCIENCE, INC.

(Exact name of registrant as specified in Charter)

 

Nevada

333-147330

20-4036208

(State or other jurisdiction of incorporation or organization)

(Commission File No.)

(IRS Employee Identification No.)

 

407 Rear Mystic Avenue, Suite 34C, Medford, MA 02155

 (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

 

Securities registered pursuant to Section 12(g) of the Act:

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ☐    NO  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ☐    NO  ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  YES   ☒    NO  ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.    ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ☐

Accelerated filer     ☐

Non-accelerated filer     ☐ (Do not check if smaller reporting company)

Smaller reporting company    ☒

 

Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES☐      NO☒  

 

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the closing price as reported on the OTC QB Venture Market of the Over-the-counter “OTC” market for the Registrant’s common stock as of the last business day of the registrant’s most recently completed second fiscal quarter of 2018 was $39,972,000.  There were no shares of non-voting common equity outstanding as of March 31, 2019.

 

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of April 12, 2019 was 154,711,112.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Registrant’s definitive Proxy Statement in connection with the 2019 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days after the end of the Registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be field as a part hereof. 

 

 

 

FORM 10-K

INVO BIOSCIENCE, INC.

 

TABLE OF CONTENTS

 

 

 

Page

Part I

 

 

 

 

Item 1.

Business

4

Item 1A.

Risk Factors

14

Item 1B.

Unresolved Staff Comments

24

Item 2.

Properties

24

Item 3.

Legal Proceedings

24

Item 4.

Mine Safety Disclosures

25

 

 

 

 

 

 

Part II

 

 

 

 

Item 5.

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

26

Item 6.

Selected Financial Data

27

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk

34

Item 8.

Financial Statements and Supplementary Data

35

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

36

Item 9A.

Controls and Procedures

37

Item 9B.

Other Information

37

 

 

 

Part III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

38

Item 11.

Executive and Director Compensation

38

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

38

Item 13.

Certain Relationships and Related Transactions, and Director Independence

38

Item 14.

Principal Accountant Fees and Services

38

 

 

 

Part IV

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

39

 

 

 

SIGNATURES

41

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

 

 

 

Part I

 

Item  1.  Business

 

Introduction

 

This Annual Report on Form 10-K should be read together and in connection with the other reports that have been filed by us with the SEC for a comprehensive description of our financial condition and operating results.  In the interest of disclosure, we have included in this Form 10-K certain material events and developments that have taken place through the date of filing of this Form 10-K with the SEC.

 

In this Annual Report on Form 10-K, INVO Bioscience, Inc. (INVO Bioscience, Inc., together with its subsidiaries, is referred to in this document as “we”, “us”, “INVO Bioscience”, “INVO,” or the “Company”), incorporates by reference certain information from parts of other documents filed with the Securities and Exchange Commission.  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, 2018 unless otherwise indicated.  For a description of the risk factors affecting or applicable to our business, see “Risk Factors,” below.

 

The Company

 

INVO Bioscience’s mission is to increase access to care and expand fertility treatment and patient care across the globe. We have developed the INVOcell device and procedure, the first Intravaginal Culture (IVC) system granted FDA clearance in the United States, in hopes of providing millions of infertile couples across the globe access to this new infertility treatment. We believe this novel device and procedure provides a more natural, safe, effective and economical fertility treatment compared to current infertility treatments, including in-vitro fertilization (“IVF”) and intrauterine insemination (“IUI”). The patented INVOcell device is utilized during the incubation of eggs and sperm during fertilization and early embryo development. Unlike conventional infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the women’s vaginal cavity as an incubator to support a more natural fertilization and embryo development environment. This novel device promotes In Vivo conception and early embryo development.

 

In both current utilization of the INVOCell and in clinical studies, the INVO Procedure has proven to have equivalent pregnancy success rates and live birth rates as the traditional assisted reproductive technique IVF. Additionally, we believe there are psychological benefits of the potential mother’s participation in fertilization and early embryo development by vaginal incubation compared to that of traditional IVF treatment. This new technique offers to patients a more natural and personalized way to achieve pregnancy and is simple enough to be performed in an appropriately trained physician’s office or in a satellite facility of an IVF center.

 

For many couples struggling with infertility, access to treatment is often not available. Financial challenges, limited availability of specialized medical care, religious, social and cultural roadblocks can prevent these hopeful couples from realizing their dream to have a baby. There are many benefits to the INVO Solution, including:

 

Reduces the risk of errors of wrong embryo transfers since the embryos are never separated from the woman.

Allows patients to receive treatment at approximately half the cost of IVF treatment.

Promotes greater involvement by couples in the treatment and conception.

Creates a more natural and environmentally stable incubation than traditional IVF incubation in a laboratory.

Requires fewer office visits for the couples.

Reduces the worry of leaving embryos in an incubator where mix-ups have been known to occur.

 

INVO Bioscience was formed on January 05, 2007 under the laws of the Commonwealth of Massachusetts under the name “Bio X Cell, Inc.” to acquire the assets of Medelle Corporation (“Medelle”).  Dr. Claude Ranoux purchased all of the assets of Medelle, and then he contributed those assets, including four patents relating to the INVOcell technology, to Bio X Cell, Inc. upon its formation in January 2007.

 

 

On December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and each of the shareholders of INVO Bioscience entered into a share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation (“Emy’s”). Upon the closing of the share exchange on December 5, 2008, the INVO Bioscience shareholders transferred all of their shares of Common Stock in INVO Bioscience to Emy’s.   In connection with the share exchange, Emy’s changed its name to “INVO Bioscience, Inc.” and Bio X Cell, Inc. became a wholly-owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.).  After the closing, the Company had 53,245,000 shares of Common Stock outstanding.  

 

In May 2008, we 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 “Conformite Europeenne”) certifies that a product has met EU health, safety and environmental requirements, which ensure consumer safety.  We are currently awaiting the approval of our CE Mark re-certification. With our anticipated re-certification of our CE Mark in the near future, we expect to obtain regulatory authority to distribute product in the European Economic Area, provided we comply with local registration requirements as discussed herein ( i.e., the European Union, Australia, New Zealand, Africa and South America).  

 

On November 2, 2015 INVO Bioscience was notified by the United States Food & Drug Administration (“FDA”) that the INVOcell and INVO procedure were granted DeNovo classification allowing the Company to market the INVOCell in the United States. The company has since begun to market and sell the INVOcell in many locations across the U.S. and plans on continuing to penetrate the market through 2019 and beyond. The Company currently has 90 appropriately trained clinics or satellite facilities of IVF centers in the U.S. where patients can receive guidance and treatment for the INVO procedure for infertility.

 

As with most innovative bioscience businesses, one of the biggest challenges that INVO Bioscience faces is raising the appropriate capital to implement its business plan while opening markets across the globe. On November 12, 2018, INVO Bioscience entered into a Distribution Agreement with Ferring International Center S.A. (“Ferring”) granted to Ferring exclusive licensing rights to sublicense the Company’s INVOcell together with the retention device. Under the terms of the Distribution Agreement Ferring was obligated to make an initial payment to the Company of $5,000,000 upon satisfaction of certain closing conditions. We believe the developed business relationship between the Company and Ferring as a result of the Distribution Agreement will help INVO in any future capital raising efforts.

 

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 product, the INVOcell medical device, is designed to treat infertility at a lower cost than other treatments available in today’s marketplace, including IVF.  The INVOcell technology is a fertility treatment where mild ovarian stimulation is used.  Using a mild stimulation protocol, 1-7 follicles are retrieved from a woman in a physician’s office with the patient under light sedation with or with 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, a nutrient liquid.

 

Sperm collection and preparation generally occur before egg retrieval.  Culture medium (~1ml) is placed in the inner vessel of the INVOcell.  Eggs and a low concentration 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 three (3) days in the United States and five (5) days in other countries.  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 type device 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 while allowing the necessary CO2 for fertilization to pass through.  The eggs, sperm and media are inserted into the INVOcell and then the INVOcell is placed in the vaginal cavity, this process takes approximately 30 minutes. 

 

After three (3) to five (5) 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 contents of the inner vessel are placed into a petri plate an embryologist can evaluate the  best embryos for transfer.  A trained clinician can readily identify the best embryos for transfer. The embryos to be transferred are aspirated into a standard transfer catheter for transfer into the patient’s uterus.  This second visit should take approximately 30 minutes. All INVO related medical procedures can be performed in a physician’s office furnished with the necessary equipment thereby avoiding the requirements of an IVF facility and the associated costs to build and maintain such a facility.

 

 

Operations Strategy and Suppliers

 

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 management team.  We have contracted out the manufacturing, packaging/labeling and sterilization of the device, respectively to a certified manufacturer to mold the parts; to a medical manufacturing company to assemble packages and label the product; and to a sterilization specialist to perform the gamma sterilization process.  Outsourcing such operations as described 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:

 

   

Manufacturing:  Our parts and manufacturing processes have been validated.  Our facilities and Quality Management Systems (QMS) have been inspected twice by the FDA and have received very good reports. Manufacturing of inventory is ongoing.  As of December 31, 2018, we had approximately 100 INVOcell devices ready for sale, and a 3,600 in the assembly, sterilization and packaging phase.  Our suppliers provide us with virtually an unlimited capability, with all manufacturing done in New England.

   

All raw materials utilized for the INVOcell are medical grade and commonly used in medical devices (i.e.; medical grade silicone, medical grade plastic).  Our principal mold supplier is a well-established company in the molding industry and is ISO 9001 Certified.  Our contract manufacturer for the INVOcell is ISO 13485 Certified and FDA inspected. 

 ●    

CE Mark:  INVO Bioscience is in the process of re-certifying the CE Mark.  The CE Mark permits the sale of devices in Europe, Australia and other countries that recognize the CE Mark, subject to local registration requirements.

 ●    

Clinical Trials:  Safety and efficacy of the INVOcell device has been demonstrated and cleared for marketing and use by the U.S. FDA.  INVO Bioscience has received ISO 13485, MDD/CMDCAS registration which is effective through 2018.

 ●    

Support of Practitioners:  Clinicians and laboratory directors have used the INVO method and the feedback has been positive; practitioners appreciate the fact that it is a patient-friendly procedure, easy to perform and effective.

 ●    

Marketing Trials/Studies: A number of fertility clinics completed clinical studies in Colombia, Peru, Bolivia and Brazil, South America, showing efficacy rates in the 33%-43% range.  A U.S. clinical study utilizing the INVOcell and procedure was completed in 2014 and yielded a clinical pregnancy rate of 60% and a live birth rate of 55%. The largest practice currently offering the INVO Procedure is experiencing a 60% pregnancy rate. Current US physicians that are treating patients with the INVO procedure are reporting pregnancy result minimally equivalent to IVF.

 

Current Market Opportunity

 

According to the European Society for Human Reproduction (“ESHRE”) in 2018, Assisted Reproductive Technologies (“ART”) Fact Sheet, there were more than 150 million infertile couples in the world.  While there have been large increases in the use of IVF, only 1.5 million ART cycles, including IVF, intra uterine insemination (“IUI”) and other fertility treatments, are now performed globally each year, producing around 350,000 babies.  This amounts to the treatment of approximately 3% of the infertile couples worldwide being treated and only1% having a child though IVF.  A survey by “ Resolve: The National Infertility Association ,” indicates the two main reasons couples do not use IVF is cost and geographical availability.  We can provide a locally available treatment option that can be performed in a facility without much of the expensive equipment required for IVF, and at less than half of the cost of IVF that will help millions of infertile couples throughout the world where IVF is not currently available or is too costly.

 

IVF is an effective treatment option for many infertile couples.  Our patented and proven INVO technology is a unique, low cost fertility treatment 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.  We believe we are well positioned to capture a significant share of this unmet market.  With our INVOcell device and technique, fertilization and early embryo development happens 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.

 

According to ESHRE (2014), approximately 1% of infertile couples have a child by an infertility treatment, including IVF, intra uterine insemination (“IUI”) and other fertility treatments, this represents a $6.6 billion worldwide market annually.  This leaves most of the infertile couples untreated with an estimated unmet market opportunity in the billions, INVO Bioscience believes a portion of this market will be met by the INVOcell 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 INVO Procedure.

 

In the United States infertility according to the American Society of Reproductive Medicine (ASRM) (2017) affects an estimated 10%-15% of the couples of child bearing age. Based on preliminary 2016 data from CDC’s National ART Surveillance System, 263,577 IVF cycles were performed at 463 IVF centers with 65,840 of these cycles performed for egg banking for future use.

 

 

These transferred cycles resulted in 65,969 live births and 78,897 babies born. Outcomes per transfer of fresh embryos averaged a clinical pregnancy for woman under 35 years of age was 52% dropping to 38% for woman 38-40 years of Age. Outcomes per transfer of frozen embryos averaged a clinical pregnancy for woman under 35 years of age was 59% dropping to 54% for woman 38-40 years of Age. Although the use of IVF is still relatively rare as compared to demand its use has doubled over the past decade. Today approximately 1.7% of the infants born in the United States every year are conceived through IVF.

 

In November 2015 we received notice that the INVOcell device met all of the requirements for U.S. FDA clearance. The FDA clearance has allowed the company to begin launching the INVOcell product and procedure in the United States. This has been our focus from approval through 2018.

 

On November 12, 2018, INVO Bioscience, Inc. (the “Company”) entered into a Distribution & Supply Agreement with Ferring International Center S.A. (“Ferring”), pursuant to which, among other things, the Company granted to Ferring an exclusive license in the United States (the “Territory”) with rights to sublicense under patents related to the Company’s proprietary intravaginal culture device known as INVOcell™, together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the Field in the Territory. The Company does retain a limited exception to the exclusive license granted to Ferring allowing the Company, subject to certain restrictions, to establish up to five clinics that will commercialize INVO cycles in the Territory. The Company retains all commercialization rights for the Licensed Product outside of the United States.

 

Ferring is a visionary, privately-held biopharmaceutical company recognized around the world. Its mission is to help patients live better lives… by researching, developing, manufacturing and marketing the most effective and innovative products in reproductive health, women’s health, urology, gastroenterology, endocrinology and orthopedics. They make their products available in over 100 nations with more than 5,000 employees’ word wide. They have R&D facilities doing groundbreaking work in Denmark, Israel, Switzerland, China, India, Scotland and the U.S.A. To support the INVOcell initiative Ferring has a new U.S. Operations Center, on a sprawling 25 acre campus in Parsippany, NJ, which includes a state-of-the-art manufacturing suite, next-generation product development laboratories and a fully equipped education and training center.

 

Under the terms of the Distribution Agreement, Ferring was obligated to make an initial payment to the Company of $5,000,000 upon satisfaction of certain closing conditions, including an agreement from all current manufacturers of the Licensed Product that upon a material supply default by the Company, Ferring can assume a direct purchase relationship with such manufacturers. The Closing under the Distribution Agreement occurred on January 14, 2019 at which time Ferring made the initial $5,000,000 upfront payment to the Company. Ferring is obligated to make a second payment to the Company of $3,000,000 provided that the Company is successful in obtaining a five (5) day label enhancement from the FDA for the current incubation period for the Licensed Product at least three (3) years prior to the expiration of the term of the license for the Licensed Product and provided further that Ferring has not previously exercised its right to terminate the Distribution Agreement for convenience. In addition, under the terms of a separate Supply Agreement, attached as an exhibit to the Distribution Agreement, Ferring is obligated to pay the Company a specified supply price for each Licensed Product purchased by Ferring for distribution.

 

The Distribution Agreement has an initial term expiring on December 31, 2025 and at the end of the initial term it may be terminated by the Company if Ferring fails to generate specified minimum revenues to the Company from the sale of the Licensed Product during the final two years of the initial term. Provided that no such termination occurs at the end of the initial term, thereafter the term of the Distribution Agreement shall automatically be renewed for successive three (3) years terms unless terminated by mutual consent. The Distribution Agreement is subject to termination upon a material breach by either party, or by Ferring for convenience.

 

On January 14, 2019, the Company executed the Ferring Distribution and Supply agreements and received its initial $5 million dollars payment.

 

As indicated above, 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 certifies that a product has met European 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.  Since it has been over nine years since we first received the CE marking, we are currently in the re-certification process with the appropriate regulatory bodies and expect to have this completed in the near future.  With CE marking, we will have the necessary regulatory authority to distribute our INVOcell device in the European Economic Area, subject to local registration regulations.

 

 

Currently, we are continuing to establish agreements with distributors and train physicians outside of the U.S.  The international market will be a primary focus as a result of our recently signed agreement with Ferring for the U.S. Market.

 

Competition

 

The infertility industry is highly competitive and characterized by technological improvements.  New assisted 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 that 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 regimens that the INVOcell will compete with when an 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 generally is limited to IUI and IVF.

 

Competing Treatments

 

Intra Uterine Insemination (IUI) :   In IUI treatments, ovarian stimulation protocols with induction of ovulation are frequently used to recruit several follicles and improve clinical pregnancy rates.  When monitoring of 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.  Currently 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 the INVOcell device and process.  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 about 5,000 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 $800 to $3,000 per cycle in the U.S. and $500 to $2,000 in Europe.  The intra-country differences in cost primarily depend on the stimulation protocol and the ovulation monitoring used by the physician.

 

In Vitro Fertilization (IVF) :   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 to purportedly 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, typically over a 3-5 day period, they are transferred to the uterine cavity.  The transfer of several embryos allows an average success rate for IVF of 37%, but it is also responsible for a multiple birth rate of approximately 7.5% 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.  According to the U.S. Center for Disease Control (“CDC”), in the U.S. there are approximately 1,000 reproductive endocrinologists who collectively perform more than 197,000 embryo transfer IVF cycles and an additional 65,840 cycles are performed and frozen per year at 463 specialized facilities.  According to European Society of Human Reproduction & Embryology (“ESHRE”), 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) is in the $11,000 - $16,000 range 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 $4,000.  The average cost per live birth using IVF can exceed $50,000 since the successful patient may require more than one cycle depending on the age of the patient.  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 first IVF baby, Louise Brown was born in 1977, making the IVF treatment 40 years old.  Our INVOcell device is the first new treatment option for patients in 40 years. 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.  Our competitors may have greater resources in certain business segments or geographic markets than we have.  We may also encounter increased competition from new market entrants or alternative ART technologies.  Our ability to compete in this market successfully will require us 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 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.  We expect that the precision manufacturing of the Anecova device will drive its cost close to $1,500 per unit, which is higher than our price.  The Anecova device would only be available in hospitals and IVF Centers at a significantly higher cost than the INVOcell.  Currently the Anecova device has not begun clinical studies in the United States that will be required for FDA approval, therefore the device will not be available for some time in the United States and many other areas of the world.

 

Competitive Advantages

 

We believe that the INVOcell has the following competitive advantages:

 

Lower cost than IVF with similar efficacy :  The INVOcell is substantially less expensive than IVF due to a lower cost of supplies, labor, capital equipment and overhead.  We estimate that an IVF center requires at least $500,000 of laboratory capital equipment as well as highly trained personnel.  In contrast, the cost of laboratory capital equipment to set-up an INVOcell procedure is approximately $100,000 and does not require highly trained embryologists that are required for traditional IVF.

 

In 2016, according to a draft report prepared by the U.S. Center for Disease Control (“CDC”), there were 263,577 ART cycles. Out of these cycles 65,840 were performed for freezing of embryos for the future and 197,000 cycles were performed through embryo transfer. These cycles resulted in 31%live births with a clinical pregnancy rate of 35.9%.  (CDC 2016 ART Report).  The INVO procedure will be offered at a more attractive price per cycle with a pregnancy rate comparable to traditional IVF.  According to Resolve, National Fertility Association, IUI cycles costs $275- $2,457 per cycle (variability due to drug costs and diagnostics inclusion on some cycles) and the cost range of IVF is $9,000-11,000 per cycle plus drug costs. Drug cost range from $3,000-$5,000 per cycle brining the cost range of IVF to $12,000 - $16,000 per cycle.  The INVO procedure is being offered at $4,500 - $6,500 per cycle inclusive of medications thereby making it more affordable than traditional IVF.

 

Similar cost than IUI with greater efficacy : It is estimated by Resolve that in the U.S. currently IUI averages $1,500 per cycle with approximately <10-12% pregnancy rate while IVF averages $12,000 - $16,000 range per cycle with an average of 35.9% pregnancy rate.  With INVO, we believe that the Ob/Gyn and reproductive endocrinologists will benefit by providing a superior product than IUI with good financial margins, efficacy rates more than triple IUI while treating the full range of infertility indications.  In Europe, according to ESHRE the average cost per pregnancy using IUI is $12,000.  According to ESHRE the average cost per pregnancy for IVF is $21,354 while for INVO it is 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.

 

Greater geographic availability :   According to 2016 CDC Report, there are approximately 463 IVF centers in the U.S.  In addition, by having INVO geographically available in Ob/Gyn offices, couples will avoid the travel costs and absence from work associated with long-distance IVF treatments.  The medical staff at these centers could easily learn the INVO technique and offer it as a lower cost treatment option for their patients through satellite centers.  According to the American College of Gynecologists (ACOG) there are also approximately 5,000 Ob/Gyn physicians in the U.S. who offer infertility services such as the IUI treatment but lack the facilities to offer an IVF treatment.  Since INVO does not require a specialized lab facility, large costly equipment or highly specialized staff, the INVO treatment may be offered in a doctors’ office with the addition of minor capital equipment potentially expanding business for these physicians.  Therefore, in the U.S. alone, INVO could be 10 times more available than conventional IVF.  Ob/Gyn offices worldwide could offer INVO as an alternative or follow up treatment to IUI and generate a significant new revenue stream.

 

 

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 may free a couple from ethical or religious concerns, or fears of laboratory mix-ups that could result in a patient receiving another couple’s embryo(s).

 

SALES AND MARKETING

 

Customers

 

Currently our customers are the doctors who can offer the INVO Procedure to their patients. Through the end of 2018, we have trained doctors from 20 states. We typically train both a reproductive endocrinologist and an embryologist from the practice.  We are grateful to these pioneers who have made the choice to explore our novel device.  They are attempting to expand the market and provide a reproductive service to a broader range of patients who typically would have just left the office and gone home.  These doctors are going through medical and business learning curves as they introduce the INVOcell device and procedure to others within their offices and to prospective patients. They are trying to determine where INVO fits into their practice.  They do not want to impact the strong business models they have in place today but at the same time see the need for INVO in the marketplace.

 

Every center offering the INVO procedure today is in a different place, some have figured out the balance and have a steady mix of procedures. While others are having difficulty recruiting patients or working through politics and existing beliefs to get the INVO offering off the ground.  A couple of doctors have already started planning where they can open new offices to help meet the demand in their area by using the INVOcell.  Another trend we see developing is that once there is one practice offering the INVO Procedure other physicians within the general area have reached out to us to be trained.

 

Since receiving FDA clearance we have shipped over 3,800 INVOcells in the US, not all have been revenue producing as new physicians and embryologists have to practice after training to get better at the slight technique differences of what they have been doing for many years. We have shipped an additional 500 INVOcells across the rest of the word as others are doing the same as the US doctors in learning the process.

 

As we have stated once getting comfortable with the process, the practitioners are seeing very strong and healthy embryos being developed within the INVOcell and have equal or better clinical pregnancy and live birth results. 

 

Product Pricing

 

For the various markets, we price the INVOcell Intravaginal Culture System technology based on discussions with our 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 billings the physician will receive from patients to perform INVO.  Our goal is to have the INVO procedure offered to infertile couples as a lower cost alternative with comparable success rates to IVF.

 

INVOcell Culture Device :     For the U.S. market our price for the INVOcell and retention devices has been agreed to with Ferring. Ferring has minimum quantities that they must buy from the company on an annual basis in order to their exclusivity.  In the international markets the price will be determined as we enter them based on current offerings and discussions with key partners. IVF centers or Ob/Gyn groups purchasing a large number of devices and promoting the INVO process may receive discounted prices and certain free advertising of their facility on our website.  It is expected that the INVOcell will sell for different prices throughout the world as a reflection of different economies and prices of the IVF procedure in different countries.

 

INVOcell Retention Device :  This is a single-use, modified diaphragm that includes holes to allow for natural drainage of vaginal fluids. The current model is an FDA cleared and CE Marked product purchased from a US company. This retention device currently sells for $70 each. In 2018 the Company developed its own single use lower cost product. This retention device specification is equivalent to the current modified diaphragm but will not be available for sale until the completion of testing before being accepted and released by INVO Bioscience for commercial sale. This will significantly reduce the cost of goods moving forward as well as the price to the physicians. 

 

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.  The complete set up for the INVO procedure currently costs approximately $125,000 in the U.S. and $150,000 if ICSI is included in the lab.    

 

 

Sales Strategy

 

As of December 31, 2018, sales and marketing activities are being performed by the Company’s CEO and VP of Global Operations. We anticipate building an international sales team in 2019 and beyond, staring with the addition of Michael Campbell as our Chief Operating Officer and VP of Business Development who joined the Company in February 2019. Mr. Campbell was most recently the Vice President of IVF Americas Business Unit for Cooper Surgical, Inc. (CSI), a wholly owned subsidiary of The Cooper Companies (NYSE: COO), and is also a member of the board of directors for INVO Bioscience. Mr. Campbell has substantial medical device sales, marketing and business development leadership experience within Global Fortune 500 and Start-up Company environments.  During his over 12-year career at Cooper Surgical, he has been responsible for IVF product portfolio sales globally including the US, Canada, Latin America, Europe, Middle East, Africa, and Asia Pacific regions. Our sales efforts include the following three approaches:

 

Domestic - In the United States our sales will come from our relationship with Ferring Pharmaceuticals - The Company will initially ship bulk shipments to Ferring on a quarterly basis per volumes in the Supply Agreement and will adjust as needed to allow for the timely delivery of INVOcells to the physicians. Ferring’s strategy is to market to Reproductive Endocrinologist’s (REI’s) and OB/GYN’s to offer INVO in place of Inter-Uterine Insemination (IUI) since the overall expense for an actual pregnancy is less for INVO, as multiple cycles of IUI are typically required and still produce a very low pregnancy rate as compared to INVO.

 

 

Distributor Partnerships – In foreign countries, we have and will continue to establish local partnerships to access the countries’ markets.  With the distributor-to-physician model, the distributors will be selling to IVF centers, medical practices and physicians directly.  We will support the distributors’ efforts with training, both to the distributors’ trainers as well as to the physicians directly.   We will be expanding our international sales & marketing presence in 2019. 

 

Partnering with Doctors in opening centers that offer INVO as the primary reproductive service – We are looking to work with current doctors in areas of the US where there is demand but currently no IVF facilities. This approach may take many different forms all of which we are willing to explore. The Company plans to build five (5) centers in the United States in the coming years.

 

Target Markets

 

We expect to continue to launch in the international markets focusing on the Middle East, Mexico, Europe, India and Asia. We will also continue to work on regulatory submissions for key countries such as China.

 

Worldwide – According to ESHRE February 2018, one in six couples worldwide experience some form of infertility problem at least once during their reproductive lifetime. The current prevalence of infertility lasting for at least 12 months is estimated to be around 10% worldwide for women aged 20-44. In 2014, the latest year for which figures are available, almost 800,000 treatment cycles were reported from 39 European countries.  The global need for ART is estimated to be at least 1,500 cycles/million population per year.  With the global population of 7.5 billion, the estimate for infertility prevalence is 50 million couples.    

 

U.S. – According to The National Survey of Family Growth from the Centers for Disease Control, in the year 2016, Over 7.5 million women in the U.S. had difficulty conceiving (12.4%) With only about 760,000 couples receiving fertility treatment (IUI, IVF and other treatments). This leaves more than six million couples receiving no treatment at all for their infertility. According to the ASRM’s 2015 Access to Care Summit White Paper, the largest barrier to patients seeking treatment is the cost of the treatment and the lack of insurance coverage for the cost. We are currently offering the INVO procedure in the U.S. at $6,500 dollars per cycle inclusive of medications.  Our goal is to penetrate 5% of the currently untreated infertility market over the next few years, although no assurances can be made that we will achieve our goal in our target markets or at all.

 

Europe – ESHRE estimated in 2018 that Europe had approximately 10 million infertile couples, of which about 800,000 were estimated to have received ART treatments.  That would leave over 9 million infertile couples untreated.

 

Launching INVO in the U.S. market required U.S. FDA DeNovo clearance, which we received in November 2015. Our strategy was to focus our resources primarily on U.S. sales through 2018 to make INVO the standard of care in the United States. Currently, we are providing the INVO product and training at a low introductory price to doctors who are interested in offering the INVO Procedure at their practice. This approach appears to be successful, as there are currently 89 facilities offering or referring the INVO Procedure. As these doctors are adding our INVOcell device and procedure to their existing services it will take time for the INVO method to gain market traction. This is partially due to a portion of patients who are more comfortable using the more traditional and well-known infertility service approaches. On average, it appears the integration of the INVO method into physician’s practices takes approximately 6-9 months. We are taking steps to assist physicians who are having difficulty integrating the INVO method into their established practices.

 

In January 2019, INVO Bioscience closed an exclusive sales and marketing licensing deal with Ferring for the U.S. market. INVO Bioscience will continue to manufacture product for Ferring and the international market. 

 

FDA clearance is required in many countries before they will allow U.S. products to be registered in those countries. The FDA approval granted in 2015 will allow the INVO Bioscience to do regulatory registrations to sell and market INVO in countries such as Mexico, Australia, New Zealand, Hong Kong, Malaysia, China and other countries in across the globe.

 

 

The CE Mark, which is currently being renewed, allows us to sell our INVO device in Europe and certain countries in South America and Africa, subject to local registration requirements.  Our strategy is to focus on these international markets while Ferring manages the U.S. Market. These areas are in need of less costly fertility treatments due to the economics and high infertility rates of up to 25% and relatively low availability of IVF procedures.

 

Insurance Reimbursement for Infertility Treatment

 

In the United States there is generally minimal insurance coverage for infertility treatments, and what coverage there is varies on a state by state basis. Fifteen (15) states mandate some form of insurance reimbursement for infertility treatment.  Three (3) states mandate reimbursement for IVF, while other states cover some form of infertility treatment, but they may also specifically exclude IVF due to cost. Some states have coverage for IUI and not IVF. Based on our new relationship with Ferring it will be up to them to determine if they would like to pursue this opportunity in the United States with the resources they have.

 

Under current fertility service insurance standards, many practices require an infertile patient have at least three IUI cycles  before pursuing IVF. As a result, many patients are often referred to IVF when multiple IUI attempts are not successful. According to Society for Maternal-Fetal Medicine, in 2015 the pregnancy rate for each natural IUI cycle is approximately 4% to 5%, and in the event fertility drugs are used, the pregnancy rate increases to approximately 7% to 16%. In the future, we estimate third-party insurance payers could save more than $7,000 per pregnancy by requiring the patient to try INVOcell first.

 

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 UK and some counties provide almost no coverage.    In 2010, in Canada, the Province of Quebec mandated the full payment of up to 3 ART cycles for residents; however, in November of 2016 they stopped the program.

 

We believe that the INVOcell process will be treated favorably by as it lowers cost and has a high efficacy rate.  According to the data we have found the Company has determined based on the typical number of cycles it take to get pregnant, in the US, the average cost per pregnancy using IUI is $12,000 and IUI is only indicated for approximately 40% of the infertile population.  However, the INVOcell device, which based on the 450 clinical cycles submitted to the FDA in 2014 by the Company, has equivalent pregnancy rates as traditional IVF and treats the same indications as IVF therefore is a very effective treatment for a majority of infertile couples. 

 

Branding and Promotion

 

We have a logo associated with the INVOcell device that is refined for the infertility market.  We have trademarked “INVO Bioscience”, “INVOCELL” and “INVO”.  In 2016 we launched our new website. Our website now refers patients in the US to Ferring moving forward in 2019. We will continue to provide updated information to people looking for INVO in the U.S. to support Ferring and our own US and International efforts as well as the comprehensive FAQ section.  We are continuing to improve our website to include special pages for clinicians and patients.  Subject to available capital, the improvements will include materials that medical professionals and patients can print, including status reports and news items.  It would be expected to include training videos for potential customers, both physicians and patients, who want to learn exactly how the INVOcell works.

 

REGULATION

 

Domestic Regulations

 

The manufacture and sale of our products are subject to extensive regulation by numerous governmental authorities, principally by the FDA in the U.S. 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 secured a DeNovo Class II notification clearance in November 2015 to allow us to introduce them into the U.S. market.  

 

Every company that develops, 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, the FDA and the Department of Justice can:

 

 ●  

place the company under observation and re-inspect the facilities;

 ●  

issue a warning letter apprising of violating conduct;

 ●  

detain or seize products;

 ●  

mandate a recall;

 ●  

seek to enjoin future violations;

 ●  

seek civil and criminal penalties against the company, its officers or its employees; and

 ●  

issue a form 483 to initiate corrective actions by the company

 

INVO Bioscience has successfully completed two comprehensive inspections by the United States Food & Drug Administration (U.S. FDA) occurring in January 2012 and November 2014 resulting in no action indicated (NAI), meaning all was acceptable to the US FDA. The company will continue to be the manufacturer of the INVOcell in the US to support Ferring’s sales and marketing initiatives. This requires the company to continue its regulatory responsibilities and compliance activities.
 

International Regulations

 

We are subject to regulation in each of the foreign countries where our products are sold.  Many of the regulations applicable to our products in such countries are similar to those of the FDA.  The national health or regulatory organizations of certain countries require that our products be qualified before they can be marketed in those countries.  Many of the countries we are targeting do not have a formal approval process of their own but rely on either FDA clearance or the European approval, the CE mark.  Some countries require a registration process of listing the INVOcell with the governing body in addition to the United States and European approvals, the CE mark.

 

With CE marking, we have had, and when we receive re-certification we anticipate we will have, the necessary regulatory authority to distribute our product after registration in the European Economic Area ( i.e., Europe, Australia, and New Zealand).  In addition, we have the ability to markets in some parts of the Middle East and South America as they do not have medical device regulations.  Every country has different requirements; we have completed registrations in some, are in process with others.  We continue to work with doctors and distributors submitting additional registrations.  Certain other countries require that we first receive FDA clearance.  In general, we are registering the product based on the size of the market and our ability to service it given our resources.

 

In 2009, INVO Bioscience received clearance from Health Canada to market, sell and train on the use of the INVOcell and INVO procedure in Canada. Although the Canadian government approved the INVOcell, in Canada the local physician’s college must authorize the use of new products in each province. These governing colleges also want to see the product approved in the country of origin before moving forward in Canada.  With the 2015 FDA approval, Effortless IVF, CA with the approval of the local physician’s college raised funds in 2016 to start building an INVO offering center in Calgary Canada; this center is currently operational and started treating patients in August 2017. An additional center in Canada is planned to launch in 2019. As with most new businesses, the center has been going through a learning curve and working out operational issues. The Team at Effortless IVF in Calgary is hoping to use the experience from this site to expand its reach across Canada and have already been working on their next locations.

 

In 2012 we received Brazil’s National Health Surveillance Agency (ANVISA) clearance approving the sale and use of the INVOcell throughout Brazil.  The approval opens the door for INVO Bioscience to one of the largest markets and fastest growing economies in the world with over 190 million people.  In 2016 we completed a new registration and added an additional distribution channel which was approved by ANVISA in 2017. We look forward to targeting this opportunity in the near future.

 

Intellectual Property

 

The Company’s success depends in part on our ability to obtain and maintain proprietary protection for our products and technologies. Our goal is to develop a strong intellectual property portfolio that enables us to capitalize on the research and development that we have performed to date and will perform in the future, particularly for each of the products that we commercialize such as the INVOcell. We rely on a combination of patent, copyright, and trademark laws in the United States and other countries to obtain and maintain our intellectual property. We protect our intellectual property by, among other methods, filing patent applications with the U.S. Patent and Trademark Office and its foreign counterparts on inventions that are important to the development of our business.  

 

The Company’s product development process has resulted in the development of two active patents covering both the INVOcell device and the INVO Procedure.

 

The Company is currently in the process of completing process improvements on the INVOcell and INVO Procedure which we believe will allow us to patent these features to extend the device’s patent life.

 

 

Employees

 

As of December 31, 2018, we had two full time employees, Ms. Karloff, Chairperson, Director and CEO; and Lori Kahler, our VP of Global Operations. Mr. Bowdring is a Director, consultant, Treasurer & Secretary, and along with the other Directors assist when needed. Excluding directors and officers, we had no employees from 2010 through 2017.

 

In February 2019 we hired Mr. Michael Campbell as COO and VP of Business Development, he has been a Director for the past sixteen months. Mr. Campbell has over 20 years in the infertility market most recently with Cooper Surgical as the VP of the IVF America division and previous to this in the position of VP of the international market.

 

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, quarterly reports on Form 10-Q and each amendment to these reports.  Each such report is posted on our website as soon as reasonably practicable after such report is filed with the SEC via the EDGAR system. 

 

The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered a part of this Annual Report.  Our website address is included in this Annual Report as an inactive textual reference only.

 

Item  1A.  Risk Factors

 

Investing in our Common Stock involves a high degree of risk.  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 Results 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 here under “Risk Factors” or elsewhere in this Form 10-K, which may cause our actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements to differ.  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 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 SEC that are incorporated into this 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 Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

 

 

Risks Relating to Our Business

 

Our business has posted net operating losses, has a limited operating history, and needs additional capital to grow and finance its operations.  

 

From the inception of our consolidated subsidiary BioXcell Inc. on January 5, 2007 through December 31, 2018, INVO Bioscience had an accumulated net loss of $21,721,000.  INVO Bioscience has a limited operating history and is essentially an early-stage operation.  We will continue to be dependent on having access to additional new capital that will allow us to finance operations during our growth.  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 insight into future activities, marketing costs, and customer acquisition and retention, which could lead to INVO missing targets for the achievement of profitability.

 

We require additional capital to continue as a going concern which if not obtained could result in a need to curtail operations.

