IVMD surviving on cash handouts

Nasdaq-listed IVMD, which currently trades at $0.06 a share, recently won headlines for creating a pregnancy monitoring device which can detect that labour is about to begin. However, IVMD's most recent filings with the US Securities and Exchange Commission revealed that the company has recorded no revenues for the past nine months, has defaulted on a number of its loans and has more than $5.5m in net current liabilities with losses of $11.3m since inception.

Prior to July 2006, the company had funded its operations through a development agreement with Inverness Medical Innovations, an unrelated company, to create a device which measures blood coagulation. Although this contract was successfully completed, development funding ceased and IVMD will not enjoy any royalty income from the device until it is launched by IMI in the next 18 months.

With no other development work in hand and no new devices ready for market, IVMD announced in October 2006 that it would focus its resources on developing commercial projects, specialising in pregnancy and labour issues, immunoassay and skin flow blood measurement.

Foreseeing the coming cash shortfall, IVMD also attempted to arrange more than $500,000 of debenture financing, issuing more than 25.6 million new shares into an escrow account with Cornell Capital Partners, an American structured equity finance company which specialises in small-cap technology firms. However, in March 2006, the SEC declined to allow the company to register the new shares for the transaction.

For the past nine months, IVMD, which employs 10 people at its Inverness base, has been relying on unsecured advances from Westek, the Warrington-based IT distribution company co-founded by IVMD's president and chief executive, Graham Cooper.

IVMD has also been paying many of its smaller creditors in stock, rather than cash, while its management team and key contractors have gone without pay since October, 2006.

Although Westek has advanced more than $230,000 to IVMD, in addition to a prior loan of $1.8m, in May the company wrote to IVMD's board to say it was unwilling to continue making short-term advances unless other lenders made similar efforts.

Westek has written to IVMD's other lenders to propose that they either share the burden of funding daily operations, jointly convert their loans into common stock, or, if no agreement can be reached, that Westek purchase IVMD's operational divisions so the firm can avoid insolvency.

If Westek were to acquire IVMD's Inverness operations, it is likely that the US listing would be abandoned.

IVMD was created in July 2004, when Inverness-based Hall Effect Medical Products and Leeds-based Jopejo combined to engineer a reverse takeover of a listed Colorado company. Their operations were subsequently combined in Inverness and renamed In Veritas Medical Devices. Co-founders Brian Cameron and John Fuller became the first Scots to list a biotech company in the US but investors soon cooled towards IVMD. Debuting at $1.50 a share, the company quickly rose as high as $3.05 in late 2004.

However, the stock price slumped the following year as the company issued new shares to fund works in progress. Despite a brief spike earlier this year that coincided with renewed media interest in IVMD's labour detector, the stock price has remained below $0.20 for the past year.

Cameron resigned in March 2006, and Cooper replaced Fuller as chief executive in June, 2006. Fuller continues to work for IVMD as a non-executive strategic advisor. Cooper, a multi-millionaire serial technology investor, was an early angel investor in Jopejo, when that company began developing its labour prediction kits at Leeds University.

In its most recent SEC filing, IVMD said: "We are in default of several of our loan notes and creditors' continued forbearance cannot be assured. These factors, among others, raise substantial doubts about (our) ability to continue as a going concern."