FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A to N/A
COMMISSION FILE NUMBER: 0-26790
INNOVUS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0461856
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
2060 East 2100 South
SALT LAKE CITY, UTAH 84109
(Address of principal executive offices)
(801) 463-8200
(Issuer's telephone number)
Check whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The number of common shares outstanding at October 30, 1996: 5,084,831
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
Current Assets ----------- ------------
Cash and cash equivalents $ 39,294 $ 2,362,556
Accounts receivable 131,128 59,766
Receivable from stockholders 2,250,000 -
Prepaid expenses 91,402 43,738
Inventory 23,908 -
----------- ------------
Total Current Assets 2,535,732 2,466,060
----------- ------------
Property and Equipment
Land 374,431 374,431
Building 422,231 422,231
Computer and office equipment 847,383 791,113
Furniture and fixtures 115,858 92,460
----------- ------------
1,759,903 1,680,235
Less: Accumulated depreciation (440,477) (317,134)
----------- ------------
Net Property and Equipment 1,319,426 1,363,101
----------- ------------
Other Assets
Security deposits 13,738 34,816
Software development costs, net 743,128 886,153
----------- ------------
Net Other Assets 756,866 920,969
----------- ------------
Total Assets $ 4,612,024 $ 4,750,130
=========== ===========
See the accompanying notes to condensed consolidated financial statements.
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
Current Liabilities ------------ ------------
Notes payable - current portion $ 809,134 $ 10,447
Notes payable to related parties 231,128 -
Capital lease obligations -
current portion 21,971 18,539
Accounts payable 824,749 167,846
Accrued expenses 319,588 276,628
------------ ------------
Total Current Liabilities 2,206,570 473,460
------------ ------------
Long-Term Liabilities
Notes payable, net of current
portion 675,174 682,096
Capital lease obligations, net of
current portion 27,891 40,689
------------ ------------
Total Long-Term Liabilities 703,065 722,785
------------ ------------
Total Liabilities 2,909,635 1,196,245
------------ ------------
Stockholders' Equity
Preferred stock - $0.001 par value;
1,000,000 shares authorized;
120,000 shares designated as
Series A; no shares issue - -
55,000 designated as Series C;
45,000 and no shares issued and
outstanding, respectively 45 -
20,100 shares designated as Series D;
no shares issued - -
Common stock - $0.001 value; 15,000,000
shares authorized; 5,084,831 and
4,691,037 shares issued and
outstanding, respectively 5,084 4,691
Additional paid-in capital 12,491,878 9,278,792
Deferred compensation (18,663) 23,437)
Accumulated deficit (10,775,955) (5,706,161)
------------ ----------
Total Stockholders' Equity 1,702,389 3,553,885
------------ ----------
Total Liabilities and Stockholders' Equity $ 4,612,024 $4,750,130
============ ==========
See the accompanying notes to condensed consolidated financial statements.
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
1996 1995 1996 1995
------------ ---------- ------------ -----------
Revenues $ 185,749 $ 1,060 $ 398,849 $ 27,216
------------ ---------- ------------ -----------
Costs and Expenses
Costs of products and
services sold 103,904 767 191,387 26,050
Amortization 247,710 - 523,258 -
Product development 434,638 247,243 1,077,167 855,995
Selling and marketing 1,110,786 318,062 2,913,713 829,152
General and administrative 247,389 150,536 715,570 672,399
----------- ---------- ------------ ----------
Total Costs and
Expenses 2,144,427 716,608 5,421,095 2,383,596
----------- ---------- ------------ ----------
Loss From Operations (1,958,678) (715,548) (5,022,246) (2,356,380)
Interest income 2,204 40,941 23,119 51,039
Interest expense (27,009) (26,247) (70,667) (78,070)
----------- -------- ------------ -----------
Net Loss $(1,983,483) $(700,854) $(5,069,794) $(2,383,411)
=========== ========= =========== ===========
Loss Per Common Share $ (0.39) $ (0.16) $ (1.04) $ (0.69)
=========== ========= =========== ===========
Weighted Number of Shares
of Common Stock Used In
Per Share Calculation 5,084,831 4,275,503 4,856,243 3,477,598
========== ========= ========== ==========
See the accompanying notes to condensed consolidated financial statements.