 

As reflected in the accompanying financial statements for the years ended December 31, 2018 the Company has started commercialization of its product in the past three (3) years within the US with minimal revenues. For 2018 the Company has had a net loss of $3,076,000, a working capital deficiency of $2,770,000, a stockholder deficiency of $2,724,000 and cash used in operations of $653,000. These amounts raise substantial doubt about the Company’s 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 additional funding to meet our future growth and capital expenditure requirements.  To execute on our long term business plan successfully, we will need to raise additional money in the future.  The Company’s rate of growth and its ability to undertake additional projects will be determined by the amounts of funds raised.  No assurance can be given that we will be successful in raising capital in the amounts or rate needed, or that such capital, if available, will be available on terms acceptable to the Company.  If we are not able to raise additional capital at the rate and in the amounts needed, our business will likely be impacted for the long term

 

On November 12, 2018, we entered into a U.S. license and Distribution Agreement with Ferring, whereby we would receive a $5 million upfront fee upon closing which occurred on January 14, 2019 and we anticipate receiving an additional $3 million payment provided that the Company is successful in obtaining a five (5) day label enhancement from the FDA for the current incubation period for the Licensed Product at least three (3) years prior to the expiration of the term of the license for the Licensed Product and provided further that Ferring has not previously exercised its right to terminate the Distribution Agreement for convenience.  There are no assurances the Company will obtain such a milestone required to receive this $3 million payment. Additionally, there are no assurances the upcoming capital infusion will be sufficient to meet the Company’s long-term needs.

 

Our business is subject to significant competition.

 

The infertility industry is highly competitive and characterized by technological improvements and advancements.  New assisted 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.  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, and could force us to alter our planned pricing.  Additionally, increased competitive pressures may require us to commit more resources to our marketing efforts, thereby increasing our cost structure and affecting our ability to achieve, or the timing of achieving, profitability. There can be no assurance that the Company will not be able to compete effectively nor can there be any assurance that additional competitors will not enter the market. Such competition may make it more difficult for the Company to enter into additional contracts with fertility clinics or open profitable INVOcell clinics.

 

Under the terms of our recently signed U.S., Distribution Agreement, Ferring will handle all sales and marketing activities for the U.S. market and the Company will be allowed to initially open and operate five (5) dedicated INVO clinics. There can be no assurances our U.S., market partner or the Company’s own commercial activities will be successful. Additionally, pursuant to the Distribution Agreement, Ferring will have the ability to elect to distribute and commercialize competitive products. The development and commercialization of such competitive products could reduce the Company’s U.S. market share.

 

 

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 the Company must expand the scope of its services in the medical device/bioscience industry.  Such expansion will place a significant strain on our management, operational and sales systems. As a result, we plan 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 expected revenues.

 

We may not be successful in implementing our growth strategy.

 

Our growth strategy includes growing internally by increasing our target customer base.  However, many factors including, but not limited to, increased competition from similar businesses, unexpected costs, costs associated with marketing efforts and maintaining a strong client base may interfere with our ability to expand successfully.  There can be no assurance that we will succeed in implementing our strategy in order to 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 and/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 basis and assumption that certain circumstances will or will not occur, as well as the inherent risks and uncertainties involved in various stages of market implementation.  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 U.S. and international 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 provide competitive advantages.  The United States or Europe could place restrictions on the patentability of various medical devices which 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.  Further, our intellectual property rights may be found to infringe on intellectual property rights of third parties.  Moreover, we may not be able to detect unauthorized use or take appropriate and timely steps to establish and enforce our proprietary rights.  Existing laws of some countries in which we conduct business offer only limited protection of our intellectual property rights, if at all.  As the number of market entrants as well as the complexity of the technology increases, the possibility of functional overlap and inadvertent infringement of intellectual property rights also increases.

 

We may be forced to defend our intellectual property rights from infringement through expensive legal action.

 

Third parties may in the future assert claims against us alleging that our infringement on their intellectual property rights.  Defending such claims may be expensive, time consuming and divert the efforts of our management and/or technical personnel.  Because of litigation, we could be required to pay damages and other compensation, develop non-infringing products or enter into royalty and/or licensing agreements.  However, we cannot be certain that any such licenses, will be made available to us on commercially reasonable terms.

 

We regard our trade secrets, patents and similar intellectual property as critical to our successful operations.  To protect our propriety rights, we rely on patent and trade secret laws, as well as confidentiality and license agreements with certain employees, customers and other third-parties. No assurance can be given that our patents will not be challenged, invalidated, infringed or circumvented. If necessary, we intend to defend our intellectual property rights from infringement through legal action, which could be very costly and could adversely affect our ability to achieve and maintain 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 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.   In the event we obtain product liability insurance there can be no assurance such insurance will provide adequate coverage against any potential claims. Additionally, there is no assurance we will be able to obtain such insurance on commercially reasonable terms in the future.  Furthermore, any claim asserted against the Company could generate costly legal fees, consume management’s time resources, and adversely affect the Company’s 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.  Additionally, any ban or other limitation imposed by the FDA or other foreign regulatory department on fertility medication and services could have a material adverse effect on our business.

 

If we fail to maintain adequate quality standards for our products, our reputation and business may be adversely affected and harmed.

 

Our customers are expecting that our products will perform as marketed and in accordance with industrial standards.  We will rely on third-party manufacturing companies and their packaging processes in connection with the production of our products.  A failure to maintain product quality standards in accordance with our customer’s expectations could result in the loss of demand for our products.  Additionally, delays or quality lapses in our production lines could result in substantial economic losses to us.  Although we believe that our current quality control procedures adequately address these risks, there can be no assurance that we will not experience occasional or systemic quality lapses in our manufacturing and service operations.  Currently, we have limited manufacturing capabilities as we rely on a single manufacturing provider regarding our production process. In the event our manufacturer is unable to produce an adequate supply of products at appropriate quality levels, our growth could be limited and our business may be harmed.  If we experience significant or prolonged disturbance in our quality standards, 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 negatively affect our ability to achieve and maintain 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 are unable to recoup, our costs may increase and our relationships with certain 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 may not be able to develop or continue our business if we fail to retain key personnel.

 

We substantially rely upon the efforts and abilities of our executive management and directors. The loss of any of our executive officers and/or directors services could potentially have a material adverse effect on our business, operations, revenues and/or prospects. If one or more of these persons were to become unable or unwilling to continue in their present positions, we may not be able to replace them readily or timely, if at all.  We do not maintain key man life insurance on the lives of any the Company’s executive management or directors.

 

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 requires increasing the number of persons engaged in activities for the sale, marketing, administration and delivery of our products as well as clinical training personnel for the proper training of the INVO Procedures.  Upon receiving sufficient additional funding, we are planning to hire employees in these areas.  Our ability to attract and hire personnel to fulfill these efforts is dependent on our ability to secure sufficient additional funding. However, there is no assurance we will able to obtain sufficient funding in the future necessary to attract and retain potential employees with the proper background and training matching the skills required for the positions.

 

 

Currency exchange rate fluctuations may affect the results of our operations.

 

We intend to distribute our INVOcell product internationally with all sales, domestic and international, in U.S. dollars.  As a result, our operations could be impacted by fluctuations in currency exchange rates, although, such risk should be reduced as a result of our invoicing practices. However, even though we invoice in US dollars, our operations may still be negatively impacted by foreign currency exchange rates in the event the US dollar strengthens and the local currency where the product is being sold weakens. In the event such international patients are unable to afford the associated increase costs, international doctors and clinics may not be able to offer the INVOcell product and procedure. Additionally, as an international business we may 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.

 

Our business is subject to risks in connection with changes in international, national and local economic and market conditions, including the effects of global financial crises, effects of terrorist acts and war. Such economic changes could negatively impact infertile couples’ ability to pay for fertility treatment around the world.

 

We anticipate that eventually international sales will account for a significant part of our revenue.  We will experience additional risks associated with international sales, including:

 

●   

political and economic instability;

●   

export controls;

●   

changes in international legal and regulatory requirements;

●   

United States and foreign government policy changes affecting the product marketability; and

●   

changes in tax laws, duties and tariffs.

 

Any of these factors could have a material adverse effect on our business, results of operations and financial condition.  From 2011 through 2018, we sold products in certain international markets mainly through independent distributors, and we anticipated maintain a similar sales strategy for the foreseeable future.  In the event a distributor fails to meet annual sales goals, we may be required to obtain a replacement distributor, which may be costly and difficult to locate.  Additionally, a change in our distributors, may increase costs, and create a substantial disruption in our operations resulting loss of revenue.

 

Our auditors have issued a going concern opinion, and we will not be able to achieve our objectives and will have to cease operations if we cannot adequately fund our operations.

 

Our auditors issued a going concern opinion in connection with the audit of our annual financial statements for the fiscal year ended December 31, 2018. A going concern opinion means that there is substantial doubt that the company can continue as an ongoing business for the next 12 months. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, the inclusion of an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern and our lack of cash resources may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations with third parties. There is no assurance that we will be able to adequately fund our operations in the future.

 

Risks Related to Our Industry

 

We are subject to significant domestic and international governmental regulation.

 

Our business is heavily regulated domestically in the United States and internationally. In the United States the FDA, and other federal, state and local authorities implement various regulations that subject us to civil and criminal penalties, including cease of operations, in the event we fail to comply.  Any such actions could severely curtail our sales and business reputation.  In addition, more restrictive laws, regulations or interpretations could be adopted, causing compliance with such regulations to become more difficult or expensive.  While we devote substantial resources to ensure our compliance with laws and regulations; the possibility cannot be eliminated that interpretations of existing laws and regulations will result in findings of which we have not complied.  

 

 

The Company believes that the healthcare industry will continue to be subject to increased regulation as well as political and legal action, as future proposals to reform the health care system are considered by Congress and state legislatures. The Company does not know nor has any control over future changes to health care laws and regulations which may have a significant impact on the business.

  

We are planning clinical trials related to newer technologies that may prove unsuccessful.

 

We will be conducting clinical trials related to the expansion of the INVOcell indications resulting in ability to potentially lower the cost of the INVOcell Intravaginal Culture System.  While we anticipate positive outcomes of these clinical trials, an unsuccessful trial could adversely impact our ability to receive FDA clearance for the particular indications and products being tested and untimely our ability to expand into potential markets.

 

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 have, and are expected to continue to, vary significantly based on ordering cycles of distributors and physicians who utilized for sales, and the payment cycle of such organizations.  As a result, we expect period-to-period comparisons of our operating results will not be meaningful and unreliable as an indication of our future performance for any future period.

 

Changes in the healthcare industry may require us to decrease the selling price for our products or could result in a reduction in the available market size.

 

Governmental and private sector initiatives in the U.S. and abroad involving trends toward managed healthcare and cost containment could place an emphasis on our ability to deliver more cost-effective medical therapies.  The development of ore cost-effective devices could eventuality adversely affect the prices and/or sales of our products.  Companies in the healthcare industry are subject to various existing and proposed laws and regulations, in both domestic and international markets, regulating healthcare pricing and profitability. Additionally, there have been third-party payer initiatives to challenge the prices associated with medical products, which if successful, could affect our ability to sell products on a competitive basis in the future.  

 

In the United States, there has been a trend of consolidation among healthcare facilities and purchasers of medical devices, allowing such purchasers to limit the number of suppliers from whom they purchase medical products. As result, it is unknown whether such purchasers will decide to stop purchasing our products or demand discounts on our prices.  The pressure to reduce our product prices in response to these industry trends and the decrease in market size could adversely affect our anticipated revenues and profitability of our sales, creating a material adverse effect on our business.

 

Recent economic trends could adversely affect our financial performance.

 

Economic downturns and declines in consumption in the healthcare market may affect the levels of both our sales and profitability.  If a downturn in economic conditions occurs, or if there is deterioration in financial markets and major economies, our financial performance could be adversely affected.  The 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 may result in a decline in spending for ART and fertility assistance that could adversely affect our business operations and liquidity.  We are unable to predict the likely duration and severity of any disruption in the domestic and global financial markets.

 

Recent health trends could adversely affect our financial performance.

 

Disease outbreaks and epidemics affecting human health could have a negative impact on our future business operations. Our ability to sell the INVOcell could be adversely affected by an outbreak of certain diseases, such as the Zika virus outbreak, that affect women’s health and even more particularly pregnant woman’s health. Such outbreaks and epidemics could reduce the demand for ART services including INVO, which ultimately will impact the Company’s sales and business operations.

 

Social media platforms present risks and challenges.

 

The unauthorized use of certain social media vehicles could result in the improper collection and/or dissemination of personally identifiable information causing brand damage and various legal implications. In addition, negative or inaccurate social media posts or comments about the Company on any social networking site could damage the Company’s brand, reputation, and goodwill.

 

 

Risks Related to Our Common Stock

 

The significant number of common shares registered for resale pursuant to the registration statement and common shares issuable upon conversion of outstanding notes could adversely affect the trading price of our common shares.

 

The sale of substantial amounts of our common stock at any particular time could cause the trading price of our common stock to decline significantly. On December 20, 2018 the Company filed a Registration Statement on Form S-1 (the “Registration Statement”) wherein the Company is seeking to register 48,856,080 shares of common stock for resale.. If our existing stockholders sell substantial amounts of our common stock under the registration statement, including the shares issued upon the conversion of the notes, in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.

 

Our common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.

 

Under a regulation of the SEC known as “Rule 144”, a person who has beneficially owned restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company or that has been at any time previously a shell company. The SEC defines a shell company as a company that has no or nominal operations and either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents, or (iii) assets consisting of any amount of cash and cash equivalent sand nominal other assets. The Company is a former shell company.

 

The SEC has provided an exception to this unavailability if and for as long as the following conditions are met: (a) the issuer of the securities that was formerly a shell company has ceased to be a shell company; (b) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (c) the issuer of the securities has filed all Exchange Act reports and materials required to be filed, as applicable during the preceding 12 months, other than certain Current Reports on Form 8-k; and (d) at least one (1) year has elapsed form the time the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that it is not a shell company.

 

Because of the Company’s prior history as a shell company, stockholders who receive our restricted securities will only be able to sell them pursuant to Rule 144 without registration for only as long as we continue to meet the requirements set forth above. No assurance can be given that we will meet these requirements or that we will continue to do so. Furthermore, any non-registered securities we sell in the future or issue will have limited or no liquidity until and unless such securities are registered with the SEC and/or until we comply with the foregoing requirements.

 

As a result, it may be harder for the Company to raise funding through the sale of debt or equity securities unless we agree to register such securities with the SEC, which could cause the Company to deploy additional resources. In addition, if we are unable to attract additional capital, it could have an adverse impact on our ability to implement our business plan and/or sustain our operations. Our status as a former “shell company” could prevent us from raising additional funds to develop additional technological advancements, which could cause the value of our securities to decline in value.

 

A significant portion of the ownership of our common stock is concentrated in a small number of investors, some of whom are affiliated with our Board of Directors and management.

 

Our management and Board of Directors, own approximately 24% of the Company’s issued and outstanding shares of common stock. By virtue of such holdings, they have the ability to exercise significant influence over the Company’s business and fairs, including matters requiring approval by our stockholders including but not limited to the following actions:

 

●   

the election of the Board of Directors;

●   

amending the Company’s Articles of Incorporation or bylaws; and

●   

approving a merger, sale of assets, or other corporate transaction.

 

As a result, the Company’s stock ownership profile may discourage a potential acquirer from seeking to acquire shares of our common stock, which in turn could reduce our stock price.

 

 

Our directors have the right to authorize the issuance of shares of our preferred stock and additional shares of our common stock.

 

Our directors, within the limitations and restrictions contained in our Articles of Incorporation and without further action by our shareholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative conversion and voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series.  While we have no intention of issuing shares of preferred stock at the present time, we continue to seek to raise capital through the sale of our securities and may issue shares of preferred stock in connection with a particular investment.  Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock.

 

Should we issue additional shares of our common stock at a later time, each investor’s ownership interest in our stock would be proportionally reduced.  

 

Following effectiveness of the Registration Statement, as a publicly traded company, INVO Bioscience will be 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 Securities Exchange Act of 1934 (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002. We are required to prepare and file annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports. Compliance with such reporting requirements is both timely and costly for the Company. We may need to hire additional financial reporting, internal control, and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. 

 

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 conduct an annual management assessment of the effectiveness of our internal controls over finical reporting. In connection, our independent registered public accounting firm is required to attest to whether our management’s assessment is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal controls over our financial reporting.  If we fail to timely develop 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. As a result, a loss of public confidence in our financial controls and the reliability of our financial statements may develop ultimately negatively impacting our stock price and our ability to raise additional capital when and as needed.

 

Because of the Company’s limited resources and limited number of employees, management concluded that, as of December 31, 2018, 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.

 

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting a public company, which could adversely affect our operating results.

 

As a public company, we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules implemented by the SEC and the securities exchanges, require certain corporate governance practices for public companies. Our management and other personnel have devoted and expect to continue to devote a substantial amount of time to public reporting requirements and corporate governance. These rules and regulations have significantly increase our legal and financial compliance costs and made some activities more time-consuming and costly. If these costs are not offset by increased revenues and improved financial performance, our financial condition and results of operations may be materially adversely affected. These rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance in the future. Additionally, we 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 personnel to serve on our board of directors or as executive officers.

 

 

The indemnification rights provided to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against its directors, officers and employees.

 

Our Articles of Incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the costs of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage us from brining a lawsuit against out directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directs or officer even though such actions, if successful, might otherwise benefit us and our stockholders.

 

Our shares of common stock are 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 traded on the OTCQB - Venture Market.

 

Our shares of common stock are thinly traded on the OTCQB, and as such 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, among other things, 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 or, if given, that it will be positive.

 

Consequently, investors may not be able to liquidate their investment or may be able to liquidate it only at a price that does not reflect the value of the business.  If a more active market should develop, the price may be highly volatile.  Due to the possibility of our common stock being priced lower than its actual value, 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. 

 

If we fail to remain current on our reporting requirements, we could be removed from the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

 

As a company trading on the OTCQB, we must be reporting issuers under Sections 13 or 15(d) of the Exchange Act, and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privilege.  If we fail to remain current on our reporting requirements, we could be removed from the OTCQB.  As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

 

Shareholders may be diluted significantly through our efforts to obtain financing and from issuance of additional shares of our common stock, including such issuances of shares for services.

 

To satisfy certain financial obligations, we have issued and may continue to issue shares of our common stock and we have incurred and may continue to incur debt, which may be convertible into shares of 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 would 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 as the shares may be issued to our officers, directors, new employees, or other related parties.

 

We have convertible notes outstanding, which could give rise to additional issuances of our common stock, potential dilution of ownership to existing stockholders and volatility in the price of our securities.

 

As of December 31, 2018, we have outstanding convertible notes with an aggregate principal amount of approximately, $730,000, which are convertible into shares at the following varying conversion prices: notes totaling $695,000 convertible at $0.20 per share, a $25,000 note convertible at $0.03 per share and a $10,000 note convertible at $0.01 per share, subject to adjustment in accordance with the terms of such notes. In the event the convertible notes are converted into shares of common stock, the issuance of shares of our common stock upon such conversion will result in dilution of ownership to existing stockholders.

 

 

Our common stock may be subject to the “penny stock” rules of the SEC, which will make the shares of our common stock more difficult to sell.

 

Our shares of common stock are subject to the “penny stock” rules of the Exchange Act. The Exchange Act defines “penny stock” as any equity security that has a market price of less than $5.00 per share, subject to certain restrictions. We anticipate our common stock may continue to be considered a penny stock in the future.

 

The penny stock rules require broker-dealers to deliver to potential investors 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 potential investor 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 investor’s account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the potential investor orally or in writing prior to completing the transaction and must be given to the potential investor in writing before or with the investor’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.

 

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.  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.  Because shares of INVO are penny stocks, the share price for INVO common stock may be adversely affected such frauds and abuses involving other penny stocks.

 

We do not expect to pay any dividends to shareholders.

 

To date, we have never declared or paid any dividends to our stockholders. 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 conditions, operating and capital requirements, and other factors as the board of directors considers relevant.  There is no assurance that future dividends will be paid to stockholders. In the event dividends are paid to stockholders, 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 the thin market and market price volatility for our shares of common stock.

 

Throughout 2018, there has been a thin market for our shares, and the market price for our shares has been volatile.  In recent years, 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, we expect our shares of common stock will also be subject to volatility resulting from market forces over which we will have no control.   The success of our products and services may be dependent upon our ability to obtain additional financing through debt and equity or other means. The thin market for our shares, and the volatility in the market price for our shares, may adversely affect our ability to raise needed additional capital.

 

 

Item 1B.  Unresolved Staff Comments.

 

We are not required to respond to this item as we are a smaller reporting company.

 

Item  2.  Properties

 

During 2017 and 2018 we did not own any real property, but operated from a rented facility.  We are on a month to month rental arrangement for our principal executive office located at 407R Mystic Avenue, Suite 34C, Medford, MA 02155. We moved into this facility in November 2012.  This facility is rented from a related-party.  See Item 13 “Certain Relationships and Related Transactions, and Director Independence.”  Our current rented facility is sufficient for at least the near-term.

 

Item  3.  Legal Proceedings

 

INVO Bioscience, Inc., and one of its directors have been, since 2010, defending litigation brought by investors in an alleged predecessor of INVO Bioscience.  On March 24, 2010, INVO Bioscience, Inc. and its corporate affiliate, Bio X Cell, Inc., Claude Ranoux, and Kathleen Karloff were served an Amended Complaint, the original of which was filed on December 31, 2009 at the Suffolk Superior Court Business Litigation Session by two terminated employees of Medelle Corporation (also named as a co-defendant but no longer active), who are also attorneys, and a former investor in and creditor of Medelle.  These plaintiffs allege various claims of wrongdoing relating to the sale of assets of Medelle to Dr. Ranoux.  Plaintiffs claim that Dr. Ranoux, Ms. Karloff, and Medelle (and therefore INVO Bioscience as an alleged successor corporation) violated alleged duties owed to plaintiffs in connection with the sale.  Separate claims were also alleged against INVO Bioscience.

 

Dr. Ranoux, Ms. Karloff, and INVO Bioscience have challenged these allegations, which they believe are baseless.  The transfer of the assets of Medelle was professionally handled by an independent third party, after approval by the Medelle Board of Directors, representing a majority of its shareholders.  Medelle’s Board voted to proceed with an assignment for the benefit of creditors (AFBC) and gave complete authority to the President & CEO at that time (neither Dr. Ranoux nor Ms. Karloff) to work with the third-party assignee and to get the best possible price for those assets.  The third party was responsible for notifying all the appropriate parties and for filing notices in various professional publications and newspapers of Medelle’s intention to sell its assets.  The third party also contacted numerous large medical device and bio-pharma companies to learn if they would be interested in acquiring the assets.  After a private sale was deemed unlikely, the assignee of the assets elected to proceed with a sealed-bid auction of the assets.  On the day of the auction, Dr. Ranoux submitted the only bid and was awarded the assets, upon full payment. 

 

During 2010, Dr. Ranoux, Ms. Karloff, and INVO Bioscience filed Motions to Dismiss as to all claims, pursuant to M.R.Civ. P. 12(b)(6).  In a written Decision rendered on November 12, 2010, the judge dismissed all claims against INVO, Bio X Cell, and Ms. Karloff, and also dismissed the claims against Dr. Ranoux alleging civil conspiracy and breach of M.G.L. c. 93A.  The judge denied Dr. Ranoux’s motion to dismiss the remaining breach of fiduciary duty and fraud claims.  The plaintiffs allege in their Amended Complaint that Dr. Ranoux committed fraud by failing to inform them of the details of the Medelle auction. 

 

The claims against Dr. Ranoux that survived the November 2010 dismissal order were submitted to binding arbitration.  On February 15, 2013, the mutually-agreed arbitrator ruled in favor of Dr. Ranoux. The award held that Dr. Ranoux did not withhold information about the auction of Medelle’s assets and expressed doubt that the plaintiffs would have invested the resources necessary to make a beneficial use of the assets.  The arbitrator’s award then was confirmed by the Superior Court on August 21, 2013.  The Superior Court’s confirmation of the award was affirmed on appeal on October 20, 2013 by the Massachusetts Appeals Court.  The Massachusetts Supreme Judicial Court then denied further appellate review.  

 

On October 18, 2016, following motions and argument, the Superior Court issued a memorandum of decision and order denying plaintiffs’ motion for entry of default judgment and assessment of damages against Medelle and allowed the motion of INVO Bioscience, BioXcell, and Ms. Karloff for entry of final judgment of dismissal.  The foregoing order was converted to a final judgment dismissing all claims against all defendants and entered on the docket on October 27, 2016.

 

On November 28, 2016, plaintiffs filed an amended notice of appeal from the Superior Court’s decision of October 17, 2016 and the subsequent judgment entered on October 27, 2016.  The appeal further challenges the order of dismissal from November, 2010.  Plaintiffs did not appeal from the dismissal of the claims against Ms. Karloff, so the judgment in her favor is now final, leaving claims against INVO Bioscience, Bio X Cell, Medelle, and Dr. Ranoux.

 

 

INVO Bioscience and Bio X Cell intend a vigorous opposition to the current appeal, consistent with their previous positions that no breach of duty occurred in the sale of Medelle’s assets. It is assumed by INVO Bioscience that Dr. Ranoux will oppose the appeal as well.

 

Aside from the above-mentioned litigation, neither INVO Bioscience nor Bio X Cell, our wholly-owned subsidiary, either directly or indirectly, 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 operation, financial position, or cash flows.

 

Item  4.  Mine Safety Disclosures.

 

Not Applicable

 

 

 

Part II

 

Item  5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Trading of our shares of our common stock is on the OTC QB Venture Market tier of the over-the-counter (“OTC”) market under the symbol “IVOB.”  The OTC QB tier is the middle tier of three marketplaces for over-the-counter stocks offered by OTC Market Group.  In July 2018 trading of our shares moved to this OTC QB Venture category because we fulfilled the current reporting requirements to the SEC. Investors can find Real-Time quotes and market information on the Company on www.otcmarkets.com.

 

Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily reflect actual transactions.

 

The table below presents the range of high and low sales prices of shares of our common stock by calendar quarter for the last two full fiscal years, on the applicable market, as reported by Yahoo Finance.

 

Dates

 

High

   

Low

 

January 1, 2018 to March 31, 2018

  $ 0.75     $ 0.08  

April 1, 2018 to June 30, 2018

  $ 0.77     $ 0.40  

July 1, 2018 to September 30, 2018

  $ 0.60     $ 0.25  

October 1, 2018 to December 31, 2018

  $ 0.63     $ 0.33  
                 

January 1, 2017 to March 31, 2017

  $ 0.40     $ 0.24  

April 1, 2017 to June 30, 2017

  $ 0.38     $ 0.28  

July 1, 2017 to September 30, 2017

  $ 0.29     $ 0.17  

October 1, 2017 to December 31, 2017

  $ 0.26     $ 0.15  

 

As of December 31, 2018 and 2017, there were 154,292,497 and 142,132,374 shares, of registrant’s common stock outstanding, respectively.

 

Information required with respect to Equity Compensation Plans in this Item 5 is included in Item 11 on page 53 of this report on Form 10-K.

 

Stockholders

 

As of December 31, 2018 and 2017, the number of holders of record of Registrant’s Common Stock was approximately 167 and 145, respectively. However, registrant estimates that it has a significantly greater number of beneficial holders of its common stock because a number of shares of registrant’s common stock are held of record by broker-dealers for their customers in street name.

 

Dividend Policy

 

We have never declared or paid a dividend on our common stock.  We intend to retain future earnings (if any) to fund development and growth of our business, rather than to pay them as dividends, for the foreseeable future.

 

Compensation Plan

During the periods of 2018 and 2017, we do not have any equity compensation plans in place.  We intend to implement equity compensation plans in the future when and as we deem appropriate.  

 

Submission of Matters to a Vote of Security Holders

 

From 2010 through 2018, the company’s shareholders were not asked to vote on any matters.  The last shareholders vote was taken during the fourth quarter of the fiscal year ended December 31, 2008, when the shareholders of INVO Bioscience were requested to vote on the Share Exchange between Emy’s Salsa AJI Distribution Company, Inc. and Bio X Cell, Inc.  See the Form 8-K filed December 8, 2008.  The shareholders of both companies approved the transaction.

 

 

Recent Sales of Unregistered Securities

 

We are not required to provide this information as we are a smaller reporting company.

 

Purchase of Equity Securities

 

No repurchase of equity securities were made during the fiscal year.

 

Item 6.  Selected Financial Data

 

We are not required to provide this information as we are 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 to acquire Bio X Cell, Inc., a Massachusetts company (d/b/a/ “INVO Bioscience”).  Bio X Cell, Inc. had developed patented technology, the INVOcell and the INVO procedure, designed to be less expensive and an alternative to conventional IVF.  As part of the Share Exchange, Emy’s ceased the salsa distribution business and was re-named INVO Bioscience, Inc., and Bio X Cell, Inc. became its’ wholly-owned subsidiary.

 

The Share Exchange was accounted for as a “reverse merger” because the former Bio X Cell shareholders owned a majority of the outstanding shares of common stock of Emy’s immediately following the Share Exchange.  Bio X Cell was 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 were those of Bio X Cell and were recorded at the historical cost basis of Bio X Cell and the consolidated financial statements after completion of the Share Exchange include the assets and liabilities of Bio X Cell and historical operations of Bio X Cell.  The financial results included in this Form 10-K are based on INVO Bioscience’s audited balance sheet as of December 31, 2018 and 2017 and related audited statements of operations and stockholders’ deficiency and statements of cash flows for the periods ended December 31, 2018 and 2017, respectively. 

 

Overview

 

We are a company that has begun to commercialize our proven and patented technology initially outside of the United States and for the past two years within the US that we believe will revolutionize the treatment of infertility, assisting infertile couples in having a baby.  Our device, the INVOcell, and the INVO procedure are designed to provide an alternative infertility treatment for the patient and the clinician; it is less expensive and simpler to perform than traditional IVF. The simplicity of the INVO procedure relates to the ability to potentially perform the infertility procedure without the need of a complex embryology lab and at a much lower overall cost than In-vitro fertilization (“IVF”).  Therefore, we believe that the INVO procedure will be available in many more locations than conventional IVF, especially outside the United States.  INVO also allows conception and embryo development to take place inside the woman’s body; we believe this is an attractive feature for most couples.

 

 

Sales and Marketing

 

Our primary focus is the sale of the INVOcell device and training doctors and clinicians in the INVO technology to assist infertile couples in having a baby.  We believe that our proven INVOcell procedure is an effective low-cost alternative to current treatments.  Along with being offered as an option in traditional IVF clinics, the INVO technique may be provided in a physician’s office.  Therefore, the INVO device and technique may be offered by physicians around the world to couples who do not have access to IVF facilities.  Currently, we are authorized to sell the INVOcell device in the United States as of November 2015 after receiving DeNovo class II clearance from the US Food & Drug Administration (FDA) as well as in certain international markets.  As of January 2019 we have an exclusive sales, marketing and distribution agreement with Ferring Pharmaceuticals for the US therefore our primary focus will be in the international markets such as the Middle East, Mexico, Europe and India as well as working on regulatory approvals in the large markets such as China. We have established agreements with distributors and have trained physicians around the world in places such as Canada, South and Central America, India, and Asia.  

 

We anticipate that we will experience quarterly fluctuations in our sales and revenues as a result of our efforts to expand the sales of the INVO technology to new markets.  Operating results will depend upon a couple of items, first how quickly Ferring can execute its business plan in the United States and the timing of signing of agreements with new distributors internationally along with the training of the distributors and their staffs in the INVO procedure.  Since 2016 we had focused our efforts in the US and now with Ferring taking on that role for us as of January 2019, we will focus on supporting Ferring and targeting key markets t outside of the US. We expect International sales will continue to expand in the coming years.  As we are just beginning to get into these markets both US and International sales are difficult to forecast as we do not have any significant history to support our assumptions.  We are committed to our ongoing sales, marketing and development activities to sustain and grow our sales and revenues from our products and services.  However, there can be no assurance that we will be successful in doing so.  

 

During 2017 and 2018, the Company has marketed its products strategically utilizing its limited resources in the most economical fashion possible.  We focused most of our efforts on starting the sales in the United States after the FDA clearance in November 2015.

 

In January 2019, INVO Bioscience, Inc. (the “Company”) entered into a Distribution & Supply Agreement with Ferring International Center S.A. (“Ferring”), pursuant to which, among other things, the Company granted to Ferring an exclusive license in the United States (the “Territory”) with rights to sublicense under patents related to the Company’s proprietary INVOcell™ intravaginal culture device together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the Field in the United States. The Company does retain a limited exception to the exclusive license granted to Ferring allowing the Company, subject to certain restrictions, to establish up to five clinics that will commercialize INVO cycles in the Territory. We will be looking to work with current doctors in areas of the US where there is demand but currently no IVF facilities. This approach may take many different forms all of which we are willing to explore. The Company retains all commercialization rights for the Licensed Product outside of the United States.  As a result of this new agreement we will be changing our focus in 2019 to support Ferring in the United States and increase our efforts in the marketing and sale of the INVOcell in international markets.

 

INVO Bioscience attended the American Society of Reproductive Medicine (ASRM) Congress’s over the past few years starting in Baltimore MD in October 2015. The 2018 ASRM Congress was held in Denver, CO and at times we had a waiting line of interested doctors and embryologists at our booth as we discussed the advantages of INVO. The ASRM Congress is a global meeting and doctors from many international countries showed an interest. The INVOcell continues to be well received by many physicians, embryologists and distributors. During these conferences, we have established many contacts and potential interested parties to assist us expand the sale of the INVOcell worldwide. 

 

Starting in November 2016 and through 2018 the Company changed its training process to a more consistent one.  Dr. Kevin Doody of CARE in Bedford, Texas assumed the role of our Medical Director.  Dr. Doody and his team held the first training session at his facility for a group of doctors and embryologists recruited during the 2016 ASRM Congress. The training was very successful and the participants were positive about offering INVO to their patients.  We found this model to provide a standard process that does not have to be adapted to each facility. The training program allows all of the physicians and embryologists to collaborate and discuss ideas of how they are doing things today compared to the new INVO protocol.  It is a free flowing discussion with hands on learning. Dr. Doody will continue in this capacity with Ferring as we move forward together.

 

The current physicians and embryologists utilizing our solution are very pleased with results they are experiencing with the INVOcell device and INVO Procedure.  Many stated that the embryos they are seeing are healthy and strong and in some cases better than the ones they have been developing in their IVF processes. They are also stating they are achieving equal to or better efficacy rates. The doctors believe these are both related to the fact that the embryos are developing as the woman goes about her normal routines and body temperature fluctuations, so there is body & temperature movement, it is not a constant as it would be in an incubator.  A good number of the practices are starting to order larger quantities on a more regular basis.

 

The Company’s main focus throughout 2019 will be to focus on the international market. As mentioned above we have hired an IVF sales and marketing professional to support the international efforts.

 

In the second quarter of 2016, the first post-FDA cleared US baby from the INVOcell and INVO procedure was born in Texas.

 

 

Physicians outside the United States have demonstrated that their patients would like to see current success rates within their own geographic and cultural areas.  We have and will continue to assist them in sponsoring clinical and marketing trials for “in-country” data.  One of the things we have found is that, without an INVO Bioscience employee or representative “in country” focused on the INVO technology, our sales and opportunities were limited. With the hiring of the new Business Development VP, who has built a strong foundation of relationships over the years in the international IVF market, we believe we will make progress in penetrating international markets in 2019.

 

Operations

 

We operate by outsourcing many key operational functions in the development and manufacturing of the INVOcell device and its associated products 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 to a certified manufacturer to mold the parts; to a medical manufacturing company to assemble packages and label the product and to a sterilization specialist to perform the gamma sterilization process.  This expedites production and eliminates the need for in-house capital equipment expenditures.

 

Our most significant challenge in growing our business has been our limited resources.  As of December 31, 2018, we generally require approximately $200,000 per month to fund our current normal operations.  Over the prior years we had reduced this by, among other things, officers and directors foregoing salaries and fees and not engaging in certain activities so that we could avoid incurring certain expenses (such as travel and marketing costs). As a result of the Ferring agreement and upfront payment, we anticipate our expenses will increase as we expand our sales and marketing efforts and develop new products and services. Our cash needs are primarily attributable to funding our sales and marketing efforts, strengthening our training capabilities, satisfying existing obligations, funding a future U.S. FDA clinical trial for additional product indications, and building an administrative infrastructure, including costs and professional fees associated with being a public company. 

 

We believe we are taking the necessary steps to ultimately provide the company with the capital resources we need to execute our business plan and grow the business. 

 

The exact amount of additional funds we are able to raise, if any, will determine how aggressively we can continue to grow, what additional projects we will be able to undertake, and when.  No assurance can be given that we will be able to raise any additional capital.  If we are unable to raise additional capital, we may be required to slow down some activities.

 

Selling, general and administrative expenses were approximately $3,038,068 and $870,612 respectively for the years ended December 31, 2018 and 2017.  Throughout this period, we continued to control our spending and use our resources carefully.  The $2,167,456 increase in selling, general and administrative expenses in 2018 was the result of the Board of Directors issuing shares to the Board itself and consultants, including a one- time issuance with a value of $1,530,000 for pre and post FDA clearance support services for a total of $1,850,000 during 2018. 876,672 shares were issued in 2017 with a value of $215,132 for services.

 

Throughout the period 2017 to 2018 we incurred annual net losses as we continued to market our product and proprietary process as we endeavored to increase our revenue base.  It is expected that we will continue to generate net losses through 2019.

 

We cannot accurately predict what our level of activity will be over the next 12-24 months.  However, INVO Bioscience anticipates that it will continue to launch the sale of the INVOcell device and INVO procedure in the U.S. through our agreement with Ferring Pharmaceuticals, and in the Mideast, Asia, South America, and India through new distributor partnerships, IVF centers and physicians.   

 

To achieve this plan, we may additional financing.  As we expand our distribution base, our costs and expenses may exceed the cash flow being generated and therefore we may require additional capital.  There is no guaranty that we will be able to raise any additional financing or when, or that we will be able to raise such funds on terms acceptable to us. 

 

Due to our early stage of growth, 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 to continue to travel to support our distributors and physicians.

 

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.

 

 

For the years ended December 31, 2018 and 2017, we had net losses of approximately $3,076,000 and $702,000, respectively. The net loss in 2018 was significantly higher than 2017 due to the Company issuing shares to certain Board Members and our Medical Director who were compensated in shares with a value of $1,530,000 for services provided during and following the FDA review and acceptance. We had significant working capital deficiencies in both 2018 and 2017 of $2,770,000 and $4,892,000 respectively.  As of December 31, 2018 our stockholder’s deficiency was $2,724,000 compared to $4,992,000 as of December 31, 2017 and cash used in operations was $653,000 for 2018 compared to $181,000 for the year ended December 31, 2017.  This raises substantial doubt about our ability to continue as a going concern.  Our ability to continue as a going concern is dependent on, among other things, our ability to raise additional capital and implement our business plan.  See “Risk Factors.”  Our financial statements attached do not include any adjustments that might be necessary if we are unable to continue as a going concern. We finalized our new distribution and supply agreements with Ferring on January 14, 2019 and as part of the closing process the Company received a $5 million one-time license payment. We believe this along with our anticipated sales from the agreement as well as other revenues will provide the Company with cash resources it needs for the next 12-24 months. We may continue to seek alternative funding to execute our longer term business plan.

 

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 is 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 ASC 718 -10 Share-Based Payment (formerly 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 immediate but sometimes over a vesting period. Warrants granted to non-employees are recorded as an expense over the requisite service period based on the grant date estimated fair value of the grant, determined using the Black-Scholes option pricing model.

 

Revenue Recognition  

 

The Company recognizes revenue on arrangements in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein.

 

ASU 2014-09 supersedes existing guidance on revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. The guidance can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method). The Company adopted the new standard effective January 1, 2018 using the modified retrospective method applied to those contracts that were not completed or substantially completed as of January 1, 2018. The timing and measurement of revenue recognition under the new standard is not materially different than under the old standard. The adoption of the new standard did not have an impact on the Company’s consolidated financial statements.

 

 

In March 2016, the FASB issued ASU No. 2016-09,  Improvements to Employee Share-Based Payment Accounting,  which intends to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, a choice to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted this ASU in Fiscal 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). The updated standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company adopted ASU 2016-18 as of January 1, 2018. The adoption of ASU 2016-18 did not have a material effect on the Company’s consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718) (“ASU 2017-09”). The updated standard clarifies when an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award. ASU 2017-09 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted.  The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material effect on the Company’s consolidated financial statements.

 

In July 2017, FASB issued ASU 2017-11 (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). The new standard simplifies the accounting for certain financial instruments with down round features. Part I of ASU 2017-11 changes the classification analysis of certain equity-linked financial instruments, such as warrants and embedded conversion features, such that a down round feature is disregarded when assessing whether the instrument is indexed to an entity’s own stock under Subtopic 815-40, Contracts in Entity’s Own Equity.  As a result, a down round feature, by itself, no longer requires an instrument to be re-measured at fair value through earnings each period, although all other aspects of the indexation guidance under Subtopic 815-40 continue to apply.  Part II of ASU 2017-11 re-characterizes the indefinite deferral of certain provisions of Topic 480, Distinguishing Liabilities from Equity, (currently presented as pending content in the Codification) as a scope exception.  No change in practice is expected as a result of these amendments.  The new standard is effective for fiscal years beginning after December 15, 2018, early adoption is permitted. The amendments in Part II have no accounting impact and therefore do not have an associated effective date. The Company decided to early adopt this ASU 2017-11 and applied it to the convertible notes it issued during the year which are reflected in this Form 10K. Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.  In May 2017, the FASB issued ASU No. 2017-09 which was issued to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, “Compensation – Stock Compensation” to changes in the terms and conditions of a share-based payment award. This update is effective for the Company in the fiscal year beginning October 1, 2018. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

 

Leases (Topic 842).  In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets by recognizing a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy lease accounting guidance. This ASU could also significantly affect the financial ratios used for external reporting and other purposes, such as debt covenant compliance. This new guidance is effective for the Company beginning in fiscal 2020, with early adoption permitted. In July 20I8, the FASB issued ASU 20I8-11,  Leases (Topic 842), Targeted Improvements  which provides an additional transition method that allows entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements with the intention to adopt this ASU in fiscal year 2020.

 

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . In January 2017, the FASB issued ASU 2017-04 which simplifies the test for goodwill impairment by eliminating Step 2 from the Goodwill impairment test. This new guidance is effective for the Company beginning in fiscal year 2021. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

 

Management does not believe that any other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.

 

 

Results of Operations

 

Comparison of t he years ended December 31, 2018 and 2017

 

Net Sales and Revenues

 

Net sales and revenues for year ended December 31, 2018 were approximately $494,000, compared to approximately $282,000 for the same twelve month period ended December 31, 2017. We believe this improvement is the result of the INVO Bioscience team continually reaching out to doctors to introduce them to the INVO Procedure.  These revenues include the shipment of lower introductory price products as we have started to penetrate the U.S. Assisted Reproductive Technology (ART) market.  We anticipate we will continue to offer training promotions as we continue to reach out to new international doctors and embryologists so they may see the benefits of INVO’s new and disruptive technology. The process of bringing a new facility up and running takes about 6-9 months before we start to see an initial ordering pattern. In both 2018 and 2017 we trained 15 doctors and their embryologists that support them on the unique differences of the INVO Procedure.   More than half of these practices are still working through how to properly integrate and recruit patients for the INVO offering. The others have worked through the initial phases and are now reaching new patients they never would have been able to assist before and seeing positive results.

 

Cost of goods sold for the twelve months ended December 31, 2018 were $90,000 or approximately 18% of revenues compared to $52,000 or the same cost percentage at 18% of revenues for the year ended December 31, 2017.   We are taking steps to continually lower our costs and improve our gross margin while delivering high quality products for a fair price.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $3,038,000 in fiscal 2018 an increase of $2,167,000 for the year ended December 31, 2018 compared to the year ended December 31, 2017 from $871,000. This was the result of the issuance of 5,984,000 shares of restricted common stock, a non-cash expense to the board of directors, employees, and consultants/service providers. During 2018 INVO Bioscience continued what it had started in 2016 to market the INVOcell and INVO Procedure across the United States. We continually update our website and issue press releases when key events occur.  We have been able to market and demonstrate the INVOcell for the past few years at the Annual American Society Reproductive Medicine (ASRM) Congress held in Denver, CO, San Antonio, TX, and Salt Lake City, UT. The product and the Company were very well received and had hundreds of visitors and interest during the three days of the Congresses.  As in all the years past, the Company kept tight control over spending and only purchased the required basic services.

 

Research and Development Expenses

 

The Company did not fund any research and development (“R&D”) efforts in 2018 or 2017 as a result of its limited funds.  Its limited resources were devoted to basic corporate expenses and training new distributors and physicians. We anticipate an increase in R&D spending in the future as we have a number of product improvement ideas and would like to expand our patents.

 

Interest Expense, Financing Fees and Loss on Settlement of Debt

 

Interest expense and financing fees increased to approximately $442,000 for the year ended December 31, 2018 compared to approximately $62,000 for the same period in 2017. This increase was the related to the issuance of the 2018 Convertible Notes, including the interest earned on the notes, the quarterly amortization of the note discount and the conversion of three of the notes into common stock during the fourth quarter. The 2017 expense was related to a majority of the 2009 note holders converting their notes into restricted shares of common stock. See Notes 6 and 8 in the consolidated financial statements included herein.  This 2017 note conversions also caused a loss on the settlement of that debt in the amount of $41,000 in 2017.

 

Income Taxes

 

The Company had aggregate unused net operating losses at December 31, 2018 and 2017, of approximate $21,708,000 and $18,645,000, respectively, which expire at various times through 2038 and are subject to limitations of Section 382 of the Internal Revenue Code of 1986, as amended.  The deferred tax asset related to the net operating loss carry forward was approximately$4,124,000 and $3,730,000 at December 31, 2018 and 2017, respectively.  

 

The Company has provided valuation reserves 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.

 

 

Net Loss

 

The net loss for the twelve months ended December 31, 2018 was approximately $3,076,000 as compared to a net loss of approximately $702,000 for the same twelve month period in 2017. The primary reason for the decrease in net loss was the result of the 2018 issuance of 5,984,000 shares of restricted common stock, a non-cash expense to the board of directors, employees and consultants for their services in 2018 as well as earlier years. In addition there was an a $421,000 non cash increase in the interest and financing expenses as a result of the 2018 Convertible Notes issuance and conversion of some of those notes.

 

Liquidity and Capital Resources

 

Prior to receiving the $5,000,000 licensing fee in January 2019 as a result of the Ferring transaction our lack of financial resources was the Company’s major challenge.  

 

As of December 31, 2018, we had approximately $212,000 in cash compared to approximately $26,000 at December 31, 2017.  Net cash used by operating activities in 2018 was approximately $653,000, as compared to net cash used by operating activities of approximately $181,000 for 2017.  The increase in net cash used was due to increasing our funds available in 2018 after our private placement of convertible notes was completed in May, which raised approximately $1 million.   During 2018 we partially compensated employees and consultants for their services, pay down existing obligations and work on the next generation of the INVOCell. In 2017 funds were used for patent protection, legal fees, training SEC compliance and basic office support (such as rent, telephone and the website).  Since early 2009, all current employees and directors have continued to assist INVO Bioscience in its funding requirements by deferring their compensation.

 

In 2018, INVO Bioscience invested $19,400 in a new mold to produce its own retention device to allow us to offer a lower cost alternative to our customers. Currently we are procuring the basic FDA cleared retention device from a noted and reputable third party and then having it customized to our specifications at a local ISO 13485 Certified and FDA inspected facility. No cash was used from 2017 in investing activities.

 

During 2018, $859,000 cash was provided by financing activities The Company raised $895,000 from the issuance of the 2018 Convertible Notes and $77,000 from the issuance of restricted shares as part of our private placement in January 2018. Offsetting this was $113,000 of payments made on related party notes.   During 2017, $55,000 cash was provided by financing activities. One shareholder purchased $45,000 of restricted shares of common stock and the other shareholder purchased $10,000 of restricted shares of common stock. 

 

Our registered independent certified public accountants have stated in their report dated April 16, 2019, that we have generated negative cash outflows from operating activities, experienced recurring net operating losses, and are dependent on securing additional equity and debt financing to support our business efforts.  As reflected in their audit report, our registered independent certified public accountants indicated that these factors, among others, raise substantial doubt about our ability to continue as a going concern.

 

Our existing cash resources, cash flow from operations will not provide adequate resources for supporting operations during fiscal 2019. As announced we entered into a Distribution & Supply Agreement with Ferring International Center S.A. in the fourth quarter of 2018 to market, promote, distribute and sell our products within the United States. We completed this arrangement on January 14, 2019 and as part of the closing process the Company received a $5 million one-time license payment. We believe this along with our anticipated sales from the agreement as well as other revenues will provide the Company with cash resources it needs for the next 12-24 months. We will be utilizing some of this funding to pay down existing liabilities and a portion of our accrued compensation balance. We may continue to seek alternative funding to execute our longer term business plan.  Although there can be no assurance that an additional source of funding will materialize, we currently believe that we will be able to obtain the funding we need to continue to expand our business.  However, if we do not raise additional capital in the near future we may have to curtail our spending.

 

 

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.

 

Item 7A.  Quantitative and Qualitative Disclosure about Market Risks

 

We are not required to provide this information as we are a smaller reporting company.

 

 

Item 8.  Financial Statements and Supplementary Data

 

  

  

Page

 

 

Report of Independent Registered Public Accounting Firm

  

F-1

 

 

Consolidated Balance Sheets as of December 31, 2018 and 2017

  

F-2

 

 

Consolidated Statements of Losses for the Years Ended December 31, 2018 and 2017

  

F-3

 

 

Consolidated Statement of Shareholders’ Deficiency for the Period from January 1, 2017 to  December 31, 2018

  

F-4

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and  2017

  

  F-5

 

 

Notes to Consolidated Financial Statements

  

F-6

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Invo Bioscience, Inc.  

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Invo Bioscience, Inc.  (“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses from operations since inception and has a net stockholders’ deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ Liggett & Webb, P.A.

 

We have served as the Company's auditor since 2011.

 

New York, New York 

 

April 16, 2019

 

 

INVO Bioscience, Inc.

CONSOLIDATED BALANCE SHEETS

 

   

December 31,

   

December 31,

 
   

2018

   

2017

 

ASSETS

 

 

         

Current assets

               

    Cash

  $ 212,243     $ 25,759  

    Accounts receivable net

    225,899       86,697  

    Inventory, net

    43,513       58,879  

    Prepaid expense

    249,454       63,050  

      Total current assets

    731,109       234,385  
                 

Property and equipment, net

    34,446       15,700  
                 

Other Assets

               

Capitalized patents, net

    11,792       16,328  

Total other assets

    11,792       16,328  
                 

Total assets

  $ 777,347     $ 266,413  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

               

Current liabilities

               

     Accounts payable and accrued liabilities, including related parties

  $ 571,828     $ 960,725  

     Accrued compensation

    2,515,256       3,955,190  

     Deferred revenue

    18,895       -  

     Note payable - related party

    97,743       210,888  

     Note payable

    131,722       -  

     Convertible notes, net of discount of $497,961

    157,039       -  

     Convertible notes, related party - net of discount of $30,913

    9,087       -  

          Total current liabilities

    3,501,570       5,126,803  
                 

     Note payable - long term

    -       131,722  
                 

Total liabilities

    3,501,570       5,258,525  
                 

Commitments and contingencies (Note 12)

    -       -  
                 

Stockholder's deficiency

               

Preferred Stock, $.0001 par value; 100,000,000 shares authorized;
No shares issued and outstanding as of December 31, 2018 and 2017, respectively

    -       -  

Common Stock, $.0001 par value; 200,000,000 shares authorized; 154,292,497 and 142,132,374 issued and outstanding as of December 31, 2018 and 2017, respectively

    15,429       14,213  

   Additional paid-in capital

    18,981,570       13,638,806  

   Accumulated deficit

    (21,721,222

)

    (18,645,131

)

      Total stockholder's deficiency

    (2,724,223

)

    (4,992,112

)

                 

Total liabilities and stockholders' deficiency

  $ 777,347     $ 266,413  

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

INVO Bioscience, Inc.

CONSOLIDATED STATEMENTS OF LOSSES 

 

   

For the Year

   

For the Year

 
   

Ended

   

Ended

 
   

December 31,

   

December 31,

 
   

2018

   

2017

 
                 

Revenue

  $ 494,375     $ 282,145  

Cost of Goods Sold

    90,367       51,954  
                 

Gross Margin

    404,008       230,191  
                 

Selling, general and administrative expenses

    3,038,068       870,612  

      Total operating expenses

    3,038,068       870,612  
                 

Loss from operations

    (2,634,060

)

    (640,421

)

                 

Loss on settlement of debt

    -       40,869  

Interest expense

    442,031       20,873  

 Total other expenses

    442,031       61,742  
                 

Loss before income taxes

    (3,076,091

)

    (702,163

)

                 

Provision for income taxes

    -       -  
                 

Net Loss

  $ (3,076,091

)

  $ (702,163

)

                 

Basic net loss per weighted average shares of common stock

  $ (0.02

)

  $ (0.00

)

                 

Diluted net loss per weighted average shares of common stock

  $ (0.02

)

  $ (0.00

)

                 

Basic weighted average number of shares of common stock

    147,333,051       141,305,050  
                 

Diluted weighted average number of shares of common stock

    147,333,051       141,305,050  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

INVO Bioscience, Inc.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY

For the Period January 1, 2017 to December 31, 201 8

 

   

Common Stock

    Additional     Accumulated          
   

Shares

   

Amount

   

Paid-in Capital

   

Deficit

   

Total

 

Balance, December 31, 2016

    140,596,646     $ 14,059     $ 13,311,263     $ (17,942,968

)

  $ (4,617,646

)

                                         

Common stock issued for services

    876,672       88       215,044       -       215,132  

Common stock issued for cash

    318,056       32       54,593       -       54,625  

Common stock issued for convertible notes & interest

    341,000       34       57,906       -       57,940  

Net loss for the twelve months ended December 31, 2017

                            (702,163

)

    (702,163

)

Balance, December 31, 2017

    142,132,374     $ 14,213     $ 13,638,806     $ (18,645,131

)

  $ (4,992,112

)

                                         

Common stock issued for cash

    410,000       41       76,959       -       77,000  

Common stock issued to directors and employees

    6,782,382       678       2,316,555       -       2,317,233  

Common stock issued to service providers

    3,912,326       391       1,843,273       -       1,843,664  

Conversion of notes payable and accrued interest

    1,055,415       106       210,977       -       211,083  

Discount on convertible notes payable

    -       -       895,000       -       895,000  

Net loss for the twelve months ended December 31, 2018

    -       -       -       (3,076,091

)

    (3,076,091

)

Balance, December 31, 2018

    154,292,497     $ 15,429     $ 18,981,570     $ (21,721,222

)

  $ (2,724,223

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

INVO Bioscience, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

For the Year

   

For the Year

 
   

Ended

   

Ended

 
   

December 31,

   

December 31,

 
   

2018

   

2017

 
                 

Cash flows from operating activities:

               

Net loss

  $ (3,076,091

)

  $ (702,163

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Non-cash stock compensation issued for services

    2,092,664       215,132  

Loss on settlement of debt

    -       40,869  

Amortization of discount on notes payable

    366,126       -  

Depreciation and amortization

    5,190       2,810  

Changes in assets and liabilities:

               

Accounts receivable

    (139,202

)

    (83,903

)

Inventories

    15,366       26,331  

Prepaid expenses and other current assets

    200,596       (52,070

)

Deferred revenue

    18,895       -  

Accounts payable and accrued expenses

    (377,814

)

    (5,346

)

Accrued interest - related party

    -       (1,730

)

Accrued compensation

    241,299       378,800  

Net cash (used) in operating activities

    (652,971

)

    (181,270

)

                 

Cash flows from investing activities:

               

    Payments to acquire property, plant and equipment

    (19,400

)

    -  

Net cash (used) in investing activities

    (19,400

)

    -  
                 

Cash flows from financing activities:

               

Proceeds from the sale of common stock

    47,000       54,625  

Proceeds from the sale of common stock - related parties

    30,000       -  

Proceeds from convertible notes payable

    855,000       -  

Proceeds from convertible notes payable - related parties

    40,000       -  

Principal payments on note payable - related parties

    (113,145

)

    -  

Net cash provided by financing activities

    858,855       54,625  
                 

Increase (decrease) in cash and cash equivalents

    186,484       (126,645

)

                 

Cash and cash equivalents at beginning of period

    25,759       152,404  
                 

Cash and cash equivalents at end of period

  $ 212,243     $ 25,759  
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid during the period for:

               

Interest

  $ 6,071     $ -  
                 

Taxes

  $ 912     $ 912  
                 

Common stock issued upon note payable and accrued interest conversion

  $ 211,083     $ 57,940  
                 

Common stock issued for prepaid services

  $ 387,000     $ -  
                 

Beneficial conversion feature on convertible notes

  $ 895,000     $ -  
                 
Common stock issued for accrued compensation   $ 1,681,233     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

INVO BIOSCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 201 8 and 2017

 

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A) General

 

 

INVO Bioscience, Inc. (“the Company”) offers novel solutions in assisted reproductive technologies while expanding geographic and affordable access to the global reproductive health care community.  Our primary focus is the manufacture and sale of the INVOcell device and the INVO technology to assist infertile couples in having a baby.  We designed our INVOcell device and our INVO procedure to provide an alternative infertility treatment for the patient and the clinician.  The INVO procedure is less expensive and simpler to perform than other comparable infertility treatments.  The simplicity of the INVO procedure relates to the ability to potentially perform the INVO procedure in a physician’s practice rather than in a specialized facility at a much lower cost overall than current infertility treatments.  

 

We believe that the INVO procedure will make infertility treatment more readily available throughout the world.  The INVO procedure is less costly than conventional IVF.  The INVOcell device and INVO procedure facilitates conception and embryo development inside the woman’s body, rather than in a dish in a laboratory, which is an attractive feature for many couples.

 

Through December 31, 2018, we have generated minimal 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.

 

On November 3, 2015, the Company issued a press release reporting the U.S. Food and Drug Administration (“FDA”) has granted the Company’s de novo request for the INVOcell to allow the marketing, sale and use in the United States.

 

On November 12, 2018, the Company entered into a Distribution Agreement with Ferring pursuant to which, among other things, the Company granted to Ferring an exclusive license in the United States  with rights to sublicense under patents related to the Company’s proprietary intravaginal culture device known as INVOcell™, together with the retention device and any other applicable accessories to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the Field in the United States. The Company does retain a limited exception to the exclusive license granted to Ferring allowing the Company, subject to certain restrictions, to establish up to five clinics that will commercialize INVO cycles in the United States. The Company retains all commercialization rights for the Licensed Product outside of the United States.

 

(B) Basis of Presentation   (Share Exchange and Corporate Structure)

 

On December 5, 2008, the Company completed a share exchange with Emy’s Salsa Aji Distribution Company, Inc. (“Emy’s”), a 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 share exchange, INVO Bioscience became Emy’s wholly-owned subsidiary and the INVO Bioscience shareholders acquired control of Emy’s.

 

The Company accounted for the transaction as a recapitalization and the Company is the surviving entity.  In connection with the share exchange, Emy’s shareholders retained 14,937,500 shares.  Effective with the Agreement, all previously outstanding shares of Common Stock 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, Emy’s 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 one share of Emy’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 consolidated 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.

 

 

(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.  The Company had the amounts of cash and cash equivalents on its balance sheets as of December 31, 2018 and 2017 of $212,243 and $25,759, respectively.

 

(E) Inventory

 

Inventories consist of work in process (WIP) and 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 Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”).  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

 

Basic loss per share calculations are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include securities or other contracts to issue common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2018 and 2017, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

 

   

Twelve Months Ended December 31,

 
   

2018

   

2017

 

Loss to common shareholders (Numerator)

  $ (3,076,091

)

  $ (702,163

)

Basic and diluted weighted-average number of common shares outstanding (Denominator)

    147,333,051       141,305,050  

 

 

The Company has excluded the following dilutive securities from the calculation of fully-diluted shares outstanding because the result would have been anti-dilutive:

 

   

Twelve Months Ended December 31,

 
   

2018

   

2017

 

Effect of dilutive common stock equivalents:

         

Convertible notes and interest

    6,020,200       3,391,300  

Total

    6,020,200       3,391,300  

 

( I) Fair Value of Financial Instruments

 

ASC 825-10-50, “Disclosures about Fair Value of Financial Instruments,” (formerly SFAS No. 107) 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 ASC 820-10, “Fair Value Measurements” (SFAS 157), which provides a framework for measuring fair value under GAAP.  ASC 820-10 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.  ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

 

(J) Income Taxes

 

The Company accounts for income taxes under the ASC 740-10-05, “Accounting for Income Taxes” (SFAS 109).  Under ASC 740-10, 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 ASC 740-10, 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.

 

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law by the President of the United States. TCJA is a tax reform act that among other things, reduced corporate tax rates to 21 percent effective January 1, 2018. FASB ASC 740,  Income Taxes , requires deferred tax assets and liabilities to be adjusted for the effect of a change in tax laws or rates in the year of enactment, which is the year in which the change was signed into law. Accordingly, the Company adjusted its deferred tax assets and liabilities at December 31, 2017, using the new corporate tax rate of 21 percent. See Note 10.

 

(K) Business Segments

 

The Company operates in one segment and therefore segment information is not presented.

 

(L) Concentration of Credit Risk

 

Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (FDIC) limits. As of December 31, 2018, the Company had no cash balances in excess of FDIC limits.

 

(M) Revenue Recognition

 

The Company will recognize revenue on arrangements in accordance with ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.

 

(N) 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, 2018.

 

 

(O) Reclassifications

 

Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.

 

(P) Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein.

 

ASU 2014-09 supersedes existing guidance on revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. The guidance can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method). The Company adopted the new standard effective January 1, 2018 using the modified retrospective method applied to those contracts that were not completed or substantially completed as of January 1, 2018. The timing and measurement of revenue recognition under the new standard is not materially different than under the old standard. The adoption of the new standard did not have an impact on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting , which intends to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, a choice to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted this ASU in Fiscal 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). The updated standard addresses eight specific cash flow issues with the objective of reducing diversity in practice. ASU 2016-15 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted.  The Company adopted ASU 2016-15 as of January 1, 2018. The adoption of ASU 2016-15 did not have an impact on the Company’s consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). The updated standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company adopted ASU 2016-18 as of January 1, 2018. The adoption of ASU 2016-18 did not have a material effect on the Company’s consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718) (“ASU 2017-09”). The updated standard clarifies when an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award. ASU 2017-09 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted.  The Company adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material effect on the Company’s consolidated financial statements.

 

In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.

 

 

In July 2017, FASB issued ASU 2017-11 (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). The new standard simplifies the accounting for certain financial instruments with down round features. Part I of ASU 2017-11 changes the classification analysis of certain equity-linked financial instruments, such as warrants and embedded conversion features, such that a down round feature is disregarded when assessing whether the instrument is indexed to an entity’s own stock under Subtopic 815-40, Contracts in Entity’s Own Equity.  As a result, a down round feature, by itself, no longer requires an instrument to be re-measured at fair value through earnings each period, although all other aspects of the indexation guidance under Subtopic 815-40 continue to apply.  Part II of ASU 2017-11 re-characterizes the indefinite deferral of certain provisions of Topic 480, Distinguishing Liabilities from Equity, (currently presented as pending content in the Codification) as a scope exception.  No change in practice is expected as a result of these amendments.  The new standard is effective for fiscal years beginning after December 15, 2018, early adoption is permitted. The amendments in Part II have no accounting impact and therefore do not have an associated effective date. The Company decided to early adopt this ASU 2017-11 and applied it to the convertible notes it issued during the quarter which are reflected in this Form 10Q.

 

Management was not aware of any accounting issued, but not yet effective accounting standards, if currently adopted would have material effect on the consolidated financial statements.

 

NOTE 2

GOING CONCERN

 

The Company commenced operations in December 2008. During the year ended December 31, 2018, the Company had a net loss of $3,076,000 and cash used in operations of $653,000. At December 31, 2018, the Company had a working capital deficiency of $2,770,000 and a stockholder deficiency of $2,724,000. 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

 

The Company had inventory in the following amounts:

 

   

December 31,

2018

   

December 31,

2017

 

Work in Process

  $ 30,689     $ 24,357  

Finished Goods

    12,824       34,522  

Total Inventory

  $ 43,513     $ 58,879  

 

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

 

 

   

December 31,

2018

   

December 31,

2017

 

Manufacturing Equipment- Molds

  $ 70,363     $ 50,963  

Accumulated Depreciation

    (35,917

)

    (35,263

)

    $ 34,446     $ 15,700  

  

The Company recorded $654 and $0 depreciation expense in 2018 and 2017 as its earlier equipment was fully depreciated.

 

 

NOTE 5

PATENTS

 

The Company capitalizes the initial expense related to establishing the patent by country and then amortizes the expense over the life of the patent, typically 20 years.  It then expenses annual filing fees to maintain the patents.  The Company regularly reviews the value of the patent in the market place in proportion to the expense it must spend to maintain the patent.

The Company has recorded the following patent costs:

 

   

December 31,

2018

   

December 31,

2017

 

Total Patents

  $ 77,743     $ 77,743  

Accumulated Amortization

    (65,951

)

    (61,415

)

Patent costs, net

  $ 11,792     $ 16,328  

 

The Company recorded amortization expense as follows:

 

Twelve Months Ended December 31,

 

2018

 

2017

 

 

$

4,536

 

 

$

2,810

 

 

In 2011, the decision was made to not to pay the renewal fees and expedite the amortization of the original patent which expired in 2012.  It was also decided to not spend its limited funds in defending the INVO Block patent as it only has value to the Company. The Company continues to pay the annual renewal fees on its active patents.

 

Estimated amortization expense as of December 31, 2018 is as follows:

 

Years ended December 31,

       

2019

  $ 4,536  

2020

    1,809  

2021

    1,809  

2022

    1,809  

2023 and thereafter

    1,829  

Total

  $ 11,792  

 

NOTE 6

CONVERTIBLE NOTES AND NOTES PAYABLE

 

Convertible Notes - Bridge Notes

 

During 2009, the Company issued senior secured convertible notes (“Bridge Notes”) payable to investors in the aggregate amount of $545,000.  The Bridge Notes carry interest rates ranging between 10-12% and were due in full one year from the date of issuance and are past due.  Both the Bridge Notes and the accrued interest thereon are convertible into Restricted Common Stock of the Company at a conversion price of $0.10 per share (the “Original Conversion Price”).  If the Company were to issue any new shares of common stock within 24 months of the date of the Bridge Notes at a price below the Original Conversion Price, then the conversion price of the Bridge Notes would be adjusted to reflect the new lower price.  In addition to the Bridge Notes, the Company issued warrants to purchase 5,750,000 shares of the Company’s Common Stock at a price of $0.20 per share as of the date of this filing. All the warrants have expired.  The Company valued the conversion feature of the Bridge Notes and the warrants issued via the Black-Scholes valuation method.  The total fair value calculated for the conversion feature was $1,473,710; $151,826 was allocated to discount on the Bridge Notes, and $1,341,884 was charged to operations.   The total fair value calculated for the warrants was $1,719,666; $393,174 was allocated to discount on the Bridge Notes, and $1,326,492 was charged to operations. The aggregate discount on the Bridge Notes for the conversion feature and the warrants was $545,000, and the aggregate amount charged to operations was $2,668,371 which was recorded as a derivative liability on the Company’s consolidated balance sheet.  

 

From November 2009 through May 2015 $535,000 of the principal of the Bridge Notes were converted into shares of Restricted Common Stock.

 

 

In March 2017, the Company converted the last Bridge Note in the amount of $10,000 and accrued interest into shares of common stock. The Company negotiated this conversion at a price lower than the conversion price stated in the original Bridge Note documents because the Bridge Note was past due.  This conversion was treated as a restructure of debt on the Company’s financial statements for the six months ended June 30, 2017.  $10,000 of the Bridge Notes and accrued interest were converted into 341,000 shares of restricted common stock resulting in a loss on debt settlement in the amount of $40,869.

The principal balances of the Convertible Notes was $0 for both 2018 and 2017, respectively. The last note was converted in Q1 2017.  The related interest for the twelve months ended December 31, 2018 and 2017 was $0.

 

Notes Payable

 

In August 2016, INVO Bioscience converted a long time vendor’s outstanding accounts payable balance of $131,722 into a three (3) year 5% notes payable. The note provides for interest only payments on the first and second anniversaries of the note. The note is payable in full along with any outstanding accrued interest on the third anniversary. The Company has the right to prepay the note at any time without a premium or penalty.  The interest on this note for the years ended December 31, 2018 and 2017 was $6,586 and $9,586, respectively. 

 

2018 Convertible Notes Payable

 

In April and May 2018, the Company issued convertible notes (the “2018 Convertible Notes”) payable to investors in the aggregate principal amount of $895,000. The 2018 Convertible Notes accrue interest at the rate of 9% per annum which is paid in stock. 2018 Convertible Notes with an aggregate principal amount of $550,000 are due on January 30, 2021, and 2018 Convertible Notes with an aggregate principal amount of $345,000 are due on March 31, 2021. The notes are convertible into shares of common stock at a price of $0.20 per share, provided, that if the Company completes a subsequent equity financing, the holders of the 2018 Convertible Notes can elect to convert the notes in shares of our common stock at a price equal to 75% of the price paid per share in such subsequent equity financing. During the fourth quarter of 2018, three note holders converted their notes with a value of $200,000 into 1,055,415 shares of common stock.

 

The Company calculated a beneficial conversion feature of the 2018 Convertible Notes based on ASU 17-11 in the form of a discount of $895,000; $366,126 of this amount was amortized to interest expense during the twelve months ended December 31, 2018, based on the three year term of the notes. In addition $53,564 of interest was expensed in the year ended December 31, 2018.

 

NOTE 7

OTHER RELATED PARTY TRANSACTIONS

 

On September 18, 2008, the Company entered into a related party transaction with Dr. Claude Ranoux.  Dr. Ranoux was then the President, Director and Chief Scientific Officer of the Company; as of the date of this filing he is a Director.  Dr. Ranoux had loaned funds to the Company to sustain its operations since January 5, 2007 (inception).  Dr. Ranoux’s total original cumulative investment as of December 31, 2008 was $96,462, as of December 31, 2017 and 2016 it is $21,888 (“the Principal Amount”) in INVO Bioscience.  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, the term of the note had been extended, and has been extended a couple of additional times, the current repayment date is October 31, 2018.  The Company and Dr. Ranoux can jointly decide to repay the loan earlier without prepayment penalties.  During the twelve months ended December 31, 2018 the outstanding balance of $21,888 was paid in full including all interest due, in 2017, $0 was repaid on the principal of the loan.

 

On March 5, 2009, the Company entered into a related party transaction with Kathleen Karloff, the Chief Executive Officer and a Director of the Company.  Ms. Karloff provided a short-term loan in the amount of $75,000 bearing interest at 5% per annum to the Company to fund operations.  In May 2009, Ms. Karloff loaned to the Company an additional $13,000, making her total cumulative loan $88,000 as of December 31, 2011.  This note was due on September 15, 2009, which has since been extended a few times to its current date of October 31, 2018.   During the twelve months ended December 31, 2014, Ms. Karloff loaned the Company an additional $66,000 at an interest rate of 0% by entering into a note payable agreement in satisfaction of expenses incurred by her for amounts previously advanced to the Company. This note currently has the same expiration date as the others which is October 31, 2018. During the twelve months ended December 31, 2018 $91,257 was paid against the principal of the loan, in 2017, $0 was repaid on the principal of the loan. The principal balances of the loan was $62,743 and $154,000 as of December 31 2018 and 2017 respectively.   The related interest for the twelve months ended December 31, 2018 and 2017 was $15,278 and $4,400 respectively.

 

In December 2009, James Bowdring, the brother of Director Robert Bowdring invested $100,000 acquiring 666,667 shares of restricted common stock.  In April 2011, the Company issued a new short term convertible note (“Q211 Note”) payable to James Bowdring in the amount of $50,000.  The Note carries a 10% interest rate.  The note has a current balance of $25,000. The Q211 Note is convertible into Common Stock of the Company at a conversion price of $0.03 per share, subject to adjustments. 

 

 

In November 2011, the Company issued a new convertible note (“Q411 Note”) payable to James Bowdring in the amount of $10,000.  The Q411 Note carries a 10% interest rate. The Q411 Note is convertible into Common Stock of the Company at a conversion price of $0.01 per share, subject to adjustments.  

 

In May 2018, James Bowdring and his children participated in the “2018 Convertible Notes” offerings in the aggregate principal amount of $40,000. The 2018 Convertible Notes accrue interest at the rate of 9% per annum which is paid in stock. These Notes are due on March 31, 2021. The notes are convertible into shares of common stock at a price of $0.20 per share, provided, that if the Company completes a subsequent equity financing, the holders of the 2018 Convertible Notes can elect to convert the notes in shares of our common stock at a price equal to 75% of the price paid per share in such subsequent equity financing.

 

The Company has been renting its corporate office from Forty Four Realty Trust which is owned by James Bowdring, the brother of Director, Robert Bowdring since November 2012. It is a month to month rental arrangement for less than the going fair market real estate rental rate. The rent expense paid for the twelve months ended December 31, 2018 and 2017 was $5,600 and $4,400 respectively. In addition the Company purchases stationary supplies and marketing items at discounted rates from Superior Printing & Promotions which is also owned by James Bowdring and is in the same building as our corporate office. INVO Bioscience spent $2,130 and $4,100 with Superior during 2018 and 2017, respectively.

 

Principal balances of the Related Party loans were as follows:

 

   

December 31,

2018

   

December 31,

2017

 

Claude Ranoux Note

  $ -     $ 21,888  
                 

James Bowdring Family - 2011 Notes

    35,000       35,000  
                 

James Bowdring Family – 2018 Convertible Notes

    40,000       -  
                 

Kathleen Karloff Note

    62,743       154,000  

 Less discount

    (30,913

)

    -  

Total, net of discount

  $ 106,830     $ 210,888  

  

Interest expense on the Related Party loans was $21,976 and $11,543 for the years ended December 31, 2018 and 2017, respectively.

 

Accounts payable and accrued liabilities balances include expenses reports for Ms. Karloff, and Mr. Bowdring for expenses they paid for personally related to travel or normal business expenses and are represented in the following table:

 

   

December 31,

 
   

2018

   

2017

 

Accounts payable and accrued liabilities

  $ 1,700     $ 38,000  

  

During the nine months ended September 30, 2018, the Company sold 150,000 shares of common stock at a price of $0.20 per share for proceeds of $30,000 to Charles Mulrey and family, the brother-in-law of Robert J. Bowdring, Director & Acting Chief Financial Officer as part of the recent financing.

 

During the second quarter of 2018, INVO Bioscience settled a commitment it had with one of its Directors, Dr. Kevin Doody for the services he and his team performed prior to and following INVOcell’s FDA clearance related to clinical guidance and support. Dr. Doody and his team performed clinical studies and provided papers, lectures and discussions with regulatory bodies and key opinion leaders in the industry. The Company believes without Dr. Doody’s services and support during his tenure the Company would not be where it is today. The Company issued Dr. Doody 3 million shares of our common stock with a fair value of $1,530,000.

 

 

NOTE 8

STOCKHOLDERS’ EQUITY

 

Twelve Months Ended December 31, 2018

 

In January and March 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company sold 260,000 shares of common stock to accredited investors in a private placement for cash of $47,000.

 

In January 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 1,200,000 shares of common stock with a fair value of $138,000 to management and board members.

 

In January and March 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 352,326 shares of common stock with a fair value of $43,664 to service providers.

 

In April and May 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 340,000 shares of common stock with a fair value of $174,800 to service providers.

 

In May 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company sold 150,000 shares of common stock to accredited investors who are family members of Robert J Bowdring, a Board Member in a private placement for cash of $30,000.

 

In May 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 3,020,000 shares of common stock with a fair value of $1,540,000 to a board member, Dr. Kevin Doody for services previously provided to the Company.

 

In October 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 4,895,076 shares of common stock with a fair value of $1,914,831 to employees and service providers.

 

In November 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 262,080 shares of common stock for conversion of notes payable and accrued interest in the amount of $52,416.

 

In December 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 793,335 shares of common stock for conversion of notes payable and accrued interest in the amount of $158,667.

 

In December 2018, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 887,306 shares of common stock with a fair value of $349,602 to employees and service providers.