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
------------ ------------
1996 1995
Cash Flows From Operating Activities ------------ ------------
Net loss $ (5,069,794) $ (2,383,411)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depreciation and amortization 646,601 84,624
Deferred compensation 4,775 -
Change in certain current assets
and liabilities:
Accounts receivable (71,362) 1,283
Inventory (23,908) 2,537
Accounts payable and accrued expenses 693,465 166,828
Other (47,664) (47,605)
------------ -----------
Net Cash Used For Operating Activities (3,867,887) (2,175,744)
------------ -----------
Cash Flows From Investing Activities
Acquisition of property and equipment (73,622) (448,294)
(Increase) decrease in security deposits 21,078 3,617
Increase in software development costs (380,233) (663,792)
------------ -----------
Net Cash Used For Investing Activities (432,777) (1,108,469)
------------ -----------
Cash Flows From Financing Activities
Proceeds from borrowings 1,423,775 -
Payments to reduce notes payable and
capital lease obligations (435,462) 1,157,717)
Collection of stockholder notes receivable - 130,250
Proceeds from issuance of preferred and
common stock, net of offering costs paid 989,089 7,575,021
----------- ----------
Net Cash Provided by Financing Activities 1,977,402 6,547,554
----------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents (2,323,262) 3,263,341
Cash and Cash Equivalents at Beginning
of Period 2,362,556 341,988
----------- ----------
Cash and Cash Equivalents at End of Period $ 39,294 $3,605,329
=========== ==========
Supplemental Cash Flow Information - Note 2
See the accompanying notes to condensed consolidated financial statements.
INNOVUS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments, consisting of normal
recurring adjustments except as disclosed herein for a fair
presentation of financial position and the results of operations.
The results of operations of the interim periods presented are not
necessarily indicative of the results to be expected for the remainder
of 1996.
The accompanying unaudited financial statements have been condensed
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and disclosures normally included in
financial statements have been condensed or omitted. These financial
statements should be read in connection with the Company's annual
financial statements included in the Company's annual report on Form
10-K, as of December 31, 1995.
NOTE 2--SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended September 30, 1996 and 1995, the Company
paid interest of $61,830 and $131,964, respectively. During the nine
months ended September 30, 1996, the Company issued 45,000 shares of
Series C preferred stock for $2,205,982 after netting offering costs.
The issuance of the preferred stock resulted in a receivable from the
shareholders. The receivable was collected in October, 1996.
NOTE 3--REVENUE AND COST RECOGNITION
Revenues from fixed-price software programming contracts are recognized
on the percentage-of-completion method, measured by the percentage of
labor hours incurred to date to estimated total labor hours for each
contract. This method is used because management considers expended
labor hours to be the best available measure of progress on these
contracts. Contract costs include all direct labor costs and those
indirect costs related to contract performance. Selling, general,
and administrative costs are charged to expense as incurred. Provision
for estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in contract performance,
conditions and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements may result
in revisions to costs and income and are recognized in the period in
which the revisions are determined. Included in accounts receivable
are unbilled amounts representing costs and estimated earnings in
excess of billings on uncompleted contracts. Included in accrued
expenses are billed amounts in excess of costs and estimated earnings.
NOTE 4--NON-QUALIFIED STOCK WARRANTS AND OPTIONS
During 1996, warrants for 312,500 shares of common stock were issued in
connection with the issuance of $625,000 of promissory notes to related
parties and stockholders. The warrants are exercisable at $5.50 per
share; the market value of the common stock on the date the warrants
were issued.
The warrants are exercisable through September 2002; however, warrants for
156,250 shares are exercisable only if the lenders allow the Company to
reborrow, through March 31, 1997, any amounts that the Company prepays
under the terms of the notes.
The Company granted options during 1996 for the purchase of 379,688 shares
of common stock with exercise prices ranging rom $7.50 to $8.25 per share.
The options are exercisable through August 2001. Of these, options for
200,000 shares granted to the new President and Chief Executive Officer,
and options for 50,000 shares granted to two outside directors were
repriced in September 1996 from $8.00 per share to the quoted market value
of $5.00 on the dated repriced. Options for 400,000 shares granted in
February 1995, which were exercisable at $7.00 for a period from February
1995 through February 2000, were also repriced in September 1996 to the
quoted