 

Twelve Months Ended December 31, 2017

 

In March 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 196,000 shares of restricted common stock with a fair value of $59,242 to service providers.

 

In March 2017, pursuant to Section 4(2) of the Securities Act, the Company negotiated the conversion of $10,000 of past due Bridge Notes and accrued interest into 341,000 shares of restricted common stock resulting in a loss on debt settlement in the amount of $40,869.

 

In April 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 51,750 shares of restricted common stock with a fair value of $17,201 to service providers.

 

In June 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 99,412 shares of restricted common stock with a fair value of $30,898 to service providers.

 

In September 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 133,960 shares of restricted common stock with a fair value of $28,576 to service providers.

 

In September 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 262,500 shares of restricted common stock for cash proceeds of $44,625.

 

In November 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 395,550 shares of restricted common stock with a fair value of $79,215 to service providers.

 

In November 2017, pursuant to Section 4(2) of the Securities Act, the Company issued 55,556 shares of restricted common stock for cash proceeds of $10,000.

 

 

NOTE  9

STOCK OPTIONS AND WARRANTS

 

Stock Options

 

As of December 31, 2018 and 2017, the Company does not have any outstanding or committed and unissued stock options.  

 

Warrants

 

As of December 31, 2018 and 2017, the Company does not have any outstanding or committed and unissued warrants. 

 

NOTE  10

INCOME TAXES

 

The Company has adopted ASC 740-10, 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 statements 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.

 

The Company’s total deferred tax liabilities, deferred tax assets, and deferred tax asset valuation allowances are as of December 31 are as follows:

 

   

December 31,

2018

   

December 31,  

2017

 

Total deferred tax assets

  $ 4,124,000     $ 3,730,000  

Less valuation allowance

    (4,124,000

)

    (3,730,000

)

Total deferred tax liabilities

    -       -  

Net deferred tax asset (liability)

  $ -     $ -  

 

Those amounts have been presented in the company’s financial statements as of December 31, as follows:

 

   

December 31,

 
   

2018

   

2017

 

Deferred tax asset

  $ -     $ -  
                 

Deferred tax liability

    -       -  
                 

Net deferred tax asset (liability)

  $ -     $ -  

 

The company has a loss carry forward of $9.6 million that may be offset against future taxable income. 

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”).  The Tax Act establishes new tax laws that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate to 21%, effective January 1, 2018. For certain deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $1,680,000, with a corresponding net adjustment to valuation allowance of $1,680,000 as of December 31, 2017.  

 

Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain.  Those amounts are therefore presented on the Company’s balance sheets as a non-current asset.  Utilization of the net operating loss carry forwards may be subject to substantial annual limitations, which may result in the expiration of net operating loss carry forwards before utilization.

 

NOTE 11

COMMITMENTS AND CONTINGENCIES

 

A)     Operating Leases

 

In November 2012, INVO Bioscience entered into a below market, month to month rental agreement with Forty Four Realty Trust with for the space it requires.  Forty Four Realty Trust is owned by investor James Bowdring, the brother of Director Robert Bowdring.

 

 

B)     Litigation

 

INVO Bioscience, Inc., and two of its directors have been, since 2010, defending litigation brought by investors in an alleged predecessor of INVO Bioscience.  On March 24, 2010, INVO Bioscience, Inc. and its corporate affiliate, Bio X Cell, Inc., Claude Ranoux, and Kathleen Karloff were served an Amended Complaint, the original of which was filed on December 31, 2009 at the Suffolk Superior Court Business Litigation Session by two terminated employees of Medelle Corporation (also named as a co-defendant but no longer active), who are also attorneys, and a former investor in and creditor of Medelle.  These plaintiffs allege various claims of wrongdoing relating to the sale of assets of Medelle to Dr. Ranoux.  Plaintiffs claim that Dr. Ranoux, Ms. Karloff, and Medelle (and therefore INVO Bioscience as an alleged successor corporation) violated alleged duties owed to plaintiffs in connection with the sale.  Separate claims were also alleged against INVO Bioscience.

 

Dr. Ranoux, Ms. Karloff, and INVO Bioscience have challenged these allegations, which they believe are baseless.  The transfer of the assets of Medelle was professionally handled by an independent third party, after approval by the Medelle Board of Directors, representing a majority of its shareholders.  Medelle’s Board voted to proceed with an assignment for the benefit of creditors (AFBC) and gave complete authority to the President & CEO at that time (neither Dr. Ranoux nor Ms. Karloff) to work with the third-party assignee and to get the best possible price for those assets.  The third party was responsible for notifying all the appropriate parties and for filing notices in various professional publications and newspapers of Medelle’s intention to sell its assets.  The third party also contacted numerous large medical device and bio-pharma companies to learn if they would be interested in acquiring the assets.  After a private sale was deemed unlikely, the assignee of the assets elected to proceed with a sealed-bid auction of the assets.  On the day of the auction, Dr. Ranoux submitted the only bid and was awarded the assets, upon full payment. 

 

During 2010, Dr. Ranoux, Ms. Karloff, and INVO Bioscience filed Motions to Dismiss as to all claims, pursuant to M.R.Civ. P. 12(b)(6).  In a written Decision rendered on November 12, 2010, the judge dismissed all claims against INVO, Bio X Cell, and Ms. Karloff, and also dismissed the claims against Dr. Ranoux alleging civil conspiracy and breach of M.G.L. c. 93A.  The judge denied Dr. Ranoux’s motion to dismiss the remaining breach of fiduciary duty and fraud claims.  The plaintiffs allege in their Amended Complaint that Dr. Ranoux committed fraud by failing to inform them of the details of the Medelle auction. 

 

The claims against Dr. Ranoux that survived the November 2010 dismissal order were submitted to binding arbitration.  On February 15, 2013, the mutually-agreed arbitrator ruled in favor of Dr. Ranoux. The award held that Dr. Ranoux did not withhold information about the auction of Medelle’s assets and expressed doubt that the plaintiffs would have invested the resources necessary to make a beneficial use of the assets.  The arbitrator’s award then was confirmed by the Superior Court on August 21, 2013.  The Superior Court’s confirmation of the award was affirmed on appeal on October 20, 2013 by the Massachusetts Appeals Court.  The Massachusetts Supreme Judicial Court then denied further appellate review.  

 

On October 18, 2016, following motions and argument, the Superior Court issued a memorandum of decision and order denying plaintiffs’ motion for entry of default judgment and assessment of damages against Medelle and allowed the motion of INVO Bioscience, Bio X Cell, and Ms. Karloff for entry of final judgment of dismissal.  The foregoing order was converted to a final judgment dismissing all claims against all defendants and entered on the docket on October 27, 2016.

 

On November 28, 2016, plaintiffs filed an amended notice of appeal from the Superior Court’s decision of October 17, 2016 and the subsequent judgment entered on October 27, 2016.  The appeal further challenges the order of dismissal from November, 2010.  Plaintiffs did not appeal from the dismissal of the claims against Ms. Karloff, so the judgment in her favor is now final, leaving claims against INVO Bioscience, Bio X Cell, Medelle, and Dr. Ranoux.

 

INVO Bioscience and Bio X Cell intend a vigorous opposition to the current appeal, consistent with their previous positions that no breach of duty occurred in the sale of Medelle’s assets. It is assumed that Dr. Ranoux will oppose the appeal as well.

 

Outside of the above-mentioned litigation, neither INVO Bioscience nor Bio X Cell, our wholly-owned subsidiary, either directly or indirectly, 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 operation, financial position, or cash flows.

 

C)     Employee Agreements

 

The Company had employment agreements for officers, executives and employees of the Company in place but they have expired.   The Company in the in the process of drafting new agreements for all of its key personnel.  

 

 

D)     Consulting Agreements

 

The Company has a verbal agreement beginning in March, 2013 with its former CFO, Robert Bowdring, who is currently a Director, to assist where necessary in the financial and administrative areas of the Company for compensation to be equivalent to the others working in the organization.

 

NOTE 12

CONTRACTS WITH CUSTOMERS

 

We have adopted ASC 606,  Revenue from Contracts with Customers  effective January 1, 2018 using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018 .  These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenues for 2018 are reported under ASC 606, while prior period amounts are not adjusted and continue to be reported under ASC 605,  Revenue Recognition .

 

We routinely enter into agreements with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms and in most cases prices for the products that we offer. However, these agreements do not obligate us to provide goods to the customer and there is no consideration promised to us at the onset of these arrangements. For customers without separate agreements, we have a standard list price established by geography and by currency for all products and our invoices contain standard terms and conditions that are applicable to those customers where a separate agreement is not controlling. Our performance obligations are established when a customer submits a purchase order or e-mail notification (in writing, electronically or verbally) for goods, and we accept the order. We identify performance obligations as the delivery of the requested product(s) in appropriate quantities and to the location specified in the customer’s e-mail/or purchase order. We generally recognize revenue upon the satisfaction of these criteria when control of the product has been transferred to the customer at which time we have an unconditional right to receive payment. Our prices are fixed and are not affected by contingent events that could impact the transaction price. We do not offer price concessions and do not accept payment that is less than the price stated when we accept the purchase order, except in rare credit related circumstances. We do not have any material performance obligations where we are acting as an agent for another entity.

 

Revenues for products, including: INVOcell ® , INVO  TM  Retention System, and INVO Microscope Holding Block are typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations. Revenues from consignment are recognized when the medical device is shipped from the Consignor to the customer.

 

Sources of Revenue

 

We have identified the following revenues disaggregated by revenue source:

 

 

1.

Domestic Physicians  – direct sales of products.

 

2.

Domestic Distributors  – direct sales of products

 

3.

International Distributors  – direct sales of products.

 

For the year ended December 31, 2018 the primary source of our revenue was from Domestic Physicians, the Company had $61,000 in shipments to its Domestic Distributor and 2017 the source of revenue was only from Domestic Physicians.

 

Contract Balances

 

We incur agreement obligations on general customer purchase orders and e-mails that have been accepted but unfulfilled. Due to the short duration of time between order acceptance and delivery of the related product, we have determined that the balance related to these obligations is generally immaterial at any point in time. We monitor the value of orders accepted but unfulfilled at the close of each reporting period to determine if disclosure is appropriate.

 

Warranty

 

Our general product warranties do not extend beyond an assurance that the product delivered will be consistent with stated specifications and do not include separate performance obligations.

 

 

Significant Judgments in the Application of the Guidance in ASC 606

 

There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon delivery of the product to the customer. This is consistent with the time in which the customer obtains control of the products. Therefore the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial. We consider variable consideration in establishing the transaction price. Forms of variable consideration applicable to our arrangements include sales returns, rebates, volume based bonuses, and prompt pay discounts. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products in the periods in which the related revenue is recognized and adjusted in future periods as necessary.

   

Commissions and Contract Costs

 

We do not use or offer sales commissions of any type at this time. We generally do not incur incremental charges associated with securing agreements with customers which would require capitalization and recovery over the life of the agreement.

 

Practical Expedients

 

Our payment terms for sales direct to customers and distributors are substantially less than the one year collection period that falls within the practical expedient in determination of whether a significant financing component exists.

 

Shipping and Handling Charges

 

Fees charged to customers for shipping and handling of products are included as an offset to the costs for shipping and handling of products included as a component of cost of products.

 

Taxes Collected from Customers

 

As our products are used in another service and are exempt, to this point we have not collected taxes. If we were to collect taxes they would be on the value of transaction revenue and would be excluded from product revenues and cost of sales and would be accrued in current liabilities until remitted to governmental authorities.

 

Effective Date and Transition Disclosures

 

Adoption of the new standards related to revenue recognition did not have a material impact on our consolidated financial statements, and is not expected to have a material impact in future periods.

 

NOTE 1 3

SUBSEQUENT EVENTS

 

On January 14, 2019, the Company consummated the transactions contemplated by its previously reported Distribution Agreement with Ferring International Center S.A. (“Ferring”), dated November 12, 2018.

 

At the closing, the Company received its initial $5,000,000 license fee. Pursuant to the Distribution Agreement, among other things, the Company granted to Ferring an exclusive license in the United States with rights to sublicense under patents related to the Company’s proprietary intravaginal culture device known as INVOcell™, together with the retention device and any other applicable accessories to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans. Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in humans in the U.S. The Company does retain a limited exception to the exclusive license granted to Ferring allowing the Company, subject to certain restrictions, to establish up to five clinics that will commercialize INVO cycles in the U.S.. The Company retains all commercialization rights for the Licensed Product outside of the United States.

 

In January 2019 we hired Mr. Michael Campbell as COO and VP of Business Development. Mr. Campbell has been on our Board of Directors for the past sixteen months. He has over 20 years in the infertility market most recently with Cooper Surgical as the VP of the IVF America division and previously in the position of VP of the international IVF market.

 

In January 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 60,000 shares of restricted common stock with a fair value of $26,600 to service providers for services performed.

 

In February 2019, pursuant to Section 4(a)(2) of the Securities Act, the Company issued 268,615 shares of restricted common stock with a fair value of $53,168 in connection with the conversion of a note payable and accrued interest.

 

In March 2019 the Company decided to change its stock transfer agent from Island Stock Transfer Company to Transfer Online, Inc.  https://www.transferonline.com/ as Island is no longer able to meet the needs of INVO Bioscience.

 

 

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

There were no disputes or disagreements of any nature between the Company or its management and its public auditors with respect to any aspect of accounting or financial disclosure.

 

Item 9A.  Controls and Procedures

 

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 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 Acting Chief Financial 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, 2018 and 2017.  However, Robert Bowdring only served as the Company’s Chief Financial Officer and principal accounting officer until March 2013.  From Mr. Bowdring’s resignation in March 2013 through December 31, 2018, Mr. Bowdring, as a consultant and a Director, supervised the Company’s financial situation.  While remaining a Director and consultant to the Company, Mr. Bowdring was elected Treasurer and Secretary in September 2016, and as Acting Chief Financial Officer (and acting principal accounting officer) in March 2017, and continues to hold those offices.   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 Acting Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of each year 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.  However, as indicated under “Evaluation of Disclosure Controls and Procedures” above, the Company did not have a Chief Financial Officer (and principal accounting officer) from when Robert Bowdring resigned as such in March 2013 to when he was elected Acting Chief Financial Officer (and acting principal accounting officer) in March 2017.  Management, with the participation of our Chief Executive Officer and Acting Chief Financial Officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2018 and 2017 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, the Chief Executive Officer and Acting Chief Financial Officer concluded that, as of December 31, 2018 and 2017, our internal control over financial reporting was 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 because of the Company’s limited resources and limited number of employees, and because the Company lacked a full time Chief Financial Officer (and principal accounting officer) from Robert Bowdring’s resignation as such in March 2013 until he was elected Acting Chief Financial Officer (and acting principal accounting officer) in March 2017.

 

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 Acting 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

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

The information required by this Item 10 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the close of our fiscal year.

 

We have adopted a Code of Conduct that applies to all employees including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The text of our Code of Conduct is posted in the “Investor Information—Corporate Governance” section of our website, www.INVOBioscience.com.

 

We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K.

 

Item 11.  Executive and Director Compensation

 

The information required by this Item 11 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the close of our fiscal year.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this Item 11 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the close of our fiscal year.

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

 

The information required by this Item 11 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the close of our fiscal year.

 

Item 14.  Principal Accountant Fees and Services

 

The information required by this Item 11 is hereby incorporated by reference to our definitive proxy statement to be filed by us within 120 days after the close of our fiscal year. 

 

 

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

 

 

Report of Independent Registered Public Accounting Firm

  

F-1

 

 

Consolidated Balance Sheets as of December 31, 2018 and 2017

  

F-2

 

 

Consolidated Statements of Losses for the Years Ended December 31, 2018 and  2017

  

F-3

 

 

Consolidated Statement of Shareholders’ Deficit for the Period from January 1, 2017 to December 31, 2018

  

F-4

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and  2017

  

  F-5

 

 

Notes to Consolidated Financial Statements

  

F-6

 

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

 

Exhibit No.

 

Description

3.1

 

Articles of Incorporation (1)

3.2     

 

Certificate of Amendment to Articles of Incorporation of  INVO Bioscience(1)

3.3

 

By-Laws of INVO Bioscience (2)

3.4

 

Certificate of Amendment to Articles of Incorporation of  INVO Bioscience dated December 22, 2008(3)

4.1

 

Form of Senior Secured Convertible Promissory Note - 2009(4)

4.2

 

Form of Convertible Promissory Note Purchase Agreement - 2009(4)

4.3

 

Form of Convertible Promissory Note – 2018*

4.4

 

Form of Convertible Note Purchase Agreement – 2018*

10.1

 

Kathleen Karloff Loan Agreement(5)

10.2

 

Kathleen Karloff Revised Loan Agreement(6)

10.3

 

Promissory Note – August 2016*

10.4

 

Distribution Agreement between the INVO Bioscience, Inc and Ferring International Center S.A. * +

10.5   Supply Agreement between the INVO Bioscience, Inc and Ferring International Center S.A.* +

 

 

21.01 

 

Subsidiaries of the Registrant*

31.01

 

Certification by Chief  Executive Officer pursuant to Rule 13a-4(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.*

31.02

 

Certification by Chief Financial Officer pursuant to Rule 13a-4(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.*

32.01

 

Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.02

 

Certification by the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101

XBRL Interactive Data File

101.INS 

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE 

XBRL Taxonomy Extension Presentation Linkbase

 

(1)   Incorporated by reference to INVO Bioscience’s predecessor EMY’S Registration Statement on Form SB-2/A filed with the Securities and Exchange Commission on January 25, 2008.

 

(2)   Incorporated by reference to the INVO Bioscience’s predecessor EMY’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on November 13, 2007.

 

(3)   Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2009.

 

(4)   Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 17, 2009.

 

(5)   Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2009 filed with the Securities and Exchange Commission on May 15, 2009.

 

(6)   Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2009 filed with the Securities and Exchange Commission on August 14, 2009.

 

(7)   Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission on April 4, 2017.

 

* Filed herewith

 + Portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K

 

 

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 16, 2019.

 

 

INVO Bioscience, Inc.

 

 

 

 

 

Date April 16, 2019

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 16, 2019.

 

 

 

 

Signature

  

Capacity

 

 

/s/Kathleen Karloff

  

Chief and Principal Executive Officer and Director

Kathleen Karloff

 

 

 

/s/Robert J Bowdring

  

Director and Acting Chief Financial Officer (and acting principal accounting officer)

Robert J. Bowdring

 

 

 

 

 

/s/Kevin Doody

 

Director

Kevin Doody, MD

 

 

 

 /s/Michael J. Campbell

 

Director

Michael J. Campbell

 

 

 

 

 

/s/Steven M. Shum 

 

Director

Steven M. Shum

 

 

 

41
 

 

 

 

EXHIBIT 4.3

 

 

EXHIBIT A

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS (i) SOLD PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS AND (ii) AT THE OPTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED HAS BEEN DELIVERED TO THE COMPANY.

 

INVO BIOSCIENCE , INC.

 

CONVERTIBLE PROMISSORY NOTE

 

January __, 2018

 

$______,000

  

Medford, MA

 

FOR VALUE RECEIVED , INVO Bioscience, Inc., a Nevada corporation (“ Company ”), promises to pay to ________________________________ (the “ Investor ” or the “ Holder ”), or its registered assigns, the principal sum of ____________________ Dollars ( $ _ 00,000 ), or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of this Note (“ Original Issue Date ”) on the unpaid principal balance at a rate equal to five percent (5%) per annum, computed on the basis of the actual number of days elapsed. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) January 30, 2021 (the “ Maturity Date ”) or (ii) when such amounts are declared due and payable by the Investor or made automatically due and payable, in each case upon or after the occurrence of an Event of Default (as defined below). This Note is issued pursuant to the Convertible Note Purchase Agreement of even date herewith (as amended, modified or supplemented, the “ Purchase Agreement ”) between Company and the Investor (as defined in the Purchase Agreement) and may be one of several convertible promissory notes issued on or about the date hereof (the “ Notes ”).

 

The following is a statement of the rights of the Investor and the conditions to which this Note is subject, and to which the Investor hereof, by the acceptance of this Note, agrees:

 

1 .       Definitions .   As used in this Note, the following capitalized terms have the following meanings:

 

(a)     “ Company ” includes the corporation initially executing this Note and any Person that shall succeed to or assume the obligations of the Company under this Note.

 

(b)     “ Investor ” shall mean the Person specified in the introductory paragraph of this Note or any Person who shall, at the time, be the registered holder of this Note.

 

(c)     “ Person ” shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority.

 

1

 

 

2.       Interest . Accrued interest on this Note shall be payable at such time as the outstanding principal amount hereof shall be paid in full.

 

3.       Events of Default . The occurrence of any of the following shall constitute an “ Event of Default ” under this Note:

 

(a)      Failure to Pay . The Company shall fail in any material respect to pay any principal payment, any interest or other payment required under the terms of this Note on the date due and such payment shall not have been made within 15 days of the Company’s receipt of the Investor’s written notice to the Company of such failure to pay; or

 

(b)      Breaches of Covenants . The Company shall fail in any material respect to observe or perform any covenant, obligation, condition or agreement contained in this Note (other than those covenants specified in Section 3(a) hereof) and such failure shall continue for 30 days after the Company’s receipt of the Investor’s written notice to the Company thereof; or

 

(c)      Representations and Warranties . Any representation or warranty made by the Company to the Investor in this Note shall be untrue in any material respect when made; or

 

(d)      Voluntary Bankruptcy or Insolvency Proceedings . The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) admit in writing its inability to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing; or

 

(e)      Involuntary Bankruptcy or Insolvency Proceedings . Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 60 days of commencement.

 

4.       Rights of Investor upon Default . Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 3(d) and 3(e) hereof) and at any time thereafter during the continuance of such Event of Default, the Investor may, by written notice to the Company, declare all outstanding obligations payable by Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 3(d) and 3(e) hereof, immediately and without notice, all outstanding obligations payable by Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Investor may exercise any other right, power or remedy permitted to it by law, either by suit in equity or by action at law, or both.

 

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5.       Conversion .

 

(a)      Automatic Conversion upon Equity Financing . Upon the closing (or first in a series of closings) of the next equity financing in which Company sells shares of its equity securities (the “ Equity Securities ”) for an aggregate consideration of at least $2,000,000, the principal and accrued interest due on this Note shall automatically be converted into the Equity Securities to be sold in the Next Equity Financing as set forth in Section 5(d) below. The conversion shall be deemed to have occurred as of the date of such closing or the date of the first closing in a series of closings. The automatic conversion provided in this Section 5(a) shall be self-executing. However, at the Company’s option, the Investor may be required to execute the definitive stock purchase or subscription agreement and such other agreements prepared in connection with the Next Equity Financing. The outstanding principal and unpaid accrued interest on this Note shall be automatically converted into Equity Securities at a price equal to 80% of the price paid per share (or per unit, if the Next Equity Financing is an offering of capital stock and warrants) by the investors in the Next Equity Financing or $0.15 (subject to adjustment), whichever is lower, (the “ Conversion Price ”). The number of Equity Securities (including both capital stock and warrants, if the Next Equity Financing is an offering of capital stock and warrants) to be issued upon such conversion shall be equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest on this Note on the date of conversion by the Conversion Price (the “ Conversion Shares ”). At least three days prior to the closing of the Next Equity Financing, the Company shall deliver notice to the Holder of the Note at the address last shown on the records of the Company for such Holder or given by the Holder to the Company for the purpose of notice (or, if no such address appears or is given, at the place where the principal executive office or residence of the Holder is located), notifying the Holder of the conversion to be effected and the terms under which the Equity Securities of the Company will be sold in such financing. If the Next Equity Financing triggers the automatic conversion provision of this Section 5(a) in a closing subsequent to the initial closing of such Equity Financing, the notice shall also state the effective date of the automatic conversion, which shall be the date of the initial closing of the Next Equity Financing. The issuance of the Conversion Shares pursuant to the conversion of this Note shall be upon and subject to the same terms and conditions applicable to the Equity Securities sold in the Next Equity Financing, including any minimum shareholding requirements for the exercise of certain stockholder rights, if applicable. For the avoidance of confusion, this Section 5(a) provides that in the event of an equity offering of at least $2,000,000, the Investor shall participate in such future financing by automatically converting all outstanding principal and accrued and unpaid interest on this Note into the securities to be sold in the offering, but at discounted purchase price equal to the lower of 80% of the offering price or $0.15 (subject to adjustment).

 

(b)      Voluntary Conversion . At any time after the original issue date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Investor, at any time and from time to time at the conversion rate of $0.15, subject to adjustment for stock splits, reverse splits and other similar recapitalization events (the “ Voluntary Conversion Price ”). The Investor shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount of this Note and the amount of accrued interest to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Investor shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted, in which case the Investor shall surrender this Note as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares of Common Stock issuable upon conversion. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The

 

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Assignee, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

(c)      Automatic Conversion upon Corporate Transaction . Upon the closing of a sale of all or substantially all of the Company’s assets or a merger or consolidation of the Company in which the Company’s current stockholders will hold, in the aggregate, less than 50% of the voting power of the combined entity (a “ Corporate Transaction ”), the principal and accrued interest due on this Note shall automatically be converted into shares of the Company’s Common Stock at a price per share equivalent to the valuation as determined by the Corporate Transaction, to be paid in the same form of consideration received by other holders of the Company’s Common Stock in the transaction, as set forth in Section 5(d) below. The conversion shall be deemed to have occurred as of the date of such closing.

 

(d)      Issuance of Securities on Conversion . As soon as practicable after conversion of this Note, the Company, at its expense, will cause to be issued in the name of and delivered to the Investor a certificate or certificates representing the number of fully paid and nonassessable shares of the Preferred Stock or Common Stock (as applicable) to which Holder shall be entitled upon such conversion. No fractional shares will be issued upon conversion of this Note. As to any fraction of a share that the Holder would otherwise be entitled to purchase upon such conversion, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.

 

(e)      Termination of Rights . All rights with respect to this Note shall terminate upon conversion hereof in accordance with this Section 5, whether or not this Note has been surrendered. Notwithstanding the foregoing, the Holder agrees to surrender this Note to the Company for cancellation as soon as is practicable following conversion of this Note.

 

6.       Stock Purchase or Subscription Agreement . Investor understands and agrees that the conversion of this Note into Company’s equity securities may require the Company’s execution of certain agreements in the form agreed to by investors relating to the purchase and sale of such securities as well as registration, cosale, rights of first refusal, rights of first offer and voting rights, if any, relating to such securities.

 

7.       Successors and Assigns . Subject to the restrictions on transfer described in Section 9 below, the rights and obligations of the Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

8.       Waiver and Amendment . Any provision of this Note may be amended, waived or modified upon the written consent of the Company and Holder.

 

9.       Transfer of this Note or Securities Issuable Upon Conversion Hereof .   With respect to any contemplated offer, sale or other disposition of this Note, the Investor will first give written notice to the Company prior thereto, describing fully the manner thereof, together with a written opinion of the Investor’s counsel to the effect that such offer, sale or other disposition may be effected without registration or qualification under any federal or state law then in effect. Promptly upon receiving such written notice and reasonably satisfactory opinion, if so requested, the Company, as promptly as practicable, shall notify the Investor that the Investor may sell or otherwise dispose of this Note or such securities, all in accordance with the terms of the notice delivered to the Company. The Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act of 1933, as amended (the “ Act ”), unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Act. If a determination has been made pursuant to this Section 9 that the opinion of counsel for the

 

4

 

 

Investor is not reasonably satisfactory to the Company, then the Company shall so notify the Investor promptly after such determination has been made. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

 

10 .       Notices . All notices, waivers and other communications required or permitted under this Note shall be in writing and shall be delivered in person, via facsimile machine, via email, sent by nationally recognized overnight delivery service, or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed to the Holder or the Company at the address, facsimile number or email address set forth on the signature page of this Note. All such notices, waivers and other written communications shall be effective (and considered delivered and received for the purposes of this Note) (i) if physically delivered, upon documented receipt, (ii) if by facsimile machine during normal business hours upon transmission with confirmation of receipt by the receiving party’s facsimile terminal and if not sent during normal business hours, then on the next day, (iii) if by email during normal business hours, upon transmission with confirmation of receipt, and if not sent during normal business hours, then on the next day; (iv) if sent by documented overnight delivery service, on the date following the date on which such notice is delivered to such overnight delivery service for mailing, or (v) if mailed via first-class regular mail, three days after depositing in the U.S. Mail. Contact information for purposes of notice may be changed from time to time by either party by providing updated information to the other party.

 

11.       No Stockholder Rights . Nothing contained in this Note shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholder for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company; and no dividends or interest accruing to stockholders shall be payable or accrued in respect of this Note or the interest represented hereby or the equity securities obtainable hereunder until, and only to the extent that, this Note shall have been converted.

 

12 .       Payment; Prepayment .

 

(a)     Payment shall be made in lawful tender of the United States.

 

(b)     The Company shall have the right to prepay at any time, without penalty, in whole or in part, the unpaid principal and interest due on this Note.

 

13.       Governing Law; Venue . This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of Nevada, without regard to the conflicts of law provisions of the State of Nevada or of any other state. The parties expressly stipulate that any litigation under this Agreement shall be brought in the state courts of Clark County, Nevada. The parties agree to submit to the exclusive jurisdiction and venue of those courts.

 

 

[Remainder of Page Intentionally Left Blank]

 

 

 

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IN WITNESS WHEREOF , Company has caused this Note to be issued as of the date first written above.

 

INVO BIOSCIENCE, INC.

a Nevada corporation

 

 

By:                                                                      

           Kathleen Karloff

           Chief Executive Officer

Email: kkarloff@invobio.com

 

407 Rear Mystic Avenue, Suite 34C

Medford, MA 02155

 

Facsimile: (978) 878-9505

Acknowledged and Agreed:

 

HOLDER:

 

_____________________________

 

 

 

By:                                                                  

Signature

Name:                                                            

Its:                                                                 

Title

Email:                                                           

 

Address:_________________

Telephone Number:_________________

 

Facsimile: ()                                

Tax ID: ___________________

 

 

 

6

 

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned, the holder of that certain Convertible Promissory Note dated ______ , 2018 (the “Note”) in the principal amount of $________ , hereby elects to convert $______ in principal and $_____ in accrued and unpaid interest into shares of restricted Common Stock of INVO Bioscience, Inc. at the Voluntary Conversion Price set forth in the Note ($0.15 as of the Original Issuance Date), and requests that the certificate for such shares be issued in the name of, and delivered to:

 

 

 

 

Dated:                       

 

______________________________

(Investor)

 

 

By:                                                        

Its:                                                                                         

 

Agreed to and Accepted this

___ day of __________, 20__

 

INVO BIOSCIENCE, INC.

 

 

 

 

By:                                                        

Its:                                                               

 

 

 

 

EXHIBIT 4.4

 

 

 

CONVERTIBLE NOTE PURCHASE AGREEMENT

 

This Convertible Note Purchase Agreement (the “ Agreement ”) is made as of January___, 2018 by and between INVO Bioscience, Inc., a Nevada corporation (the “ Company ”), and the undersigned (the “ Investor ”).

 

1.      Purchase and Sale; Closing .

 

1.1      Purchase of Note . Subject to the terms and conditions of this Agreement, the Company agrees to sell to the Investor, and the Investor agrees to purchase from the Company, a Convertible Promissory Note (the “ Note ”) in substantially the form attached hereto as  Exhibit A  in the principal amount set forth on the signature page hereto. The Note will be convertible into equity securities of the Company upon the terms and conditions contained in the form of Note attached hereto as  Exhibit A . Shares of equity securities of the Company issued upon conversion of the Note are referred to herein as the “ Note Shares .”

 

1.2      Closing . The closing of the sale and issuance of the Note shall be held at such time and place upon which the Company and the Investor shall agree (hereinafter referred to as the “ Closing ”). The date of the Closing is referred to herein as the “ Closing Date .”

 

2.      Representations of the Company .

 

The Company represents and warrants to the Investor as follows:

 

2.1      Organization and Standing . The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Nevada and is in good standing under such laws.

 

2.2      Corporate Power . The Company will have at the Closing all requisite legal and corporate power and authority to execute and deliver this Agreement, to sell and issue the Securities and to carry out and perform its obligations under the terms of this Agreement.

 

2.3      Authorization . All corporate action on the part of the Company necessary for the authorization, execution, delivery and performance of this Agreement by the Company, the authorization, sale, issuance and delivery of the Note and the performance of all of the Company’s obligations hereunder and thereunder has been taken or will be taken prior to the Closing. This Agreement and the Note, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Note Shares, when issued in compliance with the provisions of the Note, will be validly issued, fully paid, and will be free of any liens or encumbrances, assuming that the Investor takes the Note Shares with no notice thereof, other than any liens or encumbrances created by or imposed upon the Investor; provided, however, that the Note Shares will be subject to restrictions on transfer under state and/or federal securities laws.

 

2.4      Finder’s Fees . Regarding any compensation from the Company by reason of any contract or understanding or contact with the Company as a finder or broker in connection with this sale and purchase of the Note contemplated by this Agreement, the Company agrees to indemnify and hold the Investor harmless against and respect of any claim of brokerage or other commissions or similar fees relative to this Agreement or the transactions contemplated hereby which arises as a result of a contract or understanding made by the Company with any such broker or finder in connection with this sale and purchase of the Note and contemplated by this Agreement.

 

 

 

 

2.5      Maximum Offering . The Company intends to sell a maximum of $1.5 million of notes to investors

 

2.6      Subsequent Debt Offering . The Company agrees that it will prohibit any subsequent senior debt offering for as long as any existing notes sold under this offering remain outstanding.

 

3.      Representations of Investors . The Investor hereby represents and warrants to the Company with respect to its purchase of the Note as follows:

 

3.1      Investment . The Investor understands that the investment in the Securities is a speculative investment and represents that it is aware of the business affairs and financial condition of the Company and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Note, and that it is purchasing the Note for investment for its own account only and not with a view to, or for resale in connection with, any “distribution” within the meaning of the Securities Act of 1933, as amended (the “ Securities Act ”) or applicable state securities laws. The Investor further represents that it understands that the Securities have not been registered under the Securities Act or applicable state securities laws by reason of specific exemptions therefrom, which exemptions depend upon, among other things, the bona fide nature of the Investor’s investment intent as expressed herein. The Investor acknowledges and understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act and qualified under applicable state securities laws or unless exemptions from such registration and qualification requirements are available and that the Company is under no obligation to register or qualify the Securities.

 

3.2      Accredited Investor . The Investor is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

3.3      Access to Data . The Investor acknowledges that it has received and reviewed this Agreement and exhibits hereto. The Investor has had an opportunity to discuss the Company’s business, management and financial affairs with its officers and directors.

 

3.4      No Finder’s Fees . No person is entitled, directly or indirectly, to compensation from the Investor by reason of any contract or understanding or contact with the Investor as a finder or broker in connection with the sale and purchase of the Note contemplated by this Agreement. Investor agrees to indemnify and hold the Company harmless against and in respect of any claim for brokerage or other commissions or similar fees relative to this Agreement or the transactions contemplated hereby which arises as a result of a contract or understanding made by the Investor with any such broker or finder in connection with the sale and purchase of the Note contemplated by this Agreement.

 

3.5      Legends . The Investor understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends:

 

(a)     “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”

 

(b)     Any legend required by the blue sky laws of any state to the extent such laws are applicable to the Securities represented by the certificate so legended.

 

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4.      Condition to Investor’s Obligations at Closing . The Investor’s obligation to purchase the Note at the Closing is subject to the fulfillment on or prior to the Closing Date of the following condition:

 

4.1      Representations and Warranties Correct . The representations and warranties made by the Company in Section 2 hereof shall be true and correct when made and shall be true and correct on the Closing Date.

 

5.      Conditions to the Company’s Obligations at Closing . The Company’s obligation to sell and issue the Note at the Closing is subject to the fulfillment of the following conditions:

 

5.1      Representations and Warranties Correct . The representations and warranties made by the Investor in Section 3 hereof shall be true and correct when made and shall be true and correct on the Closing Date.

 

5.2      Qualifications . All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be obtained and effective as of the Closing.

 

5.3      Board Approval . The Company’s Board of Directors shall have authorized the sale and issuance of the Securities.

 

6.      Miscellaneous .

 

6.1      Governing Law; Venue . This Agreement and the Note shall in all respects be governed by and construed and enforced in accordance with the laws of the State of Nevada, as such laws apply to contracts entered into and wholly to be performed within such state. The parties expressly stipulate that any litigation under this Agreement shall be brought in the state courts of Clark County. The parties agree to submit to the exclusive jurisdiction and venue of those courts.

 

6.2      Arbitration . Any claims arising under this Note, except for any such claims for which injunctive relief is sought, shall be resolved in binding arbitration with a duly authorized representative of the American Arbitration Association (“ AAA ”) in accordance with the provisions hereof and thereof. Either the Company or the Investor may submit the matter to binding arbitration before the AAA in Clark County, Nevada, which arbitration shall be final and binding on the parties and the exclusive method, absent agreement between the Company and the Investor, for purposes of determining the ability of the Company or the Investor to satisfy such claim. All claims shall be settled by a single arbitrator appointed in accordance with the Commercial Arbitration Rules then in effect of the AAA (the “ AAA Rules ”). The arbitrator shall render a final decision pursuant to the AAA Rules within thirty (30) days after filing of the claim. The final decision of the arbitrator shall be furnished to the Company and the Investor in writing and shall constitute the conclusive determination of the issue in question binding upon the Company and the Investor, and shall not be contested by any of them. Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrator’s decision. The prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief that such party may be entitled. For purposes of this Agreement, the prevailing party shall be that party in whose favor final judgment is rendered or who substantially prevails, if both parties are awarded judgment

 

6.3      Successors and Assigns . Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of the Investor to purchase the Note

 

3

 

 

shall not be assignable without the consent of the Company and provided further that the Company may not assign its rights hereunder.

 

6.4      Entire Agreement; Amendment . This Agreement, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

 

6.5      Notices, etc . All notices, waivers and other communications under this Agreement shall be in writing and shall be delivered in person, via facsimile machine, via email, sent by nationally-recognized overnight delivery service, or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed (a) if to the Investor, at the address of the Investor set forth on the signature page of this Agreement, or (b) if to the Company, to the attention of its Chief Executive Officer at its principal offices at 407 Rear Mystic Avenue, Suite 34C, Medford, MA 02155. Unless otherwise specified in this Agreement, all such notices, waivers and other written communications shall be effective (and considered delivered and received for the purposes of this Agreement) (i) if physically delivered, upon documented receipt, (ii) if by facsimile machine during normal business hours upon transmission with confirmation of receipt by the receiving party’s facsimile terminal and if not sent during normal business hours, then on the next day, (iii) if by email during normal business hours, upon transmission with confirmation of receipt, and if not sent during normal business hours, then on the next day; (iv) if sent by nationally-recognized overnight delivery service, on the date following the date on which such notice is delivered to such overnight delivery service for mailing, or (v) if mailed via first-class regular mail, three days after depositing in the U.S. Mail. Contact information for purposes of notice may be changed from time to time by either party by providing updated information to the other party.

 

6.6      Expenses; Attorneys’ Fees . Each of the Company and the Investor shall each bear its own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, if any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement and the Note, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

6.7      Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the party or parties actually executing such counterparts, and all of which together shall constitute one instrument.

 

6.8      Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement.

 

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The foregoing Agreement is hereby executed as of the date first above written.

 

COMPANY:

 

INVO BIOSCIENCE, INC .

 

 

 

By:                                                                                    

          Kathleen Karloff

          Chief Executive Officer

 

Email: kkarloff@invobio.com

Address: 407 Rear Mystic Avenue, Suite 34C

 Medford, MA 02155

Facsimile: (978) 878-9505

 

 

INVESTOR:

 

________________________________

 

 

 

By:                                                                                       

Signature

                                                                                            

Print Name

 

Its:                                                                                        

Title

Email:                                                                                  

 

 

Investment Amount: $                               

                                                                  Dollars (U.S.)

 

 

__________________________

___________________________

Facsimile: ()                      

Tax ID:                                       

 

 

5
 

 

 

EXHIBIT 10.3

 

 

PROMISSORY NOTE

 

 

$131,721.61 August 9, 2016

 

 

FOR VALUE RECEIVED, the undersigned promises to pay to the order of Conn Kavanaugh Rosenthal Peisch & Ford, LLP (“the holder”) the sum of One Hundred Thirty One Thousand Seven Hundred Twenty One and 61/100 Dollars ($131,721.61), together with interest on unpaid balances at the rate of five percent (5%) per annum. Interest only shall be payable annually in arrears on the first anniversary of the date of this note and also on the second anniversary of the date of this note, and all unpaid accrued interest and the entire principal balance outstanding shall in all events be due and payable on the third anniversary of the date of this note. The undersigned shall have the right to prepay this note in whole or in part at any time or times, without premium or penalty.

 

The undersigned agrees to pay all costs, including reasonable attorney’s fees, for the collection of this note (or any payment due hereunder) upon default, and to pay interest on all amounts not paid when due (whether due pursuant to the terms hereof, by acceleration, or otherwise) at the rate of 10% per annum, until paid in full.

 

At the option of the holder, this note, without notice or demand, shall become immediately due and payable, upon the occurrence at any time of any of the following events:

 

(1) Default, continuing for 15 days after written notice thereof is given to the undersigned, in any payment due hereunder; (2) The undersigned shall make an assignment for the benefit of creditors, or shall become insolvent, or a receiver of any property of the undersigned shall be appointed, or a petition in bankruptcy or any other proceeding under any law for relief of debtors shall be filed by or against the undersigned; or (3) The termination, dissolution, or liquidation of the undersigned.

 

No delay or omission on the part of the holder in exercising any right hereunder shall operate as a waiver of such right or of any other right of the holder, and no waiver or alteration or modification of the terms of this note shall be valid unless in writing signed by the holder of this note and then only to the extent therein set forth. All times of payment of principal, interest or any other monies due under or in respect to this note shall be of the strict essence.

 

This note shall be governed by the laws of the Commonwealth of Massachusetts, without application of principles of conflict of laws, and this note is executed as and shall have the effect of a sealed instrument. This instrument shall bind the undersigned and its successors and assigns, and shall inure to the benefit of the holder and the holder’s successors and assigns.

 

 

Signed in the presence of:    INVO BIOSCIENCE, INC,  
       
s:/ Heather Provenzano   By: s:/ Robert Bowdring,   
      Witness           a duly authorized Director  

 

1377937.1 09503-000

EXHIBIT 10.4

 

  [*] – Certain information in this document identified by brackets has been omitted because it is both (1) not material and (2) would be competitively harmful if publically disclosed.

 

DISTRIBUTION AGREEMENT


by and among


FERRING INTERNATIONAL CENTER S.A.


and


INVO BIOSCIENCE, INC.


and


BIO X CELL, INC.

 

Dated as of November 12, 2018

 

 

 

 

TABLE OF CONTENTS

 

 

ARTICLE 1 Definitions and Rules of Construction

1

Section 1.1

Definitions.

1

Section 1.2

Additional Definitions.

8

Section 1.3

Rules of Construction.

10

ARTICLE 2 Grant of Rights; Diligence

10

Section 2.1

Grant of INVO Intellectual Property and Retention of Rights

10

Section 2.2

Grant of INVO Trademark(s) and INVO’s Retention of Rights.

11

Section 2.3

Additional Trademark Registrations

12

Section 2.4

Performance; Diligence Obligations.

12

Section 2.5

Section 365(n) of the Bankruptcy Code

13

ARTICLE 3 Product Development.

14

Section 3.1

Development Responsibilities

14

ARTICLE 4 Commercialization Activities.

15

Section 4.1

Commercialization Responsibilities

15

Section 4.2

INVO Support

15

Section 4.3

INVO Clinics

15

ARTICLE 5 Non-Compete and Right of First Refusal.

16

Section 5.1

INVO Restriction.

16

Section 5.2

Right of First Refusal

16

ARTICLE 6 Product Purchases

18

Section 6.1

Manufacturing Requirements

18

ARTICLE 7 Financial Terms

18

Section 7.1

Upfront Payment

18

Section 7.2

Additional Product Payments

18

Section 7.3

Taxes

18

Section 7.4

Payment Method

19

Section 7.5

Late Payments

19

 

 

 

 

i

 

 

 

ARTICLE 8 Regulatory Matters

19

Section 8.1

Compliance with Laws

19

Section 8.2

Regulatory Approval

19

Section 8.3

Pharmacovigilance Agreement

20

Section 8.4

Quality Agreement

20

ARTICLE 9 Intellectual Property

20

Section 9.1

Ownership of Intellectual Property.

20

Section 9.2

Patent Filings, Prosecution and Maintenance.

20

Section 9.3

Extensions of Patent Term for Products

21

Section 9.4

Enforcement of INVO Intellectual Property, INVO’s Sole Inventions and Joint Inventions.

22

Section 9.5

Enforcement of Ferring Inventions

22

Section 9.6

Defense of Infringement Claims.

22

Section 9.7

Enforcement of INVO Trademark(s).

23

ARTICLE 10 Indemnification

24

Section 10.1

Indemnification by INVO.

24

Section 10.2

Indemnification by Ferring.

25

Section 10.3

Waiver

26

Section 10.4

Insurance

26

ARTICLE 11 Representations and Warranties

26

Section 11.1

General Corporate Matters.

26

Section 11.2

Intellectual Property Matters.  

26

Section 11.3

INVO Covenants.

28

ARTICLE 12 Confidentiality and Publicity

29

Section 12.1

Confidentiality

29

Section 12.2

Publicity

31

ARTICLE 13 Record-keeping and Audits

31

Section 13.1

Records Retention

31

 

 

 

 

ii

 

 

 

 

ARTICLE 14 Term and Termination

31

Section 14.1

Term

31

Section 14.2

Rights of Termination.

32

Section 14.3

Surviving Rights and Obligations

33

Section 14.4

Effect of Expiration or Termination; Remaining Inventory.

33

ARTICLE 15 Miscellaneous

34

Section 15.1

Entire Agreement; Amendments

34

Section 15.2

Governing Law

34

Section 15.3

Dispute Resolution.

34

Section 15.4

Partial Illegality

35

Section 15.5

Waiver of Compliance

35

Section 15.6

Notices

35

Section 15.7

Limitation on Liability

37

Section 15.8

Counterparts.

37

Section 15.9

Further Assurances

37

Section 15.10

Injunctive Relief

37

Section 15.11

Jointly Prepared.

37

Section 15.12

Assignment

37

Section 15.13

Relationship of Parties

38

Section 15.14

Force Majeure

38

Section 15.15

Severability

38

Section 15.16

Third-Party Beneficiaries

39

Section 15.17

Expenses

39

Section 15.18

Relationship to Supply Agreement

39

 

 

 

 

iii

 

 

 

LIST OF SCHEDULES

 

1

Patents

2

Trademarks

3

Product Description

4

Product Redesign Specifications

4.3

INVO Cycle

4.3(a)

INVO Clinic

 

 

EXHIBIT

 

A

Form of Step-In Supply Agreement

B

Form of Supply Agreement

C

Form of Pharmacovigilance Agreement

D

Form of Quality Agreement

E

Press Releases

 

 

 

 

 

 

 

DISTRIBUTION AGREEMENT

 

This Distribution Agreement (this “Agreement” ) is entered into as of November 12, 2018 (the “Effective Date” ), by and among Ferring International Center S.A., a Société Anonyme organized and existing under the laws of Switzerland ( Ferring ), INVO Bioscience, Inc., a corporation organized and existing under the laws of Nevada ( “INVO” ) and Bio X Cell, Inc., a corporation organized and existing under the laws of Massachusetts (“ Bio X Cell” ). Ferring, Bio X Cell and INVO are each referred to herein by name or as a “ Party ” or, collectively, as the “ Parties .”

 

RECITALS

 

WHEREAS, Ferring and its Affiliates (defined below) desire to obtain an exclusive license in the Field, in the Territory, under the INVO Intellectual Property (defined below) pursuant to this Agreement; and

 

WHEREAS, INVO and Bio X Cell are willing to grant to Ferring an exclusive license in the Field, in the Territory, under the INVO Intellectual Property subject to the conditions set forth in, and pursuant to, this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, the Parties hereby agree as follows:

 

ARTICLE 1
Definitions and Rules of Construction

 

The definitions and rules of constructions set forth below shall apply throughout this Agreement.

 

Section 1.1     Definitions.

 

“Adverse Event” has the meaning set forth in the Applicable Law for such term (or comparable term), and will generally mean any untoward medical occurrence in a subject in any Clinical Trial who has received a Product, medical device or placebo, and that does not necessarily have a causal relationship with such Product, medical device or placebo, including any unfavorable and unintended sign (including an abnormal laboratory finding), symptom or disease temporally associated with the use of the applicable Product, whether or not related to such Product.

 

“Affiliate” means, with respect to any Party, any person, firm, trust, corporation or other entity or combination thereof which directly or indirectly (i) controls a Party, (ii) is controlled by a Party, or (iii) is under common control with said Party; it being understood that the terms “control” and “controlled” for purposes of this definition of “Affiliate” mean ownership of more than fifty percent (50%), including ownership by trusts with substantially the same beneficial interests, of the voting and equity rights of such person, firm, trust, corporation or other entity or combination thereof or the power to direct the management of such person, firm, trust, corporation or other entity or combination thereof.

 

 

 

 

 

 

“Applicable Laws” means all applicable common law, statutes, ordinances, rules, regulations, guidances and orders of any Governmental Authority, including Regulatory Laws.

 

“Business Day” means a day on which banking institutions in New York City, New York are open for business, excluding any Saturday or Sunday.

 

“Clinical Trial” means a human clinical study conducted on sufficient numbers of human subjects that is designed to (a) establish that a pharmaceutical product or medical device is reasonably safe for continued testing; (b) investigate the safety and efficacy of the pharmaceutical product or medical device for its intended use, and to define warnings, precautions and adverse reactions that may be associated with the pharmaceutical product in the dosage range to be prescribed or the medical device; or (c) support Regulatory Approval of such pharmaceutical product or medical device or Label expansion of such pharmaceutical product or medical device.

 

Closing Date ” means the date which is two (2) Business Days following the date on which Ferring notifies INVO in writing that all of the following conditions (regarding the preparation and execution of the applicable agreements by the applicable parties) have been satisfied in Ferring’s sole discretion: (a) step-in supply agreements substantially in the form attached hereto as Exhibit A for each supply agreement to which INVO is a party for the Product (each, a “ Step-In Supply Agreement ”), (b) the Supply Agreement, (c) the Pharmacovigilance Agreement, (d) the Quality Agreement, and (e) the Press Releases; provided that, the Closing Date shall not occur earlier than January 14, 2019 unless otherwise mutually agreed by the Parties in writing.

 

“Commercialization” means any and all activities of marketing, promoting, distributing, offering for sale or selling the Product, or the Competitive Product, as applicable, in the Field in the Territory, including, for example, marketing, branding, pricing, distribution, sales, obtaining health insurance reimbursement coverage, market research, business analytics, pharmacovigilance and medical affairs activities (including conducting post-marketing clinical studies), pre-commercial launch market development activities conducted in anticipation of Regulatory Approval to sell or market the Product, or the Competitive Product, as applicable, seeking pricing and reimbursement approvals for the Product or the Competitive Product (if applicable), preparing advertising and promotional materials, sales force training, and all interactions and correspondence with a Regulatory Authority regarding post-Regulatory Approval Clinical Trials. When used as a verb, “Commercialize” means to engage in Commercialization.

 

“Commercially Reasonable Efforts” means with respect to the performing Party, a level of efforts and resources, not less than reasonable efforts and resources; and in no event a level of efforts and resources that is less than the efforts and resources that INVO or Ferring, as applicable, typically devotes to a product or compound owned by it or to which it has rights of the type it has hereunder, of similar market potential at a similar stage in the development or product life thereof, taking into account scientific and commercial factors, including issues of safety and efficacy, product profile, the pricing and launching strategy for the respective product, difficulty in developing or manufacturing the Product, competitiveness of alternative Third Party products in the marketplace, the Patent or other proprietary position of the Product (including the ability to obtain or enforce, or have obtained or enforced, such Patent or other proprietary positions), the

 

 

 

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regulatory requirements involved and the potential profitability, cost, market share, price or reimbursement to the performing Party of the Product marketed or to be marketed.

 

“Competitive Product” means any product (including pharmaceutical drugs and devices) other than the Product for use in the Field.

 

“Control” or “Controlled” means, with respect to any intellectual property right, information, documents or materials of a Party, that such Party or its Affiliates, (a) owns or has a license to such intellectual property right, information, documents or materials (other than pursuant to this Agreement); and (b) has the ability to grant access, a license or a sublicense to such intellectual property right, information, documents or materials to the other Party as provided in this Agreement without violating an agreement with or other rights of any Third Party. Notwithstanding the foregoing, with respect to any intellectual property acquired after the Effective Date for which a Party will be required to make payments to any Third Party in connection with the access, licenses and sublicenses granted to the other Party under this Agreement, such intellectual property shall not be treated as “Controlled” by the licensing Party except to the extent that, and only to the extent that and for so long as, the other Party agrees and does promptly pay to the licensing Party all such payments arising out of the grant of the license to the other Party (as mutually agreed between the Parties in good faith).

 

Cover ”, “ Covering ” or “ Covered ” means, with respect to a claim of a Patent and a Product, that the manufacture, use, offer for sale, sale or importation of the Product would infringe a Valid Claim of such Patent in the Territory in which such activity occurred, but for the licenses granted in this Agreement (or ownership thereof).

 

“Damages” means all claims, threatened claims, damages, losses, suits, proceedings, liabilities, costs (including reasonable legal expenses, costs of litigation and reasonable attorney’s fees), or judgments, whether for money or equitable relief, of any kind and is limited to matters asserted by Third Parties against a Party.

 

“Data” shall mean all data and information generated, collected or filed, in relation to research and development activities relating to the Product in the Field in the Territory, including toxicology data, pharmacological data, non-clinical reports, clinical reports, single patient clinical report forms, data points and the databases, and stability data, chemical data, quality control data, Adverse Event and pharmacovigilance data, marketing data, pharmaco-economic data, branding and naming research reports, and all CMC data (including CMC development reports).

 

“Development” means, with respect to any medical device or pharmaceutical drug, all activities related to research, preclinical testing, clinical development efforts, test method development and stability testing, assay development, toxicology, formulation, process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical pharmacology, clinical studies (including Clinical Trials) and clinical study regulatory activities, seeking Regulatory Approval and otherwise handling regulatory affairs, statistical analysis and report writing. Development shall

 

 

 

-3-

 

 

not include Manufacturing or Commercialization. When used as a verb, “Develop” means to engage in Development.

 

“FDA” means the United States Food and Drug Administration (or any successor agency having the administrative authority to grant Regulatory Approval in the Territory).

 

“Ferring Fertility Products” means any pharmaceutical products in the Field which are Developed, owned or otherwise marketed or sold by Ferring or any of its Affiliates or licensees on and after the Effective Date, including without limitation Menopur, Endometrin, Novarel, Bravelle, Rekovelle and Milprosa.

 

“Field” means all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving assisted reproductive technology (including infertility treatment) in humans.

 

“Field Action” means any action by a Party that meets the criteria of “recall,” “correction,” or “removal” or similar field or customer action as defined by applicable Regulatory Law, including where any event, incident or circumstance has occurred that may result in the need for a recall from the market, market suspension or market withdrawal of the Product by a Party or any Affiliate or licensee in the Territory.

 

“Force Majeure” means any war, revolution, civil commotion, act of terrorism, blockade, epidemic, embargo, labor strike or lock-out, scarcity of raw materials, flood, fire, earthquake, tsunami, nuclear disaster, unforeseen change in Applicable Law or similar event that is beyond the reasonable control of the Party affected.

 

Good Clinical Practices ” or “ GCP ” means the then-current ethical and scientific quality standards for designing, conducting, recording, and reporting trials that involve the participation of human subjects as are required by applicable Regulatory Authorities or Applicable Law in the relevant jurisdiction. In the United States, GCP shall be based on Good Clinical Practices established through FDA guidances (including Guideline for Good Clinical Practice – ICH Harmonized Tripartite Guideline (ICH E6)), and, outside the United States, GCP shall be based on Guideline for Good Clinical Practice – ICH Harmonized Tripartite Guideline (ICH E6), as each may be amended and/or updated from time to time.

 

Good Laboratory Practices ” or “ GLP ” means the then-current good laboratory practice standards promulgated or endorsed by the FDA, as defined in U.S. 21 C.F.R. Part 58 (or such other comparable regulatory standards in jurisdictions outside the United States, as they may be amended and/or updated from time to time).

 

Good Manufacturing Practices ” or “ GMP ” means all applicable then-current standards relating to manufacturing practices for medical devices including (a) all applicable requirements detailed in the FDA’s current Good Manufacturing Practices regulations, U.S. 21 C.F.R. Part 820, and (b) all Applicable Laws promulgated by any Governmental Authority having jurisdiction over the manufacture of any Product, as applicable.

 

 

 

-4-

 

 

“Governmental Authority” means the government entity having authority over the manufacturing, marketing, selling, pricing, reimbursement, testing, investigating or regulating of the Product, and all states or other political subdivisions thereof and supranational bodies applicable thereto, including, if applicable, the European Union, and all agencies, commissions, officials, courts or other instrumentalities of the foregoing.

 

IFRS means the International Financial Reporting Standards developed by the International Accounting Standards Board (IASB); it being understood and agreed that IFRS shall refer to any other accounting standards for which Ferring adopts as its primary accounting standards from time to time, provided that such accounting standards is consistent with generally accepted international accounting standards.

 

“Insolvency Event” means that the Party has (a) commenced a voluntary proceeding under any insolvency law, or (b) had an involuntary proceeding commenced against it under any insolvency law which has continued undismissed or unstayed for 60 consecutive days, or (c) had a receiver, trustee or similar official appointed for it or for any substantial part of its property, or (d) made a general assignment for the benefit of creditors, or (e) had an order for relief entered with respect to it by a court of competent jurisdiction under any insolvency law. For purposes hereof, the term “insolvency law” means any applicable bankruptcy, insolvency or other similar law now or hereafter in effect.

 

Intellectual Property Rights ” shall mean Patents, trademarks, service marks, trade names, design rights, copyrights (including rights in computer software), domain names and websites (to the extent solely dedicated to the Product, including the INVO Domain Name), Know-How and any other intellectual property rights, including the Product specifications.

 

“INVO Cycle” means the procedures described in Schedule 4.3.

 

“INVO Domain Name” means the domain names and websites solely dedicated to the Product, including “www.INVOcell.com” and all registration rights relating thereto.

 

INVO Intellectual Property” means INVO Patents and INVO Know-How.

 

INVO Know-How means all Know-How, trade secrets, experimental data, formula, expert opinions, experimental procedures, pre-clinical Data and Data from Clinical Trials, regulatory data and filings and other confidential and/or proprietary information owned or Controlled by INVO or its Affiliates as of the date of signing this Agreement or during the Term of this Agreement that is necessary or useful to Develop, Manufacture or Commercialize the Product in the Field in or for the Territory (including, for the avoidance of doubt, the INVO Sole Inventions and INVO’s interest in any Joint Inventions).

 

“INVO Patents” means all unpublished Patent applications and Patent rights owned or controlled by INVO or its Affiliates as of the date of signing of this Agreement, including those Patents listed on Schedule 1 attached hereto, or during the Term of this Agreement that are necessary or useful to Develop or Commercialize the Product in the Field in or for the Territory

 

 

 

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(including, for the avoidance of doubt, any Patents Covering the INVO Sole Inventions and INVO’s interest in any Joint Inventions).

 

“INVO Revenue” means, with respect to each calendar year, the supply price paid for the Product by Ferring, any sublicensees, and their respective Affiliates as contemplated by Section 7.2(a).

 

“Joint Intellectual Property” means the Joint Know-How and the Joint Patents, and all intellectual property rights therein.

 

“Joint Know-How” means all Know-How that is conceived or developed or, in the case of patentable Know-How, including any Joint Inventions, jointly by one or more employees of INVO or its Affiliates (or a Third Party acting on any of their behalf) and one or more employees of Ferring or its Affiliates (or a Third Party acting on any of their behalf) in the course of such Person’s performance of activities in connection with this Agreement.

 

“Joint Patent” means any Patent that Covers Joint Know-How.

 

Know-How ” means all (a) information, techniques, technology, practices, trade secrets, Inventions (whether patentable or not), methods, knowledge, skill, experience, data, results (including pharmacological, toxicological and clinical test data and results, chemical structures, sequences, processes, formulae, techniques, research data, reports, standard operating procedures and batch records), analytical and quality control data, analytical methods (including applicable reference standards), full batch documentation, packaging records, release, stability, storage and shelf-life data, and manufacturing process information, results or descriptions, software and algorithms; and (b) tangible manifestations thereof. As used in this Agreement, “clinical test data” shall include all information related to clinical or non-clinical testing, including patient report forms, investigators’ reports, biostatistical, pharmaco-economic and other related analyses, regulatory filings and communications, and the like.

 

“Knowledge” means knowledge after reasonable due inquiry with respect to the applicable facts and information.

 

“Label” means the approved display of written, printed or graphic matter either (a) on the immediate container, packaging or wrapper of an article or (b) inside a container, package or wrapper so long as it is easily legible through the outside container or wrapper.

 

“Manufacture” or “Manufacturing” means all operations necessary or appropriate to make, test, release, package, store, Label, supply and ship a Product, in accordance with applicable packaging, controls industry standards, GMPs, Applicable Laws, and the Product’s specifications (as set forth in the Supply Agreement).

 

“Out-of-Pocket Costs” means, with respect to certain activities hereunder, direct expenses paid or payable by either Party or its Affiliates to Third Parties (other than employees of such Party or its Affiliates) that are specifically identifiable and incurred to conduct such activities for the

 

 

 

-6-

 

 

Product hereunder and have been recorded in accordance with either U.S. generally accepted accounting principles or IFRS, as designated and used by the applicable Party in preparing its financial statements from time to time.

 

“Patent” means any and all (a) patent applications filed under Applicable Laws in any jurisdiction, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, and all patents granted thereon; (b) all patents, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms, including supplementary protection certificates or the equivalent thereof; and (c) any other form of government-issued right substantially similar to any of the foregoing.

 

“Person” means any individual or entity (including partnerships, corporations, limited liability companies, trusts and Governmental Authorities).

 

“Product” means INVO’s proprietary intravaginal culture device known as INVOcell, together with any applicable accessories, including, without limitation, the retention device (each of which is more specifically described on Schedule 3), together with all current and future formulations, versions, improvements, modifications and presentations of such product by INVO and its Affiliates from time to time; it being understood that, for clarity, the Product shall not include any active pharmaceutical ingredients or other drug products owned or otherwise marketed and sold by Ferring or its Affiliates (including the Ferring Fertility Products).

 

“Product Complaint” means any written, electronic or oral communication that alleges deficiencies related to the identity, quality, durability, reliability, safety, delivery, effectiveness or performance of the Product after it is released by INVO or any of its Affiliates for distribution.

 

“Proprietary Information” means a Party’s trade secrets, Know-How, business plans, manufacturing processes, clinical strategies, product specifications, scientific data, market analyses, formulae, designs, training manuals and other non-public information (whether business, financial, commercial, scientific, clinical, regulatory or otherwise) that the Party treats as proprietary and uses Commercially Reasonable Efforts to protect.

 

“Regulatory Approval” means the approval and authorization of a Regulatory Authority in a country or regulatory jurisdiction anywhere in the world necessary to develop, manufacture, distribute, sell or market a pharmaceutical product in that country or regulatory jurisdiction.

 

“Regulatory Authority” means, with respect to any country or jurisdiction, any Governmental Authority involved in granting Regulatory Approval or in administering Regulatory Laws in that country or jurisdiction.

 

“Regulatory Documentation” shall mean all applications, registrations, licenses, authorizations, approvals (including all Regulatory Approvals), and correspondence (registration and licenses, pricing and reimbursement correspondence, regulatory drug lists, advertising and promotion documents) submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority) and

 

 

 

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all supporting documents in connection therewith, and all non-clinical, preclinical trials and Clinical Trials, tests and biostudies, relating to the use of the Product anywhere in the world (whether or not in the Field), or as required for regulatory purposes (including all Regulatory Approvals) and all Data contained in any of the foregoing.

 

“Regulatory Laws” means all Applicable Laws governing the import, export, testing, investigation, manufacture, marketing or sale of a product, or establishing recordkeeping or reporting obligations for Product Complaints or Adverse Events, or relating to Field Actions or similar regulatory matters.

 

“Right of Reference or Use” means a “Right of Reference or Use” as that term is defined in 21 C.F.R. §314.3(b), and any non-United States equivalents.

 

“Rule 144” means Rule 144 promulgated by the U.S. Securities and Exchange Commission (“ SEC ”) pursuant to the Securities Act of 1933, as amended (the “ Securities Act ”), as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as such Rule.

 

“Territory” means the United States and its territories and possessions.

 

“Third Party” means any Person other than the Parties and their Affiliates.

 

“US” or “United States” means the United States of America.

 

“Valid Claim” means, with respect to a particular country, (a) a claim of a pending Patent claiming priority from any Patent that has been pending for no more than five (5) years following the earliest priority filing date for such Patent and that has not been abandoned, finally rejected or expired without the possibility of appeal or refiling or (b) a claim of an issued and unexpired Patent and that has not been held permanently revoked, held unenforceable or invalid by a decision of a court or other Governmental Authority of competent jurisdiction, which decision is unappealed or unappealable within the time allowed for appeal and has not been cancelled, withdrawn, abandoned, disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. For clarity, a claim of a patent that ceased to be a Valid Claim before it issued because it had been pending too long, but subsequently issued and is otherwise described by clause (a) of the foregoing sentence shall again be considered to be a Valid Claim once it issues. A Product is “Covered” by a Valid Claim if its registration, manufacture, use, sale, offer for sale, marketing, Commercialization, distribution, importation or exportation by Ferring in the Territory would, but for the rights granted by INVO to Ferring under this Agreement, infringe such Valid Claim.

 

Section 1.2     Additional Definitions.

 

Capitalized terms defined in other provisions of this Agreement shall have the meanings specified therein. Those terms include the following:

 

 

 

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Term

Section

Agreement

Preamble

Bankruptcy Code

Section 2.5

Claim

Section 10.1(a)

Confidential Information

Section 12.1(a)

Deficiency Amount

Section 2.4(b)

Dispute

Section 15.3

Effective Date

Preamble

Expiration

Section 14.1

Ferring

Preamble

Ferring Party

Section 2.2(b)

Infringement Claim

Section 9.6

Initial Term

Section 14.1

INVO

Preamble

INVO Non-Renewal

Section 14.1

INVO Revenue

Section 7.2

INVO Trademarks

Section 2.2(a)

Joint Inventions

Section 9.1(b)

Negotiation Notice

Section 5.2(c)

Negotiation Period

Section 5.2(e)

Non-Exclusive Territory License

Section 2.4(b)

Notice Period

Section 5.2(c)

Offered Assets

Section 5.2(a)

Party

Preamble

Pharmacovigilance Agreement

Section 8.3

Press Releases

Section 12.2

Product Label Enhancement

Section 3.1

Product License

Section 2.1

Product Redesign

Section 3.1

Quality Agreement

Section 8.4

Recovery

Section 9.6(a)

Renewed Term

Section 14.1

Repurchased Product

Section 4.3

Sole Inventions

Section 9.1(a)

Supply Agreement

Section 6.1

Term

Section 14.1(a)

Third Party Offer

Section 5.2(a)

Trademark Recovery

Section 9.7

Transfer

Section 5.2(a)

Transfer Notice

Section 5.2(b)

 

 

 

 

 

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Section 1.3     Rules of Construction.

 

(a)     Elements of this Agreement . When a reference is made in this Agreement to a Recital, an Article, a Section, a Schedule, an Attachment or an Exhibit, such reference is to a Recital, Article or Section of, or a Schedule, Attachment or Exhibit to, this Agreement, unless otherwise indicated.

 

(b)     Meaning of “Include” and Variations Thereof . Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be understood to be followed by the words “without limitation.”

 

(c)     Use of Pronouns . Pronouns, including “he,” “she” and “it,” when used in reference to any person, shall be deemed applicable to entities or individuals, male or female, as appropriate in any given case.

 

(d)     Headings . Article, Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope, extent or intent of any provision of this Agreement.

 

(e)     Variations on Terms. Standard variations on defined terms (such as the plural form of a term defined in the singular form, and the past tense of a term defined in the present tense) shall be deemed to have meanings that correlate to the meanings of the defined terms.

 

(f)     Currency References. All references to “dollars” or “$” shall be deemed to be references to the lawful currency of the United States.

 

ARTICLE 2
Grant of Rights; Diligence

 

Section 2.1     Grant of INVO Intellectual Property and Retention of Rights . Subject to the terms and conditions of this Agreement and Article 2, INVO, on behalf of itself and its Affiliates (including Bio X Cell), hereby grants to Ferring and Ferring’s Affiliates during the Term, (a) an exclusive license (even as to INVO and its Affiliates but subject to Section 4.3), sublicensable (through multiple tiers) without the prior written consent of INVO, under the INVO Intellectual Property, INVO Sole Inventions, INVO Domain Name and INVO’s interest in the Joint Intellectual Property to use, import, sell, have sold, and Commercialize the Product for use in the Field in the Territory (the “ Product License ”) and (b) a non-exclusive license, sublicensable (through multiple tiers), under the INVO Intellectual Property, INVO Sole Inventions and INVO’s interest in the Joint Intellectual Property to Develop the Product in any country in the world for the Commercialization of the Product in the Field in the Territory (which, for clarity, does not confer any right upon Ferring to Commercialize the Product outside of the Territory) and (c) (i) solely in the case where INVO fails to fulfill any order of the Product placed by Ferring pursuant to the Supply Agreement within sixty (60) days following the scheduled Delivery Date (as defined in the Supply Agreement) of any such purchase order or (ii) pursuant to any manufacture of Product pursuant

 

 

 

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to any Step-In Supply Agreement, a non-exclusive license, sublicensable (through multiple tiers), under the INVO Intellectual Property, INVO Sole Inventions and INVO’s interest in the Joint Intellectual Property to Manufacture, to make and have made the Product; it being understood and agreed that Ferring shall remain responsible for the performance by each of its sublicensees hereunder and all sublicenses shall be subject to the terms and conditions of this Agreement. Subject to this Section 2.1, INVO shall retain all of its rights with respect to the Product outside the Territory, including all rights to research, Develop and Commercialize the Product outside the Territory. For the avoidance of doubt, Ferring acknowledges that it does not have the right to directly or indirectly, including through any Affiliates or agents, distribute or sell any Product outside the Territory.

 

Section 2.2     Grant of INVO Trademark(s) and INVO’s Retention of Rights.

 

(a)     Subject to the terms and conditions of this Agreement, INVO hereby grants to Ferring and its Affiliates during the Term the exclusive right in the Field in the Territory (even as to INVO and its Affiliates but subject to Section 4.3), sublicensable (through multiple tiers without the prior written consent of INVO), to use the trademark(s) owned or otherwise Controlled by INVO and/or its Affiliates associated with the Product (the “ INVO Trademarks ”), including those set forth on Schedule 2, solely in connection with the marketing, sale, distribution and support of the Product in the Territory and for no other purpose. Without limiting Ferring’s rights under Section 2.3, unless INVO otherwise consents in writing, all Products marketed or sold by Ferring, its Affiliates or sublicensees shall be sold under the INVO Trademarks. Subject to the Product License and other licenses granted under this Agreement, INVO shall not be restricted from using the INVO Trademarks in the Territory with respect to any general corporate activities (in no event to include Commercialization of the Product, except as provided in Section 4.3) to fulfill regulatory compliance activities related to its business or the business of its Affiliates.

 

(b)     To the extent Ferring, its Affiliates or sublicensees (the “ Ferring Parties ”) uses any INVO Trademark(s), Ferring shall and shall cause its Affiliates, to use such trademark(s) in accordance with, and subject to, the terms of this Agreement and any other non-monetary conditions or other requirements that are reasonably necessary to maintain quality control, as reasonably imposed by INVO in writing from time to time and Ferring shall cause each of the Ferring Parties not to use such INVO Trademark(s) outside the Field and/or outside the Territory. In order to preserve the inherent value of the INVO Trademark(s), Ferring shall use reasonable efforts to ensure that use, by any Ferring Party, of the INVO Trademark(s) conforms to reasonable industry standards for quality and otherwise complies with all Applicable Laws. Ferring shall use reasonable efforts to ensure that each Ferring Party includes all markings and legends in connection with its/their use of the INVO Trademark(s) as required by Applicable Laws or reasonably appropriate in order to give appropriate notice of trademark rights. At INVO’s written request, Ferring agrees to assist INVO to the extent reasonably necessary to verify Ferring’s compliance with the foregoing quality control and markings provisions. INVO retains any and all rights under the INVO Trademark(s) relating to the Product subject to the terms of this Agreement. Ferring acknowledges that its use of the INVO Trademark(s) inures to INVO’s benefit, subject to the terms and conditions of this Agreement. INVO shall be solely responsible for maintaining and

 

 

 

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renewing, enforcing and defending, the INVO Trademarks and shall solely bear the costs associated therewith.

 

Section 2.3     Additional Trademark Registrations . Subject to the terms of this Section 2.3, Ferring and/or its designee shall at all times have the right, but not the obligation, without INVO’s consent, to register its own trademark(s) relating to the Commercialization of the Product in the Field in the Territory, including the Commercialization of the Product together with other drug products owned or otherwise marketed and sold by Ferring or its Affiliates (including the Ferring Fertility Products); provided, however, that such trademarks (a) are not for the Product itself and are not identical or confusingly similar to any INVO Trademark(s) relating to the Product and (b) inure to Ferring’s benefit. Prior to filing any such trademark registration, Ferring shall use Commercially Reasonable Efforts to provide at least thirty (30) days advance written notice to INVO regarding the intent to seek registration of trademarks by Ferring or its designee relating to the use of the Product.

 

Section 2.4     Performance; Diligence Obligations.   

 

(a)      INVO . In accordance with this Agreement, INVO (directly or through one or more Affiliates) shall Manufacture and exclusively supply in the Territory the Product to Ferring and its Affiliates in accordance with the terms and conditions set forth in this Agreement and in the Supply Agreement.

 

(b)      Ferring. Ferring shall use Commercially Reasonable Efforts to (i) Commercialize the Product in the Territory and (ii) subject to Sections 3.1 and 4.2 and to the extent adversely impacted by INVO’s failure to comply with its Product delivery obligations under this Agreement and the Supply Agreement, generate INVO Revenue of at least the amounts in each calendar year as described in the table below until the end of the Initial Term (each such minimum INVO Revenue, subject to the conditions described in Section 3.1, the “ Minimum Annual Target ”):

 

Calendar Year

Minimum Annual Target

[*]

$[*]

[*]

$[*]

[*]

$[*]

[*]

$[*]

[*]

$[*]

[*]

$[*]

[*]

$[*]

 

 

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If INVO Revenue is less than the applicable Minimum Annual Target in any calendar year during the Initial Term for which there is adequate Product supply by INVO to Ferring (pursuant to the terms of the Supply Agreement) and INVO is not in breach of Sections 3.1 and 4.2 and its Product delivery obligations under this Agreement or the Supply Agreement beyond any applicable notice and cure period, then Ferring shall have the option, in its sole discretion, on or prior to the 60 th day following any such calendar year to pay INVO the absolute difference between the INVO Revenue and the Minimum Annual Target (the “ Deficiency Amount ”). In the event Ferring timely pays the Deficiency Amount, INVO shall supply Product covered by the Deficiency Amount within sixty (60) days after such payment. In the event that Ferring elects not to pay the Deficiency Amount, then INVO shall have the option, in its sole discretion (as its sole remedy for Ferring’s election to not pay or otherwise perform any of its obligations under item (ii) in the first sentence of this Section 2.4(b)), to convert the Product License from an exclusive license in the Field in the Territory to a non-exclusive license in the Field in the Territory during the Term. In such an event, INVO shall grant and hereby does grant, to Ferring and Ferring’s Affiliates, a non-exclusive, sublicensable (through multiple tiers) license as provided in Section 2.1 under the INVO Intellectual Property, INVO Sole Inventions and INVO’s interest in the Joint Intellectual Property to use, import, sell, have sold, and Commercialize the Product for use in the Field in the Territory (the “ Non-Exclusive Territory License ”); it being understood and agreed that, following any conversion of the Product License to the Non-Exclusive Territory License, (a) INVO shall be entitled to establish any number of INVO Clinics in the Territory without Ferring’s prior written consent and (b) this Agreement shall not be subject to renewal after the Initial Term, unless otherwise agreed by the Parties.

 

Section 2.5     Section 365(n) of the Bankruptcy Code . All rights and licenses granted under or pursuant to any section of this Agreement are and will otherwise be deemed to be for purposes of Section 365(n) of the United States Bankruptcy Code (Title 11, U.S. Code), as amended (the “ Bankruptcy Code ”), licenses of rights to “intellectual property” as defined in Section 101(35A) of the Bankruptcy Code. The Parties will retain and may fully exercise all of their respective rights and elections under the Bankruptcy Code. The Parties agree that each Party, as licensee of such rights under this Agreement, will retain and may fully exercise all of its rights and elections under the Bankruptcy Code or any other provisions of Applicable Law outside the United States that provide similar protection for “intellectual property.” The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against a Party under the Bankruptcy Code or analogous provisions of Applicable Law outside the United States, the Party that is not subject to such proceeding will be entitled to a complete duplicate of (or complete access to, as appropriate) such intellectual property and all embodiments of such intellectual property, which, if not already in the non-subject Party’s possession, will be promptly delivered to it upon the non-subject Party’s written request thereof. Any agreements supplemental hereto will be deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of the Bankruptcy Code.

 

 

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ARTICLE 3
Product Development.

 

Section 3.1     Development Responsibilities (a)     . INVO (directly or through one or more Affiliates) covenants and agrees to use its Commercially Reasonable Efforts (i) at its own cost within a reasonable timeframe, to obtain a five (5) day label enhancement from the FDA for the current incubation period for the Product, which is currently limited to not more than seventy-two (72) hours, as more specifically described on Schedule 4 (the “ Product Label Enhancement ”); and (ii) at its own cost within a reasonable timeframe, complete the redesign measures for the Product as set forth on Schedule 4 (the “ Product Redesign ”); it being understood and agreed that INVO (a) shall grant Ferring the opportunity to review and reasonably comment on all matters relating to Product Label Enhancement and Product Redesign, and (b) shall reasonably consider and incorporate all Ferring comments into all Product Label Enhancement and Product Redesign. If, for any reason, INVO does not obtain the Product Label Enhancement within thirty (30) months of the Closing Date, then Ferring’s obligation to achieve the Minimum Annual Target each calendar year during the Initial Term pursuant to Section 2.4(b) shall be suspended and conditioned on obtaining the Product Label Enhancement. To the extent the Product Label Enhancement is not obtained within [*] of the Closing Date, the Minimum Annual Targets shall be frozen at [*] and shall resume with the Minimum Annual Target for calendar year [*] in the calendar year immediately following the calendar year during which the Product Label Enhancement was obtained. For example, assuming a Closing Date that is on or prior to [*], if the Product Label Enhancement is not obtained until [*] (i.e., during the [*] calendar year), then (i) the Minimum Annual Target for each of the [*] calendar year [*] and [*] calendar year [*] shall be [*] and (ii) the Minimum Annual Target for the calendar year immediately following the year in which the Product Label Enhancement was obtained (i.e., in this example, [*]) shall resume and apply for that calendar year beginning with the Minimum Annual Target for the calendar year [*], such that the Minimum Annual Target for the calendar year [*] is [*], the Minimum Annual Target for the calendar year [*] is [*]and the Minimum Annual Target for the calendar year [*] is [*].

 

(b)     Right of On-going Development and Information Transfer. During the Term of this Agreement, each Party will deliver to the other Party copies of all of its (and any of its Affiliate’s) Data and Regulatory Documentation as and when such Data and Regulatory Documentation become available to the Party, specifically (i) all non-clinical and Clinical Trial results and resultant data analyses, (ii) all material regulatory submissions made to the FDA or other Regulatory Authority or on behalf of such Party with respect to the Product in the Field and (iii) protocols for any ongoing Clinical Trials and proposed designs for any anticipated Clinical Trials with respect to the Product, in each case related to the Product anywhere in the world.

 

(c)     Right of Reference or Use. Each Party, on behalf of itself and its Affiliates, hereby grants to the other Party and the other Party’s Affiliates, a Right of Reference or Use to all Data and Regulatory Documentation (including all Regulatory Approvals) related to the Product owned or Controlled by such Party or its Affiliates during the Term for all uses in connection with the Product for Development and Commercialization in the Field within the Territory.

 

 

 

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(d)     Use of Ferring Products . INVO, on behalf of itself and its Affiliates and subject to Applicable Laws, hereby covenants and agrees (as and to the extent any pharmaceutical products intended for the Field are involved) to [*] for the Product inside and outside of the Territory; it being understood and agreed that INVO will [*] for the Product unless, solely with respect to any Ferring Fertility Product other than [*], INVO, in its reasonable judgment, determines that alternative products would be more appropriate. Ferring covenants and agrees to timely provide Ferring Fertility Products [*] to support Clinical Trials solely for Product Label Enhancement for the Product.

 

ARTICLE 4
Commercialization Activities.

 

Section 4.1     Commercialization Responsibilities . Subject to the terms and conditions of this Agreement (including Section 4.3), Ferring will be responsible, at its own cost, for all Commercialization activities for the Product in the Field in the Territory. Ferring shall ensure that it and the other Ferring Parties comply with all Applicable Laws with respect to all Commercialization Activities and obtain all necessary licenses and permits with respect to their performance under this Agreement. Within sixty (60) days after each anniversary of the Closing Date, Ferring shall provide INVO with an annual report summarizing its Commercialization activities for the Product in the Territory, including Ferring’s efforts to meet its diligence obligations set forth in Section 2.4(b). Subject to the terms and conditions of this Agreement, Ferring shall have sole discretion to establish the pricing and other terms and conditions of sale of the Product to its customers.

 

Section 4.2     INVO Support . Throughout the Term, INVO shall use Commercially Reasonable Efforts to make available to Ferring, at no charge and at Ferring’s request, INVO personnel, for the purpose of providing Ferring: (i) technical advice regarding the Product during INVO’s normal business hours, and (ii) customer and field support (including a system to respond effectively to Product Complaints and warranty claims). In addition, for a reasonable transition period of not more than six (6) months following the Closing Date, INVO shall cooperate and provide reasonable sales, marketing, medical training and product supply support, including a current list of customers and pricing per Product, as needed to facilitate the use, marketing, sale and distribution of the Product in order to support current customers that have and will continue to purchase the Product in the Territory. Ferring shall provide to INVO prompt notice of any claimed deficiency in the INVO support being provided under this Section 4.2 and INVO shall have a reasonable period to address any such claimed deficiency.

 

Section 4.3     INVO Clinics . As a limited exception to the exclusive Product License, and subject to the terms and conditions of this Agreement, INVO shall be entitled, at its sole cost to establish INVO clinics that exclusively Commercialize INVO Cycles in the Territory in order to Commercialize the Product during the Term (the “ INVO Clinics ”) as follows: INVO may establish (a) one (1) INVO Clinic at the location set forth on Schedule 4.3(a) and (b) an additional [*] INVO Clinics, upon not less than ninety (90) days’ advance written notice to Ferring of its intent to establish such an INVO Clinic, in locations (i) that are

 

 

 

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a minimum of [*] miles away from any other location that Commercializes the Product (whether by or on behalf of Ferring, INVO, or any of their respective Affiliates) and (ii) for which no INVO Clinic that Commercializes the Product then-currently exists, provided that, subject to the last sentence of Section 2.4(b), Ferring’s prior written consent shall be required for INVO to establish more than [*] INVO Clinics pursuant to this clause (b). For purposes of up to [*] INVO Clinics as contemplated by clauses (a) and (b) immediately above, and otherwise subject to obtaining Ferring’s prior written consent, INVO shall be entitled to order and purchase Product solely from Ferring (the “ Repurchased Product ”) on the following terms: (a) INVO may not submit an order to purchase (when aggregated with all other orders to purchase during the immediately preceding [*] days) in the aggregate for more than [*] of Ferring’s then-current inventory of the Product and (b) upon placing a purchase order with Ferring, INVO shall pay Ferring within [*] days in immediately available funds the amount equal to [*] more than the then-current purchase price of the Product per Product ordered pursuant to the Supply Agreement. INVO, on behalf of itself and its Affiliates, hereby covenants and agrees to (i) [*] the Ferring pharmaceutical product [*] and, to the extent INVO determines it is reasonable and appropriate under Applicable Law, all of the Ferring Fertility Products (as and to the extent any pharmaceutical products intended for the Field are involved) in connection with the Product for all INVO Cycles performed in all INVO Clinics during the Term and (ii) provide Ferring with the opportunity to review, and reasonably comment on, and approve of all marketing materials to be used in connection with the INVO Clinics. Beginning on the Closing Date, INVO shall provide Ferring with annual reports summarizing its Commercialization activities for the Product at INVO Clinics in the Territory.

 

 

 

ARTICLE 5
Non-Compete and Right of First Refusal.

 

Section 5.1     INVO Restriction.

 

Except as expressly permitted in Sections 3.1 and 4.3, INVO shall not, at any time during the Term unless there occurs a conversion of the Product License into the Non-Exclusive Territory License, either on its own behalf or through any Affiliate or Third Party, directly or indirectly, market, promote, sell, offer for sale, import, distribute or otherwise Commercialize any Competitive Product anywhere in the Territory, without the prior written consent of Ferring; it being understood and agreed that if INVO Develops any Competitive Product, INVO hereby covenants and agrees that, as a condition of any license, sale or other transfer of any INVO Know-How or INVO Patents (whether directly or indirectly by way of any spin-off, split-off, dividend, merger, demerger, consolidation or sale of capital stock or other similar transaction) used by, or resulting from any Development work by or on behalf of, INVO to Develop such Competitive Product, INVO shall require each holder of such INVO Know-How and INVO Patents to agree to be bound by this Section 5.1, all as set forth in a written confirmation addressed to each of INVO and Ferring (as reasonably satisfactory to Ferring).

 

Section 5.2     Right of First Refusal .

 

 

 

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(a)     Ferring shall have a right of first refusal if INVO receives an offer from a Third Party that INVO desires to accept (a “ Third Party Offer ”) to purchase, whether directly or indirectly, all or any portion of the Intellectual Property Rights related to the Product (the “ Offered Assets ”). Each time INVO receives a Third Party Offer, INVO shall first make an offer to Ferring in accordance with this Section 5.2 prior to selling, transferring, licensing, or otherwise disposing of any Offered Assets (a “ Transfer ”).

 

(b)     As soon as practicable, and in any event within two (2) Business Days after INVO receives a Third Party Offer that INVO desires to accept, to purchase all or any portion of the Offered Assets, INVO shall provide written notice to Ferring stating that INVO has received a Third Party Offer and specifying (i) a description of the Intellectual Property Rights to be transferred, (ii) the purchase price and form of consideration proposed to be paid for the Offered Assets, (iii) the name of the person or entity who made the Third Party Offer, (iv) the proposed date, time, and location or the closing of the Transfer, and (v) any other material terms and conditions upon which the proposed Transfer is being made (the “ Transfer Notice ”). The Transfer Notice shall certify that INVO has received an offer (including any non-binding letter of intent) from the prospective transferee and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet, letter of intent, or other agreement related to the proposed Transfer. Ferring agrees to maintain any Transfer Notice as confidential and use the information related to the Transfer Notice solely with respect to the exercise of its right of first refusal under this Section 5.2.

 

(c)     Upon receipt of the Transfer Notice, Ferring shall have ten (10) Business Days (the “ Notice Period ”) to notify INVO in writing whether Ferring wishes to enter into negotiations with INVO to purchase the Offered Assets (a “ Negotiation Notice ”). If Ferring fails to provide a Negotiation Notice within the Notice Period, INVO shall be free to accept the Third Party Offer on terms that are equal to or superior to the terms set forth in the Transfer Notice (subject to Section 11.3).

 

(d)     If INVO does not enter into an agreement with a Third Party within one hundred twenty (120) days following the end of the Notice Period, INVO shall again comply with the provisions of this Section 5.2 with respect to any subsequent Third Party Offer.

 

(e)     If Ferring provides INVO a Negotiation Notice, Ferring shall engage in good faith discussions with INVO for a period of at least sixty (60) Business Days (the “ Negotiation Period ”). During the Negotiation Period, Ferring and INVO shall undertake good faith discussions regarding Ferring’s interest to purchase the Offered Assets on terms at least as favorable to INVO as those contained in the Transfer Notice, and the Parties shall negotiate in good faith to finalize an agreement or letter of intent that is mutually agreeable with respect to the terms of such transaction. If the Parties do not enter into a written agreement or letter of intent regarding the purchase of the Offered Assets during the Negotiation Period, INVO shall be free to accept any Third Party Offer (subject to Section 11.3) on terms that are superior to the terms set forth in the final offer made by Ferring to INVO during the Negotiation Period.

 

 

 

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(f)     If INVO does not enter into an agreement with a Third Party within one hundred twenty (120) days following the end of the Negotiation Period, INVO shall again comply with the provisions of this Section 5.2 with respect to any subsequent Third Party Offer.

 

ARTICLE 6
Product Purchases

 

Section 6.1     Manufacturing Requirements . Subject to the terms and conditions of this Agreement and the terms of the agreement for the supply of Products by INVO to Ferring substantially in the form attached hereto as Exhibit C (the “ Supply Agreement ”), INVO shall be solely responsible for the Manufacture of, and exclusive supply to, Ferring of Products ordered by Ferring, its Affiliates or sublicensees in accordance with the terms of this Agreement for Commercialization in the Field in the Territory.

 

ARTICLE 7
Financial Terms

 

Section 7.1     Upfront Payment . Ferring shall pay to INVO a one-time, non-refundable and non-creditable upfront payment of Five Million U.S. Dollars (US$5,000,000.00) on the Closing Date.

 

Section 7.2     Additional Product Payments .

 

(a)      Product. Ferring shall pay to INVO the supply price for each Product and samples as set forth in the Supply Agreement.

 

(b)      Product Label Enhancement. Ferring shall pay to INVO a one-time, non-refundable and non-creditable additional payment of Three Million U.S. Dollars (US$3,000,000) within ten (10) Business Days following the date that the FDA approves the Product Label Enhancement pursuant to Section 3.1 at least three (3) years prior to the expiration of the Term.

 

Section 7.3     Taxes . Ferring may withhold from payment made to INVO under this Agreement any tax required to be withheld by Ferring under the laws of the country or jurisdiction where Ferring has commercially sold Products. If any tax is withheld by Ferring, Ferring shall provide INVO receipts or other evidence of such withholding and payment to the appropriate tax authorities on a timely basis following that tax payment. Each Party agrees to cooperate with the other Party in claiming refunds or exemptions from such deductions or withholdings under any relevant agreement or treaty which is in effect. The Parties shall discuss applicable mechanisms for minimizing such taxes to the extent possible in compliance with Applicable Law. In addition, the Parties shall cooperate in accordance with Applicable Laws to minimize indirect taxes (such as value added tax, sales tax, consumption tax and other similar taxes) in connection with this Agreement. Upon request, each Party shall use Commercially Reasonable Efforts to cooperate with the other Party to mitigate, reduce or eliminate adverse tax consequences to such other Party from changes in Applicable Law, the use of present or future Affiliates of either Party to engage in transactions described in or

 

 

 

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contemplated by this Agreement, or from other activities or transactions described in or contemplated by this Agreement.

 

Section 7.4     Payment Method . All payments made by Ferring under this Agreement shall be made in U.S. Dollars, and such payments shall be made by wire transfer to one or more bank accounts to be designated in writing by INVO.

 

Section 7.5     Late Payments . Any payments or portions thereof due hereunder that are not paid on the date such payments are due under this Agreement shall bear interest at an annual rate equal to the lesser of: (a) one and one half percentage points (1.5%) above the prime rate as published by Citibank, N.A., New York, New York, or any successor thereto, at 12:01 a.m. on the first day of each Calendar Quarter in which such payments are overdue or (b) the maximum rate permitted by Applicable Law; in each case calculated on the number of days such payment is delinquent, compounded monthly.

 

ARTICLE 8
Regulatory Matters

 

Section 8.1     Compliance with Laws . Each Party shall, and shall cause each of its Affiliates (and in the case of Ferring and its Affiliates, their sublicensees) to, comply in all material respects with all Applicable Laws, including all Regulatory Laws, that pertain to its activities under this Agreement and, except as otherwise provided herein, each Party shall bear its own cost and expense of such compliance. Without limiting the foregoing, Ferring’s specifications for the text (including any trademarks, logos or other graphics) for all marketing material used in connection with Product, and any such marketing material for the Product provided by Ferring or its designee, shall comply in all material respects with all Applicable Laws.

 

Section 8.2     Regulatory Approval . Each Party shall promptly report to the other Party any and all communications with a Regulatory Authority regarding any Regulatory

 

 

 

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Approval obtained for the Product anywhere in the world, including any and all guidance, instructions, orders, and requirements issued by the Regulatory Authority.

 

Section 8.3     Pharmacovigilance Agreement . On the Closing Date, the Parties shall enter into a pharmacovigilance agreement substantially in the form attached hereto as Exhibit C (the “ Pharmacovigilance Agreement ”).

 

Section 8.4     Quality Agreement . On the Closing Date, the Parties shall enter into a quality agreement substantially in the form attached hereto as Exhibit D (the “ Quality Agreement ”).

 

ARTICLE 9
Intellectual Property

 

Section 9.1     Ownership of Intellectual Property.

 

(a)     Each Party shall exclusively own all right, title and interest in and to all inventions developed, made or conceived solely by the employees, agents, consultants or contractors of such Party of its Affiliates in the course of performing its activities under this Agreement and without relying on any Confidential Information received from the other Party (such inventions with respect to each Party, “Sole Inventions” ).

 

(b)     All inventions developed, made or conceived jointly by employees, agents, consultants or contractors of INVO or its Affiliates, and employees, agents, consultants or contractors of Ferring or its Affiliates, shall be owned jointly on the basis of each Party having an undivided interest in the whole ( “Joint Inventions” ). Subject to Sections 2.1 and 5.1, each Party shall have the right to use such Joint Inventions without a duty of seeking consent or accounting to the other Party.

 

(c)     For purposes of determining ownership of inventions under this Agreement, the determination of inventorship (inventions made or conceived) shall be made in accordance with US Patent laws.

 

(d)     Each Party shall require all of its and its Affiliate’s employees to assign all inventions that are developed, made or conceived by such employees according to the ownership principles described in Section 9.1(c) free and clear of all liens, encumbrances, charges, security interests, mortgages or other similar restrictions. Each Party shall also require any agents or independent contractors performing an activity pursuant to this Agreement to assign all inventions that are developed, made or conceived by such agents or independent contractors to INVO and/or Ferring according to the ownership principles described in Section 9.1(c) free and clear of all liens, encumbrances, charges, security interests, mortgages or other similar restrictions.

 

Section 9.2     Patent Filings, Prosecution and Maintenance.

 

(a)     The Parties agree to cooperate in the preparation, filing, prosecution (including conducting any interferences, oppositions, reissue proceedings, reexaminations, post-grant

 

 

 

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proceedings, and any other similar proceeding relating thereto) and maintenance of all Patents and Patent applications under this Section 9.2, including obtaining and executing necessary powers of attorney and assignments by the named inventors, providing relevant technical reports to the filing Party concerning the invention disclosed in such Patents and Patent applications, obtaining execution of such other documents which are needed in the filing and prosecution of such Patents and Patent applications, and shall cooperate with the other Party so far as reasonably necessary with respect to furnishing all information and data in its possession reasonably necessary to obtain or maintain such Patents and Patent applications. This Section 9.2(a) shall survive the termination or expiration of this Agreement.

 

(b)     INVO shall have the sole right and option (but not the obligation), at its sole cost and expense, to prepare, file and prosecute (including conduct any interferences, oppositions, reissue proceedings, reexaminations, post-grant proceedings and any other similar proceeding relating thereto) any Patent applications and to maintain any Patents for INVO’s Sole Inventions.

 

(c)      Ferring shall have the sole right and option (but not the obligation), at its sole cost and expense, to prepare, file and prosecute (including conduct any interferences, oppositions, reissue proceedings, reexaminations, post-grant proceedings and any other similar proceeding relating thereto) any Patent applications and to maintain any Patents for (i) Ferring’s Sole Inventions, in Ferring’s name and (ii) Joint Inventions and to control any interferences, oppositions, reissue proceedings, reexaminations, post-grant proceedings and any other similar proceeding relating thereto; provided that , following consultation with INVO and good faith reasonable consideration of any comments submitted to Ferring by INVO, Ferring shall have the final decision making authority for the matters set forth in this Section 9.2(c), at its sole cost and expense. INVO agrees to cooperate with Ferring with respect to the preparation, filing and maintenance of INVO’s Sole Inventions and Joint Inventions and related interferences, oppositions, reissue proceedings, reexaminations, post-grant proceedings and similar proceeding thereof. If required under Applicable Laws in order for Ferring to control such interferences, oppositions, reissue proceedings, reexaminations, post-grant proceedings and similar proceeding relating to INVO’s Sole Inventions and the Joint Inventions, INVO shall join as a party to such interferences, oppositions, reissue proceedings, reexaminations, post-grant proceedings and similar proceeding.

 

Section 9.3     Extensions of Patent Term for Products . Ferring shall have the sole right, but not the obligation, to seek, in INVO’s name if so required, Patent term extensions, including any supplemental protection certificates and the like available under Applicable Laws for the Product in the Territory. INVO shall cooperate in connection with all such activities. Ferring, its agents and attorneys will give due consideration to all suggestions and comments of INVO regarding any such activities, including the choice of which Patent to apply

 

 

 

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term extensions to, but in the event of a disagreement between the Parties, Ferring shall have the final decision-making authority.

 

Section 9.4     Enforcement of INVO Intellectual Property, INVO’s Sole Inventions and Joint Inventions.

 

(a)     If Ferring brings any suit, action or proceeding under this Section 9.4, INVO agrees to be joined as party plaintiff if necessary to prosecute the suit, action or proceeding and to give Ferring reasonable authority to file and prosecute the suit, action or proceeding; provided, however, that neither Party will be required to transfer any right, title or interest in or to any property to the other Party or any other party to confer standing on Ferring hereunder.

 

(b)     If either Party learns of any infringement or violation by a Third Party of any INVO Intellectual Property (including INVO’s Sole Inventions or the Joint Inventions) in the Territory, whether or not within the Field, it shall notify the other Party as soon as practicable. Thereafter, Ferring shall have the sole right (but not the obligation) to take the appropriate steps to enforce or defend all INVO Intellectual Property (including INVO’s Sole Inventions or the Joint Inventions) against Third Parties in the Field in the Territory. INVO will provide reasonable assistance to Ferring, including by providing access to relevant documents and other evidence and making its employees available, subject to Ferring’s payment of any reasonable Out-of-Pocket Costs incurred by INVO in providing such assistance. Any settlements, damages or other monetary awards relating to such infringement or violation by a Third Party of any INVO Intellectual Property in the Field (a “Recovery” ) recovered by either Party will be forwarded to Ferring (if not then previously paid to Ferring) and any such Recovery pursuant to a suit, action or proceeding brought pursuant to this Section 9.4 will be allocated first to the reasonable and documented costs and expenses of Ferring, and second, all remaining Recoveries shall be paid fifty percent (50%) to Ferring and fifty percent (50%) to INVO.

 

Section 9.5     Enforcement of Ferring Inventions . If either Party learns of any infringement or violation by a Third Party of any Ferring’s Sole Inventions in the Territory, it shall notify the other Party as soon as practicable. Thereafter, Ferring shall have the sole right to enforce all Ferring’s Sole Inventions against Third Parties. In no event shall INVO have any right to bring any suit, action or proceeding with respect to any matter involving infringement of any Ferring’s Sole Inventions. Any settlements, damages or other monetary awards recovered pursuant to a suit, action or proceeding brought pursuant to this Section 9.5 will belong to and be payable to Ferring.

 

Section 9.6     Defense of Infringement Claims.

 

If any Third Party asserts a claim, demand, action, suit or proceeding against a Party (or any of its Affiliates), alleging that any Product, the use or practice of the INVO Intellectual Property, INVO’s Sole Inventions or the Joint Inventions infringes, misappropriates or violates the intellectual property rights of any Person (any such claim, demand, action, suit or proceeding being referred to as an “Infringement Claim” ), the Party first having notice of the Infringement Claim shall promptly notify the other Party thereof in writing specifying the facts, to the extent known,

 

 

 

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in reasonable detail. With respect to any Infringement Claim in the Field in the Territory, the Parties shall negotiate in good faith a resolution with respect thereto. If the Parties cannot settle such Infringement Claim with the Third Party within thirty (30) days after receipt of the notice pursuant to the notice pursuant to this Section 9.6, then subject to indemnification requirements of ARTICLE 10, the following shall apply:

 

(a)     In the case of any such Infringement Claim against either Party individually or against both Ferring and INVO during the Term, in each case, with respect to the Product in the Field in the Territory, Ferring shall assume control of the defense of such Infringement Claim. INVO, upon request of Ferring and if required by Applicable Law, agrees to join in any such litigation at Ferring’s expense, and in any event to reasonably cooperate with Ferring at Ferring’s expense. INVO will have the right to consult with Ferring concerning such Infringement Claim and to participate in and be represented by independent counsel in any litigation in which INVO is a party, at its own expense. Ferring shall have the exclusive right to settle any Infringement Claim against Ferring alone or against both Parties without the consent of INVO, unless such settlement requires INVO to perform or refrain from performing any activity or disclaim any Patent (in which case the consent of INVO shall be required). If Ferring fails to assume control of the defense of such Infringement Claim, INVO shall have the right (but not the obligation) to control the defense of such Infringement Claim, and Ferring upon request of INVO and if required by Applicable Law, agrees to join in any such litigation at INVO’s expense.

 

(b)     If either Party individually shall control of the defense of any such Infringement Claim described in this Section 9.6, the other Party shall cooperate, and shall cause its and its Affiliates’ employees to cooperate, with the controlling Party in all reasonable respects in connection therewith, including giving testimony and producing documents lawfully requested, and using its reasonable efforts to make available to the controlling Party, at the controlling Party’s cost, such employees who may be helpful with respect to such suit, investigation, claim or other proceeding.

 

Section 9.7     Enforcement of INVO Trademark(s).

 

Each Party promptly after acquiring knowledge thereof shall notify the other Party of any unauthorized attempt to use any of the INVO Trademark(s) used with respect to the Product within the Territory, including any infringement or any trademark which is substantially identical with or deceptively similar to any of such INVO Trademark(s), or any legal action instituted against Ferring with respect to Ferring’s use of any such INVO Trademark. Thereafter, INVO shall have the right (but not the obligation) to take the appropriate steps to enforce such INVO Trademark(s) against Third Parties. If INVO fails to enforce such INVO Trademark(s) in the Territory within ninety (90) days (or such shorter period of time as necessary to avoid any Party losing meaningful rights under Applicable Law) of the date one Party has provided notice to the other Party pursuant herein of such unauthorized attempt to use any of the INVO Trademark(s) or any legal action instituted against Ferring with respect to Ferring’s use of any such INVO Trademark, then Ferring shall have the right (but not the obligation), at its own expense, to enforce such INVO Trademark(s) by counsel of its own choice and INVO will have the right, at its own expense, to be represented in any such action by counsel of its own choice. Ferring shall not, without the prior

 

 

 

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written consent of INVO (in its sole discretion), enter into any compromise or settlement relating to any enforcement action that Ferring may bring under this Section 9.7 involving the INVO Trademark(s) that requires INVO to pay any sum of money, or otherwise adversely affects the rights of INVO with respect to such INVO Trademark(s) (including the rights to receive payments). Any settlements, damages or other monetary awards solely relating to such enforcement of any INVO Trademark(s) in the Territory (a “Trademark Recovery” ) recovered by either Party will be forwarded to Ferring (if not then previously paid to Ferring) and any such Trademark Recovery pursuant to a suit, action or proceeding brought pursuant to this Section 9.7 will be allocated first to the costs and expenses of the Party bringing such enforcement action, and second, all remaining Recoveries shall be shared equally between the Parties as follows: fifty percent (50%) to Ferring and fifty percent (50%) to INVO.

 

ARTICLE 10
Indemnification

 

Section 10.1     Indemnification by INVO.

 

(a)     Scope . INVO shall indemnify and hold harmless Ferring and its Affiliates and their respective directors, officers, employees and agents from and against any and all Damages, arising out of or resulting from any claim, demand, action, suit or proceeding brought by a Third Party (collectively, a “Claim” ) based upon or arising from: (i) any bodily injury, death or property damage resulting from any actual or alleged defect in the Manufacture of any Product or from the failure of any Product to conform to the applicable specifications (as set forth in the Supply Agreement); (ii) any breach by INVO of any of its representations, warranties or obligations under this Agreement; (iii) any violation by INVO of Applicable Laws; (iv) any Development of the Product by INVO or any Affiliate; (v) any Commercialization of the Product during the Term in the Territory with respect to the operation of the INVO Clinics pursuant to Section 4.3; or (vi) any gross negligence or willful act or omission of INVO or its Affiliates or subcontractors or any of their respective employees or agents relating to the activities in connection with this Agreement.

 

(b)     Defense. Ferring shall give INVO prompt written notice of any Claim with respect to which INVO’s indemnification obligations apply, but any delay or failure of such notice shall not excuse INVO’s indemnification obligations except to the extent that INVO’s legal position is actually and materially prejudiced thereby. INVO shall have the right to assume and control the defense and settlement of any Claim; provided, however, that following conditions must be satisfied: (i) INVO must provide to Ferring written acknowledgement to Ferring of INVO’s obligation to indemnify Ferring hereunder against Damages that may result from the Claim, and (ii) the Claim does not include damages other than monetary damages for which indemnity hereunder is available, (iii) the Claim does not relate to or arise in connection with any criminal proceeding, action, indictment, criminal allegation or investigation, and (iv) if requested by Ferring, INVO has reasonably demonstrated INVO’s financial ability to pay for the defense of such Claim and to satisfy the full amount of any Damages that may result from such Claim. Ferring shall have the right to participate in the defense of the Claim at its own expense, but in any event shall cooperate with INVO in the investigation and defense of the Claim.

 

 

 

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(c)     Settlement. If INVO is entitled to, and does, assume and control the defense and settlement of any Claim with respect to which its indemnification obligations apply, then INVO shall not settle such Claim without Ferring’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), unless (i) the sole relief provided in such settlement is monetary in nature and shall be paid in full by INVO and (ii) such settlement does not include any finding or admission of a violation by Ferring of any Applicable Laws or Third Party’s rights.

 

Section 10.2     Indemnification by Ferring.

 

(a)     Scope. Ferring shall indemnify and hold harmless INVO and its Affiliates and their respective directors, officers, employees and agents from and against any Damages arising out of or resulting from any Claim based upon or arising from: (i) any breach by Ferring of any of its representations, warranties or obligations under this Agreement; (ii) any violation by Ferring of Applicable Laws; (iii) Commercialization of the Product during the Term in the Territory and remaining Product inventory after the Term (as but only to the extent not involving any failure by INVO to supply the Product in accordance with the terms and conditions of the Supply Agreement); (iv) Ferring assuming manufacturing of Product per clause (c) of Section 2.1 of this Agreement or Step-In Supply Agreement, solely as and to the extent Ferring is indemnified for any such Damages from the applicable supplier under a Step-In Supply Agreement; or (v) any gross negligence or willful act or omission of Ferring, its Affiliates or its sublicensees or any of their respective employees or agents relating to the activities in connection with this Agreement.

 

(b)     Defense. INVO shall give Ferring prompt written notice of any Claim with respect to which Ferring’s indemnification obligations apply, but any delay or failure of such notice shall not excuse Ferring’s indemnification obligations except to the extent that Ferring’s legal position is actually and materially prejudiced thereby. Ferring shall have the right to assume and control the defense and settlement of any such Claim; provided, however, that following conditions must be satisfied: (i) Ferring must provide to INVO written acknowledgement to INVO of Ferring’s obligation to indemnify INVO hereunder against Damages that may result from the Claim, and (ii) the Claim does not include damages other than monetary damages for which indemnity hereunder is available, (iii) the Claim does not relate to or arise in connection with any criminal proceeding, action, indictment, criminal allegation or investigation, and (iv) if requested by INVO, Ferring has reasonably demonstrated Ferring’s financial ability to pay for the defense of such Claim and to satisfy the full amount of any Damages that may result from such Claim. INVO shall have the right to participate in the defense of the Claim at its own expense, but in any event shall cooperate with Ferring in the investigation and defense of the Claim.

 

(c)     Settlement. If Ferring is entitled to, and does, assume and control the defense and settlement of any Claim with respect to which its indemnification obligations apply, then Ferring shall not settle such Claim without INVO’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), unless (i) the sole relief provided in such settlement is monetary in nature and shall be paid in full by Ferring and (ii) such settlement does not include any finding or admission of a violation by INVO of any Applicable Laws or Third Party’s rights.

 

 

 

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Section 10.3     Waiver . Any waiver by an indemnified Party of its rights under this ARTICLE 10 must be set forth expressly and in writing in order to be effective.

 

Section 10.4     Insurance . Each Party shall maintain insurance with creditworthy insurance companies or self-insure in accordance with Applicable Laws.

 

ARTICLE 11
Representations and Warranties

 

Section 11.1     General Corporate Matters. Each Party hereby represents and warrants to the other Party that:

 

(a)     Organization and Power . It is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. It has all requisite power and authority to conduct its business and engage in the transactions provided for in this Agreement.

 

(b)     Authorization and Validity of Agreements . The execution, delivery and performance by it of this Agreement, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by all necessary corporate or equivalent action on its part. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or other laws relating to or affecting creditors’ rights generally and by general equity principles.

 

(c)     Absence of Conflicts . The execution, delivery and performance by it of this Agreement, and the consummation by it of the transactions contemplated hereby, do not and will not: (i) violate any Applicable Laws; (ii) conflict with, or result in the breach of any provision of, its certificate or articles of incorporation, bylaws or equivalent organizational documents; (iii) result in the creation of any lien or encumbrance of any nature upon any property being transferred or licensed by it pursuant to this Agreement; or (iv) violate, conflict with, result in the breach or termination of, or constitute a default under (or event which, with notice, lapse of time or both, would constitute a default under), any permit, contract or agreement to which it is a party or by which any of its properties or businesses are bound.

 

(d)     Consents . No authorization, consent or approval of, or notice to or filing with, any Governmental Authority is required for the execution, delivery and performance by it of this Agreement (excluding approvals of Regulatory Authorities as contemplated herein).

 

Section 11.2     Intellectual Property Matters. INVO hereby represents and warrants to Ferring that:

 

(a)     Ownership . INVO or its Affiliates have sole and exclusive ownership of INVO Intellectual Property. INVO has not granted to any Person other than Ferring a license, covenant not to sue or similar right with respect to any component of the INVO Intellectual Property in the

 

 

 

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Field in the Territory. The INVO Intellectual Property in the Field in the Territory is free of any lien, covenant, easement, lease, sublease, option, encumbrance, security interest, mortgage, pledge or claim of any nature, including limitations on transfer or any subordination arrangement in favor of a Third Party.

 

(b)     Solvency . INVO and its Affiliates, on a consolidated basis, are able to pay their debts as they become due in the ordinary course of business, are solvent (because their financial condition is such that the sum of their debts is less than the fair value of their assets), and have adequate capital to carry on their businesses.

 

(c)     Patents. Schedule 1 sets forth a complete and correct list of all INVO Patents owned or otherwise Controlled by INVO and its Affiliates as of the Effective Date, and, except as set forth on Schedule 1, INVO, together with its Affiliates, is the sole and exclusive owner of, and has the sole right, title and interest in and to, the INVO Patents listed on Schedule 1 (as updated from time to time) and the related Know-How.

 

(d)     No Additional IP. To INVO’s actual knowledge (not Knowledge), there is no intellectual property right, and in particular no INVO Patents, owned by or licensed to INVO or its Affiliates other than the INVO Intellectual Property, that are necessary for Ferring or its Affiliates and sublicensees to Develop and Commercialize the Product in the Territory as set forth herein.

 

(e)     Third Party Obligations. INVO and its Affiliates are not subject to any payment obligations to Third Parties as a result of the execution or performance of this Agreement.

 

(f)     Data and Information. INVO has furnished or made available to Ferring all material information that is in INVO’s or its Affiliates’ possession concerning the INVO Intellectual Property and Product relevant to the safety, efficacy, or CMC data thereof, and all Regulatory Documentation, Data and other correspondence with Regulatory Authorities relating to the Product, and to INVO’s Knowledge, such information is accurate, complete and true in all material respects.

 

(g)     Non-Infringement . As of the Effective Date and to INVO’s actual knowledge (not Knowledge), the use, manufacture, marketing, sale, promotion, importation, distribution and Commercialization of the Product in the Field in the Territory do not infringe, violate or misappropriate the intellectual property rights of any Person.

 

(h)     IP Claims . As of the Effective Date, no Person has made, nor has INVO received, nor to the actual knowledge (not Knowledge) of INVO has any Person threatened, any written or oral, claim of ownership, inventorship or Patent infringement, or any other claim of intellectual property misappropriation or violation, from any Third Party (including by current or former officers, directors, employees, consultants, or personnel of INVO or any predecessor) with respect to the INVO Intellectual Property, or initiated a lawsuit against INVO, in any case (i) challenging the ownership, validity or enforceability of any of the INVO Intellectual Property in the Field in the Territory, (ii) alleging that the license, use or practice of them infringes, violates or

 

 

 

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misappropriates: (A) the intellectual property rights of any Person; or (B) the rights of any Third Party, or (iii) seeking to enjoin or restrain such use or practice. INVO has no knowledge that any Person intends to assert such a claim or initiate such a lawsuit, or that any Person has a valid basis to do so.

 

(i)     Claims. There are no claims, litigations, suits, actions, disputes, arbitrations, or legal, administrative or other proceedings or governmental investigations pending or, to INVO’s actual Knowledge, threatened against INVO, nor is INVO a party to any judgment or settlement, which would be reasonably expected to adversely affect or restrict the ability of INVO to consummate the transactions contemplated under this Agreement and to perform its obligations under this Agreement, or which would affect the INVO Intellectual Property, or INVO’s Control thereof, or the Product.

 

(j)     Infringement by Others . As of the Effective Date and to the Knowledge of INVO, INVO has no reason to believe that any Person has infringed, violated or misappropriated any of the INVO Intellectual Property in the Field in the Territory.

 

(k)     No Other Warranties. Except as set forth in this Agreement or the Supply Agreement, INVO makes no other warranties express or implied, including the warranty of merchantability and warranty of fitness for a particular purpose, with respect to the Product.

 

Section 11.3     INVO Covenants.

 

(a)     INVO will not, and will cause its Affiliates not to (i) license, sell, assign or otherwise transfer to any Person any INVO Intellectual Property licensed to Ferring under this Agreement in the Territory (or agree to do any of the foregoing) or (ii) incur or permit to exist, with respect to any INVO Intellectual Property licensed to Ferring under this Agreement in the Territory, any lien, encumbrance, charge, security interest, mortgage, liability, grant of license to Third Parties or other restriction (including in connection with any indebtedness). This Section 11.3(a) does not restrict the activities described under Section 5.2.

 

(b)     INVO will maintain adequate capacity at its and any subcontractor’s Manufacturing facilities to satisfy Ferring’s requirements for Product with commercially reasonable lead times in accordance with the Supply Agreement.

 

(c)     INVO will, and will require its Affiliates and permitted subcontractors to, comply with all Applicable Laws in its and their Development, Manufacture and Commercialization of Product, including where appropriate GMP, GCP and GLP (or similar standards).

 

(d)     Neither INVO nor any of its Affiliates will effect any corporate restructuring or enter into any new agreement, transfer ownership of the INVO Intellectual Property licensed to Ferring under this Agreement, INVO’s Sole Inventions or INVO’s interest in the Joint Intellectual Property, or obligate itself to any Third Party, or amend an existing agreement with a Third Party,

 

 

 

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in each case, in a manner that restricts, limits, or encumbers the rights granted to Ferring under this Agreement.

 

(e)     INVO will not transfer any INVO Intellectual Property licensed to Ferring under this Agreement in the Territory to any entity other than a wholly-owned subsidiary, and INVO shall either (i) cause any such subsidiary to remain a wholly-owned subsidiary or (ii) prior to the date any such subsidiary is no longer wholly-owned by INVO, cause any such subsidiary to transfer back all rights with respect to any INVO Intellectual Property licensed to Ferring under this Agreement in the Territory that such entity owns or otherwise Controls. This Section 11.3(e) does not restrict a Transfer permitted under Section 5.2.

 

(f)     INVO will update Schedule 1 from time to time to include any Patents that are necessary or useful to Develop or Commercialize the Product in the Field in the Territory (including, for the avoidance of doubt, any Patents Covering the INVO Sole Inventions and INVO’s interest in any Joint Inventions); provided that, regardless of INVO’s failure to update such Schedule 1, such Patents shall be deemed to be included in the definition of INVO Patents.

 

(g)     Subject to Section 15.12, INVO will not, and will cause its Affiliates not to, assign any INVO Intellectual Property licensed to Ferring under this Agreement in the Territory to any Third Party or Affiliate.

 

(h)     INVO and its Affiliates will operate the business involving the sales of Products in the ordinary course consistent with past practice, including not granting any financial discounts or other comparable inducements to any Third Party out of the ordinary course for the purpose of accelerating sales of Products prior to the Effective Completion Date.

 

ARTICLE 12     
Confidentiality and Publicity

 

Section 12.1     Confidentiality . In the course of their activities pursuant to this Agreement, the Parties anticipate that they may disclose Confidential Information to one another and that either Party may, from time to time, be a disclosing Party or a recipient of Confidential Information. The Parties wish to protect such Confidential Information in accordance with this Section 12.1. The provisions of this Section 12.1 shall apply to disclosures furnished to or received by a Party and its agents and representatives (which may include agents and representatives of its Affiliates) both prior to and after the Effective Date. Each Party shall advise its agents and representatives of the requirements of this Section 12.1 and shall be responsible to ensure their compliance with such provisions.

 

(a)     Definition of Confidential Information. For purposes hereof, “Confidential Information” with respect to a disclosing Party means all Proprietary Information, in any form or media, concerning the disclosing Party or its Affiliates that the disclosing Party.

 

(b)     or its Affiliates furnish to the recipient, whether furnished before or after the date hereof, and all notes, analyses, compilations, studies and other materials, whether prepared by the

 

 

 

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recipient or others, that contain or reflect such Proprietary Information; provided, however, that Confidential Information does not include information that (i) is or hereafter becomes generally available to the public other than as a result of a disclosure by the recipient, (ii) was already known to the recipient prior to receipt from the disclosing Party as evidenced by prior written documents in its possession not subject to an existing confidentiality obligation to the disclosing Party, (iii) is disclosed to the recipient on a non-confidential basis by a person who is not in default of any confidentiality obligation to the disclosing Party, (iv) is independently developed by or on behalf of the recipient without reliance on the Confidential Information received hereunder, or (v) is required to be submitted to a governmental agency for the purpose of obtaining product approval, provided that the recipient will make a good faith attempt to obtain confidential treatment of the information by such agency. The contents of this Agreement shall be deemed to be Confidential Information of each Party. For clarity, Confidential Information shall not include clinical data contained in clinical reports that are not permitted under Applicable Laws to be redacted.

 

(c)     Treatment of Confidential Information. The recipient of Confidential Information shall (i) use such Confidential Information solely and exclusively in connection with the discharge of its obligations under this Agreement and (ii) not disclose such Confidential Information without the prior written consent of the disclosing Party to any Person other than those of its and/or its Affiliates’ agents and representatives who need to know such Confidential Information in order to accomplish the objectives for which it was disclosed. Notwithstanding the foregoing, if the recipient of Confidential Information becomes legally compelled to disclose any Confidential Information in order to comply with Applicable Laws or with an order issued by a court or regulatory body with competent jurisdiction, the recipient shall (x) provide prompt written notice to the disclosing Party so that the disclosing Party may seek a protective order or other appropriate remedy or waive its rights under this Section 12.1; and (y) disclose only the portion of Confidential Information that is legally required to furnish; provided that, in connection with such disclosure, the recipient shall use Commercially Reasonable Efforts to obtain assurance that confidential treatment will be given with respect to such Confidential Information. The disclosing Party shall be entitled to require the return of Confidential Information or elect to accept a certificate of destruction. If any Party is required to file this Agreement with any Governmental Authority, such Party shall redact the terms of this Agreement to the extent possible in order to keep particularly sensitive provisions confidential.

 

(d)     Return and Destruction. Upon the termination or expiration of this Agreement, upon the request of the disclosing Party, the recipient of Confidential Information shall promptly redeliver to the disclosing Party all Confidential Information provided to the recipient in tangible form or, with the consent of the disclosing Party, destroy the same and certify in writing that such destruction has occurred; provided, however, that nothing in this Agreement shall require the alteration, modification, deletion or destruction of computer backup tapes made in the ordinary course of business. All notes or other work product prepared by the recipient based upon or incorporating Confidential Information of the disclosing Party shall be destroyed, and such destruction shall be certified in writing to the disclosing Party. Notwithstanding the foregoing, legal counsel to the recipient shall be permitted to retain in its files one copy of all Confidential Information to evidence the scope of and to enforce the Party’s obligation of confidentiality under

 

 

 

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this Section 12.1. Records will be maintained by each Party and supplied to the other Party as required by Applicable Law.

 

(e)     Term of Obligation. The obligations under this Section 12.1 shall remain in effect from the date hereof through the fifth (5 th ) anniversary of the expiration or termination of this Agreement.

 

Section 12.2     Publicity . The Parties agree to issue the mutually agreed upon press releases for each of Ferring and INVO after the Effective Date attached hereto as Exhibit E (the “ Press Releases ”). Neither Party shall issue any press release or otherwise publicize this Agreement or any transactions contemplated by this Agreement on or following the Effective Date without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that consent shall not be required in connection with disclosures (a) required by Applicable Law, (b) relating to previously disclosed information, (c) expressly authorized by Section 12.1 and (d) made by Ferring in furtherance of its Commercialization of the Product. In the event of a required press release or other public announcement, the Party making such announcement shall provide the other Party with a copy of the proposed text prior to such announcement.

 

ARTICLE 13
Record-keeping and Audits

 

Section 13.1     Records Retention . INVO shall maintain or, with respect to third-party manufacturers, cause to maintain reasonably detailed records of Manufacturing information for the Product and any other information necessary to comply with Applicable Laws or this Agreement. Ferring and its Affiliates shall maintain its sales records for at least three (3) years following the date of sale, and INVO shall maintain its Manufacturing records for at least seven (7) years following the date of completion of Manufacturing.

 

ARTICLE 14
Term and Termination

 

Section 14.1     Term . This Agreement shall become effective as of the Effective Date. Subject to the satisfaction of the conditions precedent to the Closing Date, the initial term of this Agreement shall commence on the Closing Date and unless terminated earlier in accordance with this Agreement, shall continue in effect until December 31, 2025 (the “ Initial Term ”). Thereafter, the Initial Term shall automatically be renewed for successive three (3) year periods (each, a “ Renewed Term ” and collectively with the Initial Term, the “ Term ”), unless, subject to Section 3.1, Ferring has not achieved [*] of the applicable Minimum Annual Target on average during the calendar years [*] in the Initial Term, in which case INVO shall be entitled, in its sole discretion, to provide Ferring with written notice no later than [*] days before the end of the Initial Term that it does not want to enter into a Renewed Term (the “ INVO Non-Renewal ”) and then this Agreement shall terminate at the end of the Initial Term. This Agreement may be terminated before expiration of the Initial Term and/or the applicable

 

 

 

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Renewed Term only by mutual agreement of the Parties in writing or in accordance with Section 14.2.

 

Section 14.2     Rights of Termination.

 

(a)     Termination for Material Breach . In the event that a Party commits a material breach of this Agreement or the Supply Agreement (other than payment obligations), and such material breach is not cured within sixty (60) days (or such other time period as mutually agreed by the Parties), or a breach of its undisputed payment obligations under this Agreement that is not cured within thirty (30) days, after such Party receives written notice from the non-breaching Party, which notice shall specify the nature of the breach and demand its cure, the non-breaching Party may terminate this Agreement upon written notice to the breaching Party, subject to the following:

 

(i)     Notwithstanding the foregoing, if a material breach is other than a payment obligation and is not reasonably susceptible to cure within the cure period specified in Section 14.2(a), the non-breaching Party’s right of termination shall be suspended only if, and for so long as, (i) the breaching Party has provided to the non-breaching Party a written plan that is reasonably calculated to effect a cure, and (ii) the breaching Party commits to and does carry out such plan; provided, however, that, unless otherwise mutually agreed by the Parties in such plan, in no event shall such suspension of the non-breaching Party’s right to terminate extend beyond sixty (60) days after the original cure period.

 

(ii)     This Section 14.2 sets forth the exclusive basis for termination of this Agreement by a Party based on a breach by another Party.

 

(iii)     Any attorneys’ fees resulting from a Dispute arising under this Section 14.2(a) shall be borne solely by the Party against which judgment is declared pursuant to Section 15.3.

 

(b)     Ferring Right of Termination for Convenience . Ferring may terminate this Agreement upon ninety (90) days prior written notice to INVO hereunder at any time after the upfront payment is paid to INVO pursuant to Section 7.1.

 

(c)     Bankruptcy . This Agreement may be terminated by written notice by a Party at any time during the Term if the other Party shall file in any court or agency, pursuant to any statute or regulation of any state or country, a petition in bankruptcy or other Insolvency Event or for reorganization or for an arrangement or for the appointment of a receiver or trustee of that Party or of its assets, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if the other Party shall propose or be a Party to any dissolution or liquidation, or if the other Party shall make a general assignment for the benefit of its creditors.

 

(d)     Termination Prior to Closing Date . Each Party has the right, but not the obligation, to terminate this Agreement with immediate effect by written notice to the other Party

 

 

 

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if (i) such Party is not in breach of this Agreement and (ii) the Closing Date does not occur within seventy-five (75) days following the Effective Date.

 

Section 14.3     Surviving Rights and Obligations . Notwithstanding any provision herein to the contrary, any rights or obligations otherwise accrued hereunder (including any accrued payment obligation) and obligations to perform certain actions upon expiration or termination of this Agreement, shall survive the expiration or termination of this Agreement. Further, the rights and obligations of the Parties set forth in the following Sections and Articles shall survive the expiration or termination of this Agreement, in addition to those other terms and conditions that are expressly stated to survive termination or expiration of this Agreement: Sections 9.1 and 9.2(a) and Articles 10, 12, 13, 14 and 15.

 

Section 14.4     Effect of Expiration or Termination; Remaining Inventory.

 

(a)     Subject to Section 14.1(a), upon expiration or termination of this Agreement, neither Party shall have any further rights or obligations hereunder in the Territory except pursuant to provisions that expressly survive such expiration or termination.

 

(b)     Upon termination of this Agreement, subject to this Section 14.4, Ferring shall immediately discontinue and cease all use of any INVO trademark(s) and INVO Intellectual Property except to the extent permitted by Section 14.4 (c) below.

 

(c)     Upon expiration or termination of this Agreement, other than a termination for convenience under Section 14.2(b) or a termination due to a default by Ferring, Ferring and its Affiliates shall be permitted to import, market, promote, distribute, use, offer to sell and sell their remaining inventories of Product in the Territory for one hundred and eighty (180) days after the expiration date and, for such purpose, the Product License shall continue in effect but shall be non-exclusive in the Territory and all limitations, restrictions and indemnification obligations imposed by this Agreement with respect to the Commercialization of the Product shall apply with respect to the sale of such remaining inventory. INVO shall be entitled to, but is not obligated to, repurchase Ferring’s inventories of Product held by Ferring and its Affiliates at their cost for such inventories in the event of a termination due to default by Ferring.

 

(d)     Upon expiration or termination of this Agreement for any reason other than a default by INVO, for ninety (90) days after the expiration or termination, Ferring shall use Commercially Reasonable Efforts to transition any customers for the Product in the Territory to INVO and otherwise facilitate the orderly transition of the distribution of the Product in the Territory from Ferring to INVO or tis designee.

 

(e)     Upon termination of this Agreement by Ferring pursuant to Sections 14.2(b), a termination for Force Majeure pursuant to Section 15.14, or expiration of this Agreement due to an INVO Non-Renewal, Ferring shall provide INVO with a list of all then-existing customers, of the Product in the Territory.

 

 

 

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(f)     Upon expiration or termination of this Agreement, Ferring shall retain all right and title to any trademark(s) registered by Ferring relating to the Commercialization of the Product in the Field in the Territory pursuant to Section 2.3.

 

 

ARTICLE 15
Miscellaneous

 

Section 15.1     Entire Agreement; Amendments . This Agreement, including the Exhibits and Schedules hereto and the Supply Agreement, constitute the entire agreement between the Parties concerning its subject matter and supersedes all previous negotiations, agreements and commitments with respect thereto, as of the Effective Date, with the exception of the Confidentiality Agreement dated November 10, 2017 by and between INVO and Ferring. This Agreement shall not be released, discharged, amended or modified in any manner except by a written instrument signed by duly authorized officers or representatives of each of the Parties. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein.

 

Section 15.2     Governing Law . Any claim or controversy relating in any way to this Agreement shall be governed by and interpreted exclusively in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. This Agreement shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980.

 

Section 15.3     Dispute Resolution.

 

The Parties shall attempt in good faith to resolve any dispute or claim between them arising out of or relating to this Agreement ( Dispute ) promptly by negotiations between executives or other representatives of the Parties with authority to resolve the Dispute. If a Dispute should arise, such representatives shall confer in person or by telephone at least once and attempt to resolve the matter. Such conference shall take place within thirty (30) days of a written request therefor at a mutually agreed time and location.

 

In connection with any Dispute, the Parties agree:

 

(a) If the Dispute is solely with respect to an alleged breach of payment obligations under Sections 7.1 and 7.2 of this Agreement and is not settled within ten (10) days of the conference or time to confer described above, then each Party hereby irrevocably and unconditionally consents to submit such Dispute to binding arbitration, to be held in New York, New York in accordance with the Commercial Arbitration Rules and the Expedited Procedures of the American Arbitration Association then in effect.

 

(b) If the Dispute (other than solely with respect to an alleged breach of payment obligations under Sections 7.1 and 7.2 of this Agreement) is not settled within sixty (60) days of

 

 

 

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the conference or time to confer described above, then each Party hereby irrevocably and unconditionally (i) consents to submit to the exclusive jurisdiction of the state and federal courts located in New York, New York, for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby and (ii) waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the state and federal courts of New York, New York, and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

 

(c) In addition, during the pendency of any Dispute under this Agreement initiated before the end of any applicable cure period, (i) this Agreement will remain in full force and effect, (ii) the provisions of this Agreement relating to termination will not be effective, (iii) the time periods for cure as to any termination notice given prior to the initiation of the arbitration or court proceeding, as applicable, will be tolled, and (iv) neither of the Parties will issue a notice of termination pursuant to this Agreement based on the subject matter of the arbitration or court proceeding, as applicable, (and no effect will be given to previously issued termination notices), until the arbitrator(s) or court, as applicable, has confirmed the existence of the facts claimed by a Party to be the basis for the asserted material breach.

 

Section 15.4     Partial Illegality . If any provision of this Agreement or the application thereof to any Party or circumstances shall be declared void, illegal or unenforceable, the remainder of this Agreement shall be valid and enforceable to the extent permitted by Applicable Laws. In such event, the Parties shall use their Commercially Reasonable Efforts to replace the invalid or unenforceable provision by a provision that, to the extent permitted by the Applicable Laws, achieves the purposes intended under the invalid or unenforceable provision. Any deviation by any Party from the terms and provisions of this Agreement necessary to comply with Applicable Laws shall not be considered a breach of this Agreement.

 

Section 15.5     Waiver of Compliance . No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees, except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party, which waiver shall be effective only with respect to the specific obligation and instance described therein.

 

Section 15.6     Notices . All notices and other communications in connection with this Agreement shall be in writing and shall be sent to the respective Parties at the following addresses, or to such other addresses as may be designated by the Parties in writing from time to time in accordance with this Section 15.6, by registered or certified mail, postage prepaid, or by express courier service, service fee prepaid, or by facsimile with a hard copy to follow

 

 

 

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via mail or express courier service, or by email upon confirmed delivery sent by the recipient in return in accordance with this Section 15.6.

 

To INVO or Bio X Cell:

INVO Bioscience Inc.

407 R Mystic Ave

Suite 34C

Medford, MA 02155

Attention: Kathleen Karloff

Phone No.: 508-277-9817
Email: Katiekarloff@INVOBioscience.com

And:

Bio X Cell, Inc.

407 R Mystic Ave

Suite 34C

Medford, MA 02155

Attention: Kathleen Karloff

Phone No.: 508-277-9817
Email: Katiekarloff@INVOBioscience.com

 

With a copy to:

 

Shulman Rogers

12505 Park Potomac Avenue

6 th Floor

Potomac, MD 20854

Attn: Scott Museles

(301) 230 5200, F (301) 230-2891

 

 

 

To Ferring:

Ferring International Center S.A.

Chemin de la Vergognausaz 50

1162 St-Prex

Switzerland

Attention: General Counsel

 

 

 

 

With a copy to:

 

Dechert LLP

1900 K Street, NW

Washington D.C. 20006

Fax number:     (202) 261-3333

Tel number:     (202) 261-3440

Attention:      David E. Schulman

 

 

 

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All notices shall be deemed given and received (a) if delivered by hand, immediately, (b) if sent by mail, three (3) Business Days after posting, (c) if delivered by express courier service, one (1) Business Days in the jurisdiction of the recipient, (d) if sent by fax, at the time shown in the confirmed electronic receipt, or on the first Business Day thereafter if the notice is sent on other than a Business Day, or (e) if sent by email, the date indicated as being sent in the recipient’s email browser.

 

Section 15.7     Limitation on Liability . NOTWITHSTANDING THE FOREGOING, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT THE DAMAGES RESULT FROM A PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, INTENTIONAL BREACH OF A MATERIAL TERM OF THIS AGREEMENT OR ARE PAYABLE IN CONNECTION WITH A PARTY’S INDEMNIFICATION OBLIGATIONS UNDER ARTICLE 10 FOR LIABILITY OWED TO THIRD PARTIES.

 

Section 15.8     Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Counterparts may be exchanged in PDF or other electronic format.

 

Section 15.9     Further Assurances . From time to time, as and when requested by any Party, the other Party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further actions as such other Party may reasonably deem necessary or desirable to carry out the intentions of the Parties embodied in this Agreement.

 

Section 15.10     Injunctive Relief . The Parties acknowledge and agree that, in addition to any other remedies available in law or equity, either Party may be entitled to temporary and permanent injunctive relief in the event of a material breach under this Agreement.

 

Section 15.11     Jointly Prepared. This Agreement has been prepared jointly and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

 

Section 15.12     Assignment . A Party shall not have the right to assign, by operation of law or otherwise, any of its rights or obligations under this Agreement without the prior

 

 

 

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written consent of the other Party, except that each Party upon notice to the other Party shall be permitted, without any need for the other Party’s consent, to assign any of its rights and/or obligations hereunder in whole or in part to its Affiliates, provided that each Party remains liable for the performance of its obligations hereunder. Any assignment not in accordance with this Section 15.12 shall be void. Notwithstanding anything to the contrary contained herein, any merger to which a Party is the surviving entity in such merger shall not be deemed to be an assignment for purposes of this Agreement. This Agreement is binding on and inures to the benefit of the Parties and their respective permitted successors and permitted assigns.

 

Section 15.13     Relationship of Parties . Each Party to this Agreement is an independent contractor, and nothing in this Agreement shall be construed to give either Party the power or authority to act for, bind, or commit the other Party in any way. Nothing herein shall be construed to create the relationship of partners, principal and agent, or joint-venture partners between the Parties. Employees and agents of one Party are not employees or agents of the other Party, shall not hold themselves out as such, and shall not have any authority or power to bind the other Party to any contract or other obligation.

 

Section 15.14     Force Majeure . If the performance of any obligation under this Agreement other than the making of a payment due is prevented, restricted or interfered with by reason of any Force Majeure event, then the Party so affected shall be excused, upon giving prior written notice to the other Party, from such performance to the extent of such prevention, restriction or interference, provided that the Party so affected shall use reasonable commercial efforts to avoid or remove such causes of nonperformance and shall continue performance to the extent reasonably possible and, in any event, at such time as the Force Majeure conditions come to an end. If the Force Majeure conditions prevent performance completely and such prevention continues for more than one hundred and eighty days (180) days, then the Parties shall attempt to negotiate a mutually acceptable compromise within the spirit and intent of this Agreement. If they are unable to reach a mutually acceptable compromise within ninety (90) days and if performance is still completely prevented at the end of that time, then the Party who is not affected by the Force Majeure conditions shall have the option, by delivery of written notice of termination to the affected Party, to terminate this Agreement with immediate effect.

 

Section 15.15     Severability . If any one or more of the terms or provisions of this Agreement is held by a court of competent jurisdiction or arbitrator to be void, invalid or unenforceable in any situation in any jurisdiction, such holding shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the invalid, void or unenforceable term or provision in any other situation or in any other jurisdiction and the term or provision shall be considered severed from this Agreement, unless the invalid or unenforceable term or provision is of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid or unenforceable term or provision. If the final judgment of such court or arbitrator declares that any term or provision hereof is invalid, void or unenforceable, the Parties agree to (a) reduce the scope, duration, area or applicability of the term or provision or to delete specific words or phrases to the minimum extent necessary to

 

 

 

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cause such term or provision as so reduced or amended to be enforceable, and (b) make a good faith effort to replace any invalid or unenforceable term or provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

 

Section 15.16     Third-Party Beneficiaries ; Bio X Cell .

 

(a) Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any Persons other than the Parties hereto and their respective successors, assigns, and Affiliates.

 

(b) Bio X Cell hereby covenants and agrees that it shall be responsible for and shall perform and cause its Affiliates to perform all of the obligations of INVO contained in this Agreement as and to the extent INVO is liable under this Agreement and for the avoidance of doubt, all of Bio X Cell’s rights, title and interest in and to any INVO Intellectual Property shall be included herein to the extent necessary to give effect to the rights granted to Ferring hereunder.

 

(c) Ferring shall cause each Affiliate of Ferring that Commercializes the Product to agree that it will be subject to all the terms of this Agreement with respect to any Commercialization of the Product. INVO shall be an intended third party beneficiary of all such agreements with such Affiliates.

 

Section 15.17     Expenses . Except as expressly provided herein (including with respect to the allocation of Out-of-Pocket Costs), each of Ferring and INVO agrees to pay, without right of reimbursement from the other, all costs and expenses incurred by it and its Affiliates incident to the preparation, execution and delivery by it of this Agreement and the performance of its obligations hereunder, including the fees and disbursements of counsel, accountants, financial advisors, experts, consultants and employees employed by such party in connection with the preparation, execution and delivery by it of this Agreement and with the performance of its obligations contemplated hereby.

 

Section 15.18     Relationship to Supply Agreement . The Parties understand and agree that, in the event of any conflict between the terms of this Agreement and the Supply Agreement, the terms of this Agreement shall control. The Parties shall execute the Supply Agreement simultaneously with the execution of this Agreement.

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY BLANK;
SIGNATURE PAGE FOLLOWS]

 

 

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The Parties have executed this Agreement as of the Effective Date to evidence their agreement to the terms and provisions set forth herein.

 

 

Ferring International Center S.A.

 

 

By: ________________________________

 

Name: ______________________________

 

Title: _______________________________

 

 

By: ________________________________

 

Name: ______________________________

 

Title: _______________________________

 

 

 

INVO Bioscience, Inc.

 

 

By: ________________________________

 

Name: ______________________________

 

Title: _______________________________

 

 

Bio X Cell, Inc.

 

 

By: ________________________________

 

Name: ______________________________

 

Title: _______________________________

 

 

 

 

 

 

Schedule 1

 

INVO Patents

 

 

Incubation and/or storage container system and method.

 

Patient #: 7,759,115

Application Date: February 10, 2003

Granted: July 20, 2010

 

Inventor ID: BIE117249

Patent Family ID: 32824050

 

Patent 7,759,115 included 520 days of patent term adjustment, which arose due to Patent Office delays during prosecution.  The standard term of 20 years from the date of filing, plus the 520 days of patent term adjustment results in expiration date of July 14, 2024.

 

 

 

 

 

 

Schedule 2

 

INVO Trademarks

 

INVO Bioscience, registered 8/9/2009

 

INVO, registered 8/9/2009

 

INVOcell, registered 3/9/2010

 

 

 

 

 

Schedule 3

 

Product Description

 

The INVOcell is an Intravaginal Culture System. An intravaginal culture system is a prescription device intended for preparing, holding, and transferring human gametes or embryos during intravaginal in vitro fertilization or intravaginal culture procedures.

 

The INVOcell Culture Device (FG-002) is a two-part assembly (see Figures 1 and 2) enclosed in two separate packages. One package contains the inner chamber. The second package contains the top and bottom parts of the outer vessel.

 

The inner vessel holds culture medium, eggs and sperm, or ICSI fertilized embryos. In an INVOcell procedure, the inner vessel is placed into the outer vessel, which provides additional resistance to contamination. Following the loading of gametes or embryos, the INVOcell Culture Device is assembled and placed in the vaginal cavity for 72 hours (3-days) to allow for embryo development.

 

 

 

 

 

 

 

 

 

 

 


The INVOcell Retention Device (P-017) is a single-use, medical grade silicone device that is similar in shape and material to a diaphragm or menstrual cup. The Retention Device has holes to allow for natural drainage of vaginal fluids. The Retention Device is placed into the vaginal cavity with the INVOcell Culture Device to ensure that the INVOcell Culture Device is retained in the vaginal cavity for 72 hours (3-days). The retention device comes in 1 size: 70mm.

 

 

 

 

 

 

 

 

Schedule 4

 

Product Label Enhancement and Redesign Specifications

 

 

Product label enhancement: increase maximum vaginal incubation from 3-days (72 hours) to 5-days (120 hours).

 

Redesign specifications: create the 2 nd Generation Device (FG-003) by removing micro-chamber from the Inner Chamber (used for transfer of embryos directly from the device) of the current INVOcell Culture Device (FG-002).

 

 

 

 

CONFIDENTIAL TREATMENT REQUESTED

[*] – Certain confidential information contained in this document, marked with brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment made pursuant to, as applicable, Rule 24-b2 of the Securities Exchange Act of 1934, as amended and Rule 406 of the Securities Act of 1933, as amended.

 

 

 

 

Schedule 4.3

 

INVO Cycle

 

Reference Instructions for Use (P-008) and INVO Procedure Clinical Reference.

 

 

 

 

 

 

 

Schedule 4.3(a)

 

INVO Clinic

 

 

 

Aimee Eyvazzadeh, MD
5401 Norris Canyon Rd, San Ramon, CA 94583

 

 

 

 

 

 

 

Exhibit A

 

Form of Step-In Supply Agreement

 

 

 

 

 

 

 

 

 

Exhibit B

 

Form of Supply Agreement

 

 

 

 

 

 

 

 

 

Exhibit C

 

Form of Pharmacovigilance Agreement

 

 

 

 

 

 

 

 

 

Exhibit D

 

Form of Quality Agreement

 

 

 

 

 

 

 

 

 

 

Exhibit E

 

Press Release s

 

 

 

 

 

 
 

 

EXHIBIT 10.5

 

 

 [*] – Certain information in this document identified by brackets has been omitted because it is both (1) not material and (2) would be competitively harmful if publically disclosed.

 

 

SUPPLY AGREEMENT


by and among


FERRING INTERNATIONAL CENTER S.A.


and



BIO X CELL, INC.


and


INVO BIOSCIENCE, INC.


Dated as of November 12, 2018

 

 

 

 

 

 

 

Table of Contents

 

 

Page

Article 1 Definitions

1

Article 2 Scope

5

Article 3 Forecasts and Purchase Orders

5

Article 4 Prices and Payments

6

Article 5 Deliveries

7

Article 6 Step-In Supply Rights

8

Article 7 Intellectual Property

8

Article 8 Confidentiality

9

Article 9 Product Quality

9

Article 10 Audits

11

Article 11 Representations and Warranties

12

Article 12 Insurance

14

Article 13 Liability and Indemnification

14

Article 14 Term and Termination

16

Article 15 Force Majeure

17

Article 16 Governing Law and Dispute Resolution

17

Article 17 Miscellaneous

17

APPENDIX 1  PRODUCT PRICE

21

APPENDIX 2 KEY PERFORMANCE INDICATOR

22

APPENDIX 3 PRODUCT DESCRIPTION

23

APPENDIX 3.1 FIRST FORECAST

24

APPENDIX 4 THIRD PARTY MANUFACTURERS

25

 

 

 

-i-

 

 

 

 

SUPPLY AGREEMENT

 

THIS SUPPLY AGREEMENT is made on November 12, 2018 (the “ Effective Date ”) by and among:

 

1)

INVO Bioscience, Inc. , a corporation organized and existing under the laws of Nevada, with offices located at 407 R Mystic Avenue, Suite 34C, Medford, MA 02155 (“ INVO ”);

 

2)

Bio X Cell, Inc. , a corporation organized and existing under the laws of Massachusetts, with offices located at 407 R Mystic Avenue, Suite 34C, Medford, MA 02155 (“ Bio X Cell ,” and, together with INVO, the “ Supplier ”);

 

and

 

3)

Ferring International Center S.A. , a corporation organized and existing under the laws of Switzerland, whose principal place of business is located at Chemin de la Vergognausaz 50, 1162 St-Prex, Switzerland (hereinafter, the “ Purchaser ”)

 

each individually referred to as a “ Party ” and collectively as the “ Parties ”.

 

WHEREAS, Purchaser and its Affiliates are active in the development, manufacture, registration and commercialization of pharmaceutical products;

 

WHEREAS, Supplier has expertise in the manufacture and supply of the Product (as defined below); and

 

WHEREAS, Purchaser desires Supplier to supply, and Supplier desires to supply Purchaser, the Product under the terms and conditions of this Agreement, and entry into this Agreement is a condition for the Parties closing the transactions contemplated by the Distribution Agreement dated as of November 12, 2018 (the “ Distribution Agreement ”);

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

 

Article 1
Definitions

 

For purposes of this Agreement, the terms defined in this Article shall have the respective meanings set forth below:

 

1.1

Affiliate ” shall mean, with respect to any Party, any person, firm, trust, corporation or other entity or combination thereof which directly or indirectly (i) controls a Party, (ii) is controlled by a Party, or (iii) is under common control with said Party; it being understood that the terms “control” and “controlled” for purposes of this definition of “Affiliate” mean ownership of more than fifty percent (50%), including ownership by trusts with substantially the same beneficial interests, of the voting and equity rights of such person, firm, trust, 

 

 

 

1

 

 

 

 

 

corporation or other entity or combination thereof or the power to direct the management of such person, firm, trust, corporation or other entity or combination thereof.

 

1.2

Agreement ” shall mean this Supply Agreement and the Appendices hereto.

 

1.3

Applicable Laws ” shall mean all applicable common law, statutes, ordinances, rules, regulations, guidances and orders of any Governmental Authority.

 

1.4

Binding Forecast ” shall have the meaning set forth in Section 3.1 .

 

1.5

Business Day ” shall mean any day that is not a Saturday, a Sunday, or other day on which banks are required or authorized by Applicable Law to be closed in the City of New York.

 

1.6

Capped Amount ” shall have the meaning set forth in Section 3.1 .

 

1.7

Certificate of Analysis ” shall mean a certificate of analysis that certifies that a given quantity of the Product meets the release specifications.

 

1.8

Claim ” shall have the meaning set forth in Section 13.2(a) .

 

1.9

Commercialization ” shall mean any and all activities of marketing, promoting, distributing, offering for sale or selling the Product, including, for example, marketing, branding, pricing, distribution, sales, obtaining health insurance reimbursement coverage, market research, business analytics, pharmacovigilance and medical affairs activities, pre-commercial launch market development activities conducted in anticipation of Regulatory Approval to sell or market the Product, seeking pricing and reimbursement approvals for the Product (if applicable), preparing advertising and promotional materials, sales force training, and all interactions and correspondence with a Regulatory Authority regarding post-Regulatory Approval clinical trials. When used as a verb, “Commercialize” means to engage in Commercialization.

 

1.10

Damages   means all claims, threatened claims, damages, losses, suits, proceedings, liabilities, costs (including reasonable legal expenses, costs of litigation and reasonable attorney’s fees), or judgments, whether for money or equitable relief, of any kind and is limited to matters asserted by Third Parties against a Party.

 

1.11

Delivery Date ” shall have the meaning set forth in Section 3.3 .

 

1.12

Delivery Point ” shall mean the single place of delivery of the Product shipment to Purchaser pursuant to this Agreement, which location is designated by Purchaser in writing.

 

1.13

“Development” shall mean all activities related to research, preclinical testing, clinical development efforts, test method development and stability testing,

 

 

2

 

 

 

 

 

assay development, toxicology, formulation, process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical pharmacology, clinical studies (including clinical trials) and clinical study regulatory activities, seeking Regulatory Approval and otherwise handling regulatory affairs, statistical analysis and report writing with respect to the Product. Development shall not include Manufacturing or Commercialization. When used as a verb, “Develop” means to engage in Development.

 

1.14

Distribution Agreement ” shall have the meaning set forth in the Recitals.

 

1.15

Effective Date ” shall have the meaning set forth in the Recitals.

 

1.16

Facilities ” shall mean the facilities of the Third Party Manufacturers where the Product is Manufactured.

 

1.17

FDA ” shall mean the United States Food and Drug Administration (or any successor agency having the administrative authority to grant Regulatory Approval in the United States).

 

1.18

Force Majeure ” shall have the meaning set forth in Section 15.1 .

 

1.19

Forecast ” shall have the meaning set forth in Section 3.1 .

 

1.20

Good Manufacturing Practices ” or “ GMP ” shall mean all applicable then-current standards relating to manufacturing practices for fine chemicals, intermediates, bulk products and/or finished pharmaceutical products, including (a) all applicable requirements detailed in the FDA’s current Good Manufacturing Practices regulations, U.S. 21 C.F.R. Parts 210 and 211 as may be amended and/or updated from time to time, and (b) all Applicable Laws promulgated by any Governmental Authority having jurisdiction over the Manufacture of the Product, as applicable.

 

1.21

Governmental Authority” shall mean the government entity having authority over the manufacturing, marketing, selling, pricing, reimbursement, testing, investigating or regulating of the Product, and all states or other political subdivisions thereof and supranational bodies applicable thereto, including, if applicable, the European Union, and all agencies, commissions, officials, courts or other instrumentalities of the foregoing.

 

1.22

Intellectual Property Rights ” shall mean patents, trademarks, service marks, trade names, design rights, copyrights (including rights in computer software), rights in know-how and any other intellectual property rights, including product specifications.

 

1.23

Label ” shall mean the approved display of written, printed or graphic matter either (a) on the immediate container, packaging or wrapper of an article or (b) inside a container, package or wrapper so long as it is easily legible through the outside container or wrapper.

 

 

 

3

 

 

 

1.24

Manufacture ” or “ Manufacturing ” shall mean all operations necessary or appropriate to make, sterilize, test, release, package, store, Label, supply, and ship the Product, in accordance with applicable packaging, controls industry standards, GMPs, Applicable Laws, and Specifications.

 

1.25

Party ” and “ Parties ” shall have the meaning set forth in the Recitals.

 

1.26

Product ” shall mean Supplier’s proprietary intravaginal culture device known as INVOcell, together with any applicable accessories, including, without limitation, the retention device (each of which is more specifically described on Appendix 3 ), together with all current and future formulations, versions, improvements, modifications and presentations of such product by Supplier and its Affiliates from time to time; it being understood that, for clarity, (i) the Product shall not include any active pharmaceutical ingredients and (ii) in the case of any Purchase Orders by Purchaser under this Agreement, such Product as Purchaser shall specify in writing in such Purchase Order.

 

1.27

Purchase Order ” shall have the meaning set forth in Section 3.3 .

 

1.28

Purchaser ” shall have the meaning set forth in the Recitals.

 

1.29

Quality Agreement ” shall mean that certain quality agreement entered into between the Parties in the form attached to the Distribution Agreement.

 

1.30

Regulatory Approval ” shall mean the approval and authorization of a Regulatory Authority that is necessary to Develop, Manufacture, distribute, sell, or market the Product.

 

1.31

Regulatory Authority ” shall mean a federal, national, multinational, state, provincial, or local regulatory agency, department, bureau, or other governmental entity with authority over the testing, Manufacture, use, storage, import, promotion, marketing, or sale of the Product.

 

1.32

Regulatory Materials ” shall mean regulatory applications, submissions, notifications, correspondences, registrations, device technical files or other filings made to or with, or other approvals granted by, a Regulatory Authority that are necessary or reasonably desirable in order to Develop, Manufacture, or otherwise Commercialize the Product.

 

1.33

Requirements ” shall mean, with respect to the Product, (a) the Specifications, (b) the Quality Agreement, (c) requirements of Applicable Law, (d) where applicable, compliance with GMP, and (e) as applicable, completed Labeling and packaging.

 

1.34

Specifications ” shall mean the specifications of the Product as described in (i) the corresponding Regulatory Materials for the Product and (ii) the Quality Agreement.

 

 

 

4

 

 

 

 

1.35

Step-In Supply Agreements ” shall mean those certain step-in supply agreements entered into between the Parties and each Third Party Manufacturer in the forms attached to the Distribution Agreement.

 

1.36

Supplier ” shall have the meaning set forth in the Recitals.

 

1.37

Third Party ” shall mean any person or entity other than Supplier, Purchaser, and their respective Affiliates and permitted successors and assigns.

 

1.38

Third Party Manufacturers ” shall mean the third party manufacturers set forth on Appendix 4 .

 

1.39

Third Party Manufacturing Agreements ” shall mean the third party manufacturing agreements with each of the Third Party Manufacturers, each of which have been made available to Purchaser and shall be subject to a Step-In Supply Agreement.

 

Article 2
Scope

 

2.1

Supplier shall Manufacture, sell, and exclusively supply the Product to Purchaser in the Territory specified in the Distribution Agreement, and Purchaser shall, subject to Section 6.1 , exclusively source the Product from Supplier, in accordance with the terms and conditions of this Agreement.

 

2.2

Supplier shall perform all its obligations under this Agreement in accordance with all Applicable Laws, and with all necessary skills and expertise, using adequate and properly qualified and experienced personnel. Purchaser also agrees to perform its obligations under this Agreement in accordance with the terms of this Section 2.2 .

 

2.3

Except as otherwise specified in this Agreement, Supplier shall be responsible for the procurement of all materials necessary to perform its obligations under this Agreement.

 

Article 3
Forecasts and Purchase Orders

 

3.1

On a quarterly basis, not less than thirty (30) days prior to the commencement of each calendar quarter, Purchaser shall provide Supplier with a non-binding rolling demand forecast for the Product for a period of twelve (12) months (the “ Forecast ”), of which the first three (3) months shall be binding (the “ Binding Forecast ”) and the remaining nine (9) months shall be determined by Purchaser in good faith but shall be non-binding and solely for planning purposes, except that, notwithstanding anything contained herein to the contrary, (i) the Purchaser agrees that its binding orders for Products for the calendar quarter reflected in each Forecast shall equal at least [*] of the amount of the average forecast orders for Products for the first (2) calendar quarters in the immediately preceding Forecast which were non-binding and (ii) the Supplier shall have no

 

 

 

5

 

 

 

 

 

binding obligation, in any calendar quarter, to deliver more than one hundred twenty percent (120%) of Purchaser’s forecasted orders for such calendar quarter as reflected in any previous Forecast covering such calendar quarter (the “ Capped Amount ”). The first Forecast is attached hereto as Appendix 3.1 .

 

3.2

Within ten (10) business days after receipt of the Forecast, Supplier shall confirm in writing Supplier’s capability of delivering the Product in accordance with the Binding Forecast, in the absence of which such capability shall be deemed to have been confirmed by Supplier. The Forecast will not be binding on Supplier to the extent it requires quantities in excess of the permitted increases contemplated by this Article 3 .

 

3.3

Written purchase orders for quantities of the Product (each, a “ Purchase Order ”) shall be sent to Supplier from Purchaser at least sixty (60) days before delivery, which Purchase Order shall also specify the delivery date (such date, the “ Delivery Date ”) and Delivery Point for such Purchase Order. Supplier is to confirm each order by means of a written order confirmation within seven (7) days after receipt of the Purchase Order, in the absence of which the Purchase Order shall be deemed to have been confirmed by Supplier. Supplier shall not reject Purchase Orders that are (i) in accordance with the Binding Forecast and/or (ii) consistent with the limitation on Supplier’s obligations set forth in Section 3.1 above. No Purchase Order shall modify any terms of this Agreement or contain terms inconsistent with the terms of this Agreement.

 

3.4

Purchaser may vary any Purchase Order by providing written notice to Supplier with Supplier consent (which consent shall not be unreasonably withheld, conditioned, or delayed) at any time up to and including one (1) month prior to the delivery; provided, however, that if Purchaser wishes to increase the ordered amount or to order amounts in excess of the Capped Amounts, Supplier shall only be obliged to use commercially reasonable efforts to timely facilitate such request.

 

3.5

Supplier shall maintain safety stock for the Product in the minimum amount of [*] of supply measured, as of any date, based on Purchaser’s most recently submitted Binding Forecast as calculated on an annualized basis.

 

3.6

In the event of any shortages of the Product, Supplier shall prioritize Manufacturing the Product for Purchaser before allocating the Product for any other use (including without limitation any permitted use of the Product by Supplier pursuant to Section 4.3 of the Distribution Agreement).

 

Article 4
Prices and Payments

 

4.1

The price set forth in Appendix 1 shall apply to the Product purchased by Purchaser. Supplier shall have the right on or after each anniversary of the Effective Date, upon not less than thirty (30) days’ advance written notice, to increase the price for the Product by an amount equal to the lower of (i) [*] or 

 

 

 

6

 

 

 

 

 

(ii) the percentage increase in the Consumer Price Index for all Urban Consumers for Medical Care Commodities for the twelve (12) month period ending three (3) months prior to such anniversary date. A reasonable quantity of the Product shall be made available to Purchaser for Clinical Trials for the Product and shall either be (a) provided by Supplier free of charge or (b) with advance notice to Supplier, deductible by Purchaser from any amounts due to Supplier under future Purchase Orders.

 

4.2

Invoices and payments by Purchaser or its Affiliates shall be in U.S. Dollars, and shall be payable within thirty (30) days from receipt of the relevant invoice. Any late payments for properly invoiced amounts shall earn interest at a rate per annum equal to [*] calculated on the number of days such payments are paid after the date such payments are due. For the avoidance of doubt, no interest shall accrue on any amounts disputed in good faith under Section 4.3 .

 

4.3

If within such thirty (30) day period, Purchaser disputes in good faith all or any portion of an invoice, Purchaser shall be required to pay only the amount not subject to good faith dispute, and, in such event, Purchaser shall notify Supplier of the amount and nature of the dispute. Any invoiced amounts not disputed within such thirty (30) day period shall be deemed to be accepted by Purchaser. The Parties will use good faith efforts to resolve any dispute regarding payments owed by Purchaser as soon as reasonably practicable, but in any event within thirty (30) days of Purchaser’s notice to Supplier of such dispute. Payment by Purchaser shall constitute acceptance of the Product for which payment is made but otherwise does not result in a waiver of any of its rights under this Agreement.

 

4.4

If the Supplier initiates any reasonable collection actions with respect to any past due invoice and prevails in such collection action, the Supplier shall be permitted to recover from Purchaser all Supplier’s out-of-pocket collection costs, including reasonable attorney’s fees.

 

4.5

In addition to all other rights and remedies of the Supplier hereunder, no earlier than twenty (20) business days following written notice from Supplier to Purchaser, Supplier may cease supplying Product hereunder during any period in which the Purchaser is delinquent in any obligation to pay for Products sold to it hereunder that is not being disputed by the Purchaser.

 

Article 5

Deliveries

 

5.1

Unless otherwise agreed between the Parties in writing, Supplier shall deliver Products on the Delivery Date to the single address designated by Purchaser [*], in accordance with the Quality Agreement and Purchaser’s written instructions, as shall be delivered by a carrier determined by INVO in its commercially reasonable judgment. Supplier shall include in each shipment an invoice and a Certificate of Analysis and shall, at the same time, provide Purchaser with copies thereof and any other documentation reasonably required to be delivered

 

 

 

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to Purchaser. Upon prior written notice to Supplier, Purchaser may make reasonable modifications to the packing specifications of the Product, and Purchaser shall provide Supplier with any necessary graphics, artwork, templates, or designs in connection with such modifications; it being understood and agreed that all such costs shall be borne solely by Supplier.

 

5.2

Supplier acknowledges that timely delivery of Product ordered in accordance with the terms of this Agreement is of the essence. Supplier’s delivery performance shall be measured based on the key performance indicator described in Appendix 2 , and the Parties shall review Supplier’s performance on a quarterly basis. Supplier shall compensate Purchaser for underperformance in accordance with Appendix 2 .

 

In the event Supplier becomes aware that it may for any reason not meet the confirmed Delivery Date, Supplier shall promptly and without delay inform Purchaser in writing and provide a new proposed delivery date which shall be as soon as practicable after the initially confirmed Delivery Date. In the event that urgent air shipment of Product is required to meet the Delivery Date confirmed by Supplier to Purchaser, Supplier shall bear all fees and expenses related to such air shipment.

 

Article 6
Step-In Supply Rights

 

6.1

If Supplier is unable to supply the Product in a timely manner for any reason, not caused by breach by Purchaser under this Agreement or by Force Majeure, and Supplier is unable to cure the deficiency or provide an alternate supplier within sixty (60) days following the requested Delivery Date, pursuant to the terms and conditions of the Step-In Supply Agreements, Purchaser shall have the right to order the Product directly from any Third Party Manufacturer as described in each applicable Step-In Supply Agreement. If Purchaser orders the Product directly under the Step-In Supply Agreement, Purchaser will pay to Supplier the positive difference, if any, between the then-existing Product Price and the price paid to the Third Party Manufacturer. After any exercise by Purchaser of purchased rights under a Step-In Supply Agreement, Purchaser will supply Product sales reports to Supplier on a quarterly basis for as long as the Purchaser continues to exercise its rights under the Step-In Supply Agreement. The Step-In Supply Agreement shall automatically terminate upon termination of the Distribution Agreement.

 

Article 7

Intellectual Property

 

7.1

Except as is necessary for the proper performance of this Agreement by the Parties, or as is set out herein, no license, express or implied, is granted by this Agreement by either Party to the other under any of their respective Intellectual Property Rights.

 

 

 

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7.2

Nothing in this Agreement shall transfer to Supplier any Intellectual Property Rights of Purchaser, unless explicitly stated herein. Supplier is not permitted to use any Intellectual Property Rights of Purchaser except to the extent required by Supplier to perform its obligations under this Agreement, and in such event such right shall terminate immediately upon termination or expiry of this Agreement for any reason. Supplier may not permit any Third Party (other than its Affiliates) to use or operate under any Intellectual Property Rights of Purchaser without Purchaser’s prior written approval.

 

7.3

Nothing in this Agreement shall transfer to Purchaser any Intellectual Property Rights of Supplier, unless explicitly stated herein. Purchaser is not permitted to use any Intellectual Property Rights of Supplier except to the extent required by Purchaser to perform its obligations under this Agreement (such rights to terminate immediately upon termination or expiry of this Agreement for any reason), or to use Product purchased from Supplier.

 

Article 8
Confidentiality

 

8.1

In the course of their activities pursuant to this Agreement, the Parties anticipate that they may disclose confidential information to one another and, accordingly, both Parties agree that the confidentiality provisions set forth in Article 12 of the Distribution Agreement shall apply as to such confidential information as if set forth in, and applicable to, this Agreement.

 

Article 9
Product Quality

 

9.1

Product supplied by Supplier to Purchaser pursuant to this Agreement shall be Manufactured in accordance with the Requirements and shall meet the agreed Specifications.

 

9.2

In the event that any quantity of Product delivered to Purchaser pursuant to this Agreement fails to satisfy the Requirements (any such quantity of Product, the “ Nonconforming Product ”), the Purchaser may reject the Nonconforming Product by giving notice to Supplier within thirty (30) days of Purchaser’s receipt of such Nonconforming Product, or, in the case of a latent defect, within thirty (30) days of Purchaser’s discovery of such latent defect. If timely notice of rejection is not provided, Purchaser shall be deemed to have accepted the Product supplied by Supplier to Purchaser pursuant to this Agreement. Any notice of rejection must specify the manner in which the Nonconforming Product failed to meet the Requirements or is otherwise defective. With respect to the Nonconforming Product, Purchaser may require Supplier, upon receipt of such written notification from Purchaser, to replace the Nonconforming Product as soon as is reasonable under the circumstances and pay all freight and duty with respect to such replacement. In the event of any dispute as to whether any quantity of Product delivered to Purchaser fails to meet the Requirements or is otherwise defective, and such dispute is not resolved by mutual agreement of 

 

 

 

9

 

 

 

 

 

the Parties within ten (10) days of Purchaser’s notice of rejection (the “ Product Replacement Period ”), such dispute shall be resolved by an independent testing organization acceptable to both Supplier and Purchaser. The Party against which the independent testing organization decides shall pay the costs of the assessment by the independent testing organization. The Nonconforming Product, or the defective or nonconforming portion thereof, will be disposed of by Purchaser or will be returned to Supplier, in each case, at Supplier’s expense and as instructed by Supplier. If Supplier fails to provide Purchaser written notice of such instruction within fifteen (15) days following the end of the Product Replacement Period (as extended for any review by any independent testing organization), Purchaser shall have the right, but not the obligation, to dispose of the Nonconforming Product at Supplier’s expense. For purposes of this Section 9.2 , “latent defect” shall mean a defect in the Product caused by Supplier that renders the Product not usable in the ordinary course of Purchaser’s business or not fit for its intended purpose and that is not identifiable by basic examination of such Product.

 

9.3

The Parties agree that all Product delivered to Purchaser shall at the time of delivery have a shelf life of [*] remaining unexpired. If the remaining shelf life is less than [*], Supplier shall deliver such Product only after written acceptance by Purchaser.

 

9.4

In the event of relevant complaints or a recall, Purchaser shall notify Supplier, and Supplier shall, at Purchaser’s request, supply Purchaser with all support and information reasonably required for the investigation of such complaints or recall as well as other material concerns with respect to the quality of Products. In the case of recall which is subject to indemnification by Supplier under Article 13 , Supplier will reimburse Purchaser for any out-of-pocket cost reasonably expended by Purchaser to effect the recall and the replacement of the Product without charge. Purchaser will be responsible for interfacing with the customer and promptly providing the customer information to Supplier. If such complaint or recall is the result of Purchaser’s failure of performance under this Agreement, Purchaser shall reimburse Supplier for costs incurred by Supplier in connection with such compliant or recall as and to the extent any Damages are the result of Purchaser’s failure of performance.

 

9.5

Each Party shall notify the other Party of any regulatory action taken anywhere concerning the safety of the Product within two (2) days of the action being taken and shall provide the other Party with complete information concerning the action. In the event of any recall for any reason, Supplier shall fully cooperate with Purchaser in accordance with Section 9.4 .

 

9.6

Supplier shall not (i) make any revisions to the Specifications with respect to the Product, (ii) except in accordance with the Third Party Manufacturing Agreements, outsource the Manufacturing of the Product or any portion thereof, (iii) make any changes to the Facility which requires revisions to the Regulatory Approval for the Product or related Regulatory Materials as required by Applicable Law; or (iv) make any changes to the Third Party Manufacturing 

 

 

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Agreements, in the case of (i), (ii), (iii), and (iv) above, without the prior written consent of Purchaser; provided, however, that such consent shall not be unreasonably withheld, conditioned, or delayed if such modification or change does not violate any Applicable Laws, adversely impact the performance of the Product, or adversely impact the price of the Product. In the event that any such modification or change requires notice to or approval from a Governmental Authority (i) such modification or change shall not be made until the approval is obtained or notice is given and (ii) the Parties agree to reasonably cooperate at their own expense to effectuate such notice or approval.

 

9.7

In the event that Purchaser requests a modification to the Specifications, Purchaser shall notify Supplier of the proposed modification, and Supplier shall consider the proposed modification in good faith, which shall include the consideration of the impact of such modification on the Product sold by Supplier to Purchaser and other Third Parties. If Purchaser is willing to pay for all costs related to the proposed modification (including without limitation obtaining necessary governmental approvals), the Supplier’s consent to such proposed modification shall not be unreasonably withheld or delayed.

 

Article 10
Audits

 

10.1

Purchaser, at its own cost, not more frequently than once each calendar year may carry out inspections of the premises, equipment and procedures of Supplier and/or any Third Party Manufacturer, as applicable, to ascertain that the Product is Manufactured in compliance with GMP and other regulations applicable to the Manufacture of Product under this Agreement, as well as the terms and conditions of this Agreement. Purchaser may either conduct such audit itself or with the assistance of an external expert or auditor bound by standard confidentiality obligations. Supplier and/or each Third Party Manufacturer, as applicable, warrants the auditors’ free access to the relevant premises and equipment. The Parties understand and agree that, in the event of any conflict between this Article 10 and the Quality Agreement, the terms and conditions of the Quality Agreement shall control.

 

10.2

Supplier and/or any Third Party Manufacturer, as applicable, having been informed at least fifteen (15) days before the audit is due to take place of the identity of the auditors, together with the exact times and dates and the form that it is to take, will offer all reasonable assistance in the conduct of the audit. Notwithstanding the aforesaid, where Purchaser has material concerns regarding the Product’s quality, Purchaser upon written notice to the Supplier detailing the basis for the material concerns may organize an audit and inform Supplier and/or any Third Party Manufacturer, as applicable, of its decision to do so with three (3) business days’ notice. Each such audit shall be conducted during Supplier’s and/or any Third Party Manufacturer’s, as applicable, normal business hours and while Product is being Manufactured. All persons performing the audit shall comply with the reasonable workplace rules of the facility being audited.

 

 

 

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10.3

After the completion of each audit, Purchaser shall send Supplier and/or any Third Party Manufacturer, as applicable, an audit report detailing any discrepancies identified. Supplier and/or any Third Party Manufacturer, as applicable, shall within thirty (30) days of receipt of the report, or where appropriate sooner, respond to Purchaser on the conclusions of the report, and shall, at its own expense, implement all corrective measures reasonably required to Manufacture and supply Product in accordance with the Requirements.

 

10.4

In the event that an audit or inspection is required by a Third Party, such as a Governmental Authority, concerning the Product, Purchaser, Supplier, and/or any Third Party Manufacturer, as applicable, agree to give each other such notice as is reasonably practicable of any such audit or inspection, and shall grant either Purchaser, Supplier, and/or any Third Party Manufacturer, as applicable, such access to data, personnel or facilities as may be reasonably necessary to comply with such audit or inspection.

 

10.5

Supplier and/or any Third Party Manufacturer, as applicable, shall promptly notify Purchaser of any FDA notices of violation or deficiency letters or other FDA inspection reports relating to the Product or facilities used by Supplier and/or any Third Party Manufacturer, as applicable, in the Manufacture of the Product. Supplier and/or any Third Party Manufacturer, as applicable, shall promptly deliver (within two (2) Business Days) to Purchaser all reports, data, information, and correspondence received from the FDA or any other Regulatory Authority with respect to the Product and any GMP issues relating thereto and any written response, information, data, or correspondence delivered by Supplier and/or any Third Party Manufacturer, as applicable, to the FDA or other Regulatory Authority with respect to the Product.

 

Article 11
Representations and Warranties

 

11.1

Supplier represents and warrants that:

 

 

i)

it has the corporate authority to enter into this Agreement and to perform its obligations hereunder;

 

 

ii)

it is not subject to any legal, contractual, or regulatory restriction, limitation, or conditions that may affect adversely its ability to perform hereunder;

 

 

iii)

it has the right to Manufacture and deliver Products to Purchaser as contemplated hereby;

 

 

iv)

the Product shall be Manufactured in conformity with the Requirements, and shall be free from material defects;

 

 

v)

the ingredients and materials used to Manufacture Product shall be in conformity with the Requirements and free from material defects;

 

 

 

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vi)

the equipment and Facility used to Manufacture the Product shall meet the Requirements and inspection criteria regarding the testing, packaging, and storage of the Product;

 

 

vii)

it has delivered to Purchaser true, correct, and complete copies of the Third Party Manufacturing Agreements; and

 

 

viii)

it will perform its obligations under this Agreement in accordance with all Applicable Laws.

 

No agent, employee or other representative of Supplier has the right to modify or expand Supplier’s warranty applicable to the Product or to make any representations or warranties other than those warranties set forth in this Section 11.1 , and if made, should not be relied upon by Purchaser and will be of no force or effect hereunder. Purchaser is solely responsible for making its own independent determination whether the Product and the Specifications will suit its needs and intended uses (even if Supplier is aware of Purchaser’s needs and intended uses), and Purchaser acknowledges that is does not rely upon, and will not rely upon any representations or warranty of Supplier, except for the warranties set forth in this Section 11.1 .

 

11.2

Purchaser represents and warrants that:

 

 

i)

it has the corporate authority to enter into this Agreement and to perform its obligations hereunder;

 

 

ii)

it is not subject to any legal, contractual, or regulatory restriction, limitation, or conditions that may affect adversely its ability to perform hereunder;

 

 

iii)

it will not directly or indirectly during the Term distribute, market, promote or offer for sale the Product outside of the Territory specified in the Distribution Agreement; and

 

 

iv)

it will perform its obligations under this Agreement in accordance with all Applicable Laws.

 

No agent, employee or other representative of Purchaser has the right to modify or expand Purchaser’s warranty applicable to the Product or to make any representations or warranties other than those warranties set forth in this Section 11.2 , and if made, should not be relied upon by Supplier and will be of no force or effect hereunder. Supplier acknowledges that it does not rely upon, and will not rely upon any representations or warranty of Purchaser, except for the warranties set forth in this Section 11.2 .

 

11.3

The Parties are not authorized to and shall not incur any liability for which the other Party may become directly, indirectly, or contingently liable, nor shall they, except as explicitly provided in this Agreement, hold themselves out as having authority to represent or act on behalf of the other Party in any capacity

 

 

 

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11.3

whatsoever, nor shall the relationship between the Parties be construed as a co-partnership, joint venture, or principal-agent relationship.

 

11.4

EACH OF THE PARTIES UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY OTHER ANCILLARY AGREEMENT, NEITHER PARTY MAKES ANY EXPRESS REPRESENTATIONS OR WARRANTIES, AND NO REPRESENTATION OR WARRANTY SHALL BE IMPLIED UNDER THIS AGREEMENT OR AT LAW, WITH RESPECT TO THIS AGREEMENT, THE PRODUCT, OR OTHER SERVICES HEREUNDER OR OTHERWISE, INCLUDING WARRANTIES OF HABITABILITY, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, NON-INFRINGEMENT, VALIDITY AND ENFORCEABILITY, AND ALL OTHER WARRANTIES ARISING UNDER THE UNIFORM COMMERCIAL CODE (OR SIMILAR FOREIGN LAWS).

 

Article 12
Insurance

 

12.1

Supplier and Purchaser shall carry commercially reasonable insurance to cover their respective activities and liabilities under this Agreement, and shall upon the other Party’s request supply documentation confirming the same.

 

Article 13
Liability and Indemnification

 

13.1

NOTWITHSTANDING THE FOREGOING, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES SUFFERED BY EITHER PARTY UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT THE DAMAGES RESULT FROM A PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR ARE PAYABLE IN CONNECTION WITH A PARTY’S INDEMNIFICATION OBLIGATIONS UNDER THIS Article 13 FOR LIABILITY OWED TO THIRD PARTIES.

 

13.2

Indemnification by Supplier.

 

 

(a)

Supplier shall indemnify and hold harmless Purchaser and its Affiliates and their respective directors, officers, employees and agents from and against any and all Damages, arising out of or resulting from any claim, demand, action, suit or proceeding brought by a Third Party (collectively, a “ Claim ”) based upon or arising from: (i) any bodily injury, death or property damage resulting from any actual or alleged defect in the Manufacture of the Product or from the failure of the Product to conform to the Requirements; (ii) any breach by Supplier of any of its representations, warranties or obligations under this Agreement; (iii) any violation by Supplier of Applicable Laws; or (iv)

 

 

 

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any gross negligence or willful act or omission of Supplier or its Affiliates or subcontractors or any of their respective employees or agents relating to the activities in connection with this Agreement.

 

 

(b)

Purchaser shall give Supplier prompt written notice of any Claim with respect to which Supplier’s indemnification obligations apply, but any delay or failure of such notice shall not excuse Supplier’s indemnification obligations except to the extent that Supplier’s legal position is actually and materially prejudiced thereby. Supplier shall have the right to assume and control the defense and settlement of any Claim; provided, however, that following conditions must be satisfied: (i) Supplier must provide to Purchaser written acknowledgement to Purchaser of Supplier’s obligation to indemnify Purchaser hereunder against Damages that may result from the Claim, and (ii) the Claim does not include damages other than monetary damages for which indemnity hereunder is available, (iii) the Claim does not relate to or arise in connection with any criminal proceeding, action, indictment, criminal allegation or investigation, and (iv) if requested by Purchaser, Supplier has reasonably demonstrated Supplier’s financial ability to pay for the defense of such Claim and to satisfy the full amount of any Damages that may result from such Claim. Purchaser shall have the right to participate in the defense of the Claim at its own expense, but in any event shall cooperate with Supplier in the investigation and defense of the Claim.

 

 

(c)

If Supplier is entitled to, and does, assume and control the defense and settlement of any Claim with respect to which its indemnification obligations apply, then Supplier shall not settle such Claim without Purchaser’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), unless (i) the sole relief provided in such settlement is monetary in nature and shall be paid in full by Supplier and (ii) such settlement does not include any finding or admission of a violation by Purchaser of any Applicable Laws or Third Party’s rights.

 

13.3

Indemnification by Purchaser.

 

 

(a)

Purchaser shall indemnify and hold harmless Supplier and its Affiliates and their respective directors, officers, employees and agents from and against any and all Damages, arising out of or resulting from any Claim based upon or arising from: (i) any breach by Purchaser of any of its representations, warranties or obligations under this Agreement; (ii) any violation by Purchaser of Applicable Laws; (iii) any Claim arising out of the marketing, service, distribution or alteration of the Product by Purchaser or its Affiliates (as and to the extent not involving any breach or indemnity obligation by Supplier under this Agreement or the Distribution Agreement) or (vi) any gross negligence or willful act or omission of Purchaser or its Affiliates or any of their respective 

 

 

 

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employees or agents relating to the activities in connection with this Agreement.

 

 

(b)

Supplier shall give Purchaser prompt written notice of any Claim with respect to which Purchaser’s indemnification obligations apply, but any delay or failure of such notice shall not excuse Purchaser’s indemnification obligations except to the extent that Purchaser’s legal position is actually and materially prejudiced thereby. Purchaser shall have the right to assume and control the defense and settlement of any such Claim; provided, however, that following conditions must be satisfied: (i) Purchaser must provide to Supplier written acknowledgement to Supplier of Purchaser’s obligation to indemnify Supplier hereunder against Damages that may result from the Claim, and (ii) the Claim does not include damages other than monetary damages for which indemnity hereunder is available, (iii) the Claim does not relate to or arise in connection with any criminal proceeding, action, indictment, criminal allegation or investigation, and (iv) if requested by Supplier, Purchaser has reasonably demonstrated Purchaser’s financial ability to pay for the defense of such Claim and to satisfy the full amount of any Damages that may result from such Claim. Supplier shall have the right to participate in the defense of the Claim at its own expense, but in any event shall cooperate with Purchaser in the investigation and defense of the Claim.

 

 

(c)

If Purchaser is entitled to, and does, assume and control the defense and settlement of any Claim with respect to which its indemnification obligations apply, then Purchaser shall not settle such Claim without Supplier’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), unless (i) the sole relief provided in such settlement is monetary in nature and shall be paid in full by Purchaser and (ii) such settlement does not include any finding or admission of a violation by Supplier of any Applicable Laws or Third Party’s rights.

 

Article 14
Term and Termination

 

14.1

This Agreement shall become effective on the Effective Date and shall remain in full force and effect until the termination of the Distribution Agreement.

 

14.2

Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination, and Articles Article 8 , Article 13 , Article 16 , and Article 17 shall survive termination of this Agreement.

 

14.3

In the event of any termination of this Agreement (except for any termination resulting from Purchaser’s default or the expiration of the Term of the Distribution Agreement), Purchaser shall have the right but not the obligation 

 

 

 

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to purchase all usable stock of Product which was Manufactured for Purchaser (based upon the pricing terms set forth in Article 4 ).

 

Article 15
Force Majeure

 

15.1

Neither Party shall be held liable or responsible to the other Party, nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party including but not limited to fires, earthquakes, floods, embargoes, wars, acts of war (whether war is declared or not), insurrections, riots, civil commotion, strikes, lockouts or other labor disturbances, transportation delays, inability to secure fuel, raw materials or key components necessary for the manufacture of the Product, or acts, omissions or delays in acting by any Governmental Authority or other party (“ Force Majeure ”).

 

Article 16
Governing Law and Dispute Resolution

 

16.1

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, excluding any rules of conflicts of laws that would apply the substantive laws of any other jurisdiction.   The Parties agree to exclude the applicability of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

 

16.2

Any dispute, controversy or claim arising out of or in relation to this Agreement, including the validity, invalidity, breach or termination thereof, shall be resolved by litigation as contemplated by Section 15.3 of the Distribution Agreement as if such provisions were set forth in, and applicable to, this Agreement.

 

Article 17
Miscellaneous

 

17.1

All notices, claims or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, when sent by facsimile or electronic transmission, or one (1) or two (2) business days after being sent to the recipient by reputable overnight or two (2) day courier service (charges prepaid), as applicable. Such notices, claims and other communications shall be sent to the addresses of Purchaser and Supplier first indicated above or to such other address or to the attention of such other Person as the recipient Party has specified by prior written notice to the sending Party. All notices, claims and other communications hereunder may be given by any other means (including telecopy), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient.

 

 

17

 

 

 

 

17.2

Neither Party shall assign its rights or obligations under the Agreement, in whole or in part, by operation of law or otherwise without the prior written consent of the other Party. Notwithstanding anything to the contrary contained herein, either Party may assign its rights and obligations under the Agreement to an Affiliate without the prior consent of the other Party; provided, that the assignor shall remain liable for all such obligations under this Agreement and provide written notice to the other Party of such assignment, and assignee agrees in writing to assume and be bound by the terms and conditions of this Agreement. Any purported assignment in violation of this Section shall be null and void. This Agreement is binding on and inures to the benefit of the Parties and their respective permitted successors and permitted assigns.

 

17.3

Except as required by Applicable Laws or as permitted below, Supplier agrees not to (i) disclose the identity of Purchaser, its Affiliates or their personnel as a customer, former or prospective customer of Supplier, (ii) disclose the existence and content of the Agreement provided hereunder, or (iii) use any trade name, trademark, service mark, logo or symbol of Purchaser or its Affiliates, in all such cases without the prior written approval of Purchaser. Supplier shall be permitted to disclose this Agreement to potential investors and lenders provided that they agree to maintain its terms as confidential.

 

17.4

Supplier shall not change, alter, or retain subcontractors or change or alter the Third Party Manufacturers or amend any agreements with such subcontractors or Third Party Manufacturers applicable to the Product being distributed in the Territory without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned, or delayed), unless change is required to comply with Applicable Laws.

 

17.5

No change, modification, extension, termination or waiver of this Agreement, or any of the provisions contained therein, shall be valid unless made in writing and signed by duly authorized representatives of both Parties.

 

17.6

This Agreement and the Appendices hereto, together with the Distribution Agreement embody the entire understanding between the Parties and supersede any prior understanding and agreements between and among them respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or written, between the Parties hereto relating to the subject matter of the Agreement which are not fully expressed herein.

 

17.7

Any of the provisions of the Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or enforceability of any of the terms of the Agreement in any other jurisdiction.

 

 

 

18

 

 

 

 

17.8

The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

 

17.9

INVO and Bio X Cell hereby covenant and agree that each shall be responsible for and shall cause its Affiliates to perform all of the obligations as the Supplier under this Agreement.

 

17.10

The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be exchanged in PDF or other electronic format.

 

 

 

[Signature Page Follows]

 

 

 

 

 

 

19

 

 

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives on the dates set forth below and effective as of the Effective Date.

 

 

 

FERRING INTERNATIONAL CENTER S.A.

 

 

 

By: _________________________

 

Name: ___________________

Title: ____________________

Date: ____________________

 

 

 

By: _________________________

 

Name: ___________________

Title: ____________________

Date: ____________________

 

 

 

INVO BIOSCIENCE, INC.

 

 

 

By: _________________________

 

Name: ___________________

Title: ____________________

Date: ____________________

 

 

 

BIO X CELL, INC.

 

 

 

By: _________________________

 

Name: ___________________

Title: ____________________

Date: ____________________

 

 

 

20

 

 

 

 

APPENDIX 1
PRODUCT PRICE

 

 

Product Prices

 

The price for the Product will be [*].

 

INVO Retention Device: [*].

 

 

Product samples: [*].

 

 

 

 

21

 

 

 

 

APPENDIX 2
KEY PERFORMANCE INDICATOR

 

On Time in Full (OTIF)

 

Purpose

 

To measure the percentage of order lines delivered On Time In Full to the agreed point of delivery by the confirmed delivery date.

 

Definition :                    

 

The number of order lines received On Time (with a +/- 5 calendar days tolerance compared to the confirmed delivery date) and In Full (volumes delivered as per the order confirmation – with a +/- 5% quantity tolerance per order line), as a percentage of the total number of order lines expected per month based on the confirmed delivery dates.

 

Unit of Measurement :

Percent (%)

 

OTIF Target:

 

99%

 

Review:

 

Quarterly for the preceding quarter

 

Compensation:

 

Supplier shall compensate Purchaser, by means of a credit note, as follows in the event the actual OTIF is below the OTIF Target:

 

OTIF %

% of Value of Orders Delivered in the Quarter concerned

Between 99 and 95

[*]

Between 94 and 85

[*]

Between 84 and 75

[*]

Below 74

[*]

 

If the actual OTIF in a quarter is between 100 and 99, Purchaser agrees to pay invoices for orders delivered in the subsequent quarter within 15 days instead of 30 days as per Section 4.2 .

 

 

 

22

 

 

 

 

APPENDIX 3
PRODUCT DESCRIPTION

 

 

 

The INVOcell is an Intravaginal Culture System. An intravaginal culture system is a prescription device intended for preparing, holding, and transferring human gametes or embryos during intravaginal in vitro fertilization or intravaginal culture procedures.

 

The INVOcell Culture Device (FG-002) is a two-part assembly enclosed in two separate packages. One package contains the inner chamber. The second package contains the top and bottom parts of the outer vessel.

 

The inner vessel holds culture medium, eggs and sperm, or ICSI fertilized embryos. In an INVOcell procedure, the inner vessel is placed into the outer vessel, which provides additional resistance to contamination. Following the loading of gametes or embryos, the INVOcell Culture Device is assembled and placed in the vaginal cavity for 72 hours (3-days) to allow for embryo development.

 

The INVOcell Retention Device (P-017) is a single-use, medical grade silicone device that is similar in shape and material to a diaphragm or menstrual cup. The Retention Device has holes to allow for natural drainage of vaginal fluids. The Retention Device is placed into the vaginal cavity with the INVOcell Culture Device to ensure that the INVOcell Culture Device is retained in the vaginal cavity for 72 hours (3-days). The retention device comes in 1 size: 70mm.

 

 

 

 

23

 

 

 

 

APPENDIX 3.1
FIRST FORECAST

 

 

 

[*]

[*]

[*]

[*]

INVOcell devices

[*]

[*]

[*]

[*]

Retention devices

[*]

[*]

[*]

[*]

INVOcell samples

[*]

 

 

 

 

 

 

 

 

24

 

 

 

 

 

APPENDIX 4
THIRD PARTY MANUFACTURERS

 

 

Vendor Type

Contact Information

Components or Service Provided

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

 

 

 

 

 

 

25

 

 

 

EXHIBIT 21.01

 

SUBSIDIARIES OF THE REGISTRANT

 

 

Bio X Cell, Inc.                                           Incorporated in Massachusetts

 

 

 

 

EXHIBIT 31.01

 

CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Kathleen Karloff, certify that:

 

1.     I have reviewed this Annual Report on Form 10-K of INVO Bioscience, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

Date: April 16, 2019

 

/s/ Kathleen Karloff

 

 

 

Kathleen Karloff

Chief and Principal Executive Officer

 

 

 

 

 

 

 

 

 

 

EXHIBIT 31.02

 

CERTIFICATION BY THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Robert J. Bowdring, certify that:

 

1.     I have reviewed this Annual Report on Form 10-K of INVO Bioscience, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control for financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.     As the registrant certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

Date: April 16, 2019

 

/s/ Robert J. Bowdring

 

 

 

Robert J. Bowdring

Treasurer and Acting Chief Financial Officer

 

 

 

 

 

 

 

EXHIBIT 32.01

 

Certification by the Principal Executive Officer Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, Kathleen Karloff, certify pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the Annual Report on Form 10-K of INVO Bioscience, Inc. (the “Company”) for the year ended December 31, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

 

Date: April 16, 2019

 

/s/ Kathleen Karloff

 

 

 

Kathleen Karloff Chairman,

 

 

 

Chief and Principal Executive Officer

 

 

A signed original copy of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

EXHIBIT 32.02

 

Certification by the Principal Financial Officer Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, Robert J. Bowdring, certify pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the Annual Report on Form 10-K of INVO Bioscience, Inc. (the “Company”) for the year ended December 31, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

 

Date: April 16, 2019

 

/s/ Robert J. Bowdring

 

 

 

Robert J. Bowdring

 

 

 

Acting Chief Financial Officer

 

 

A signed original copy of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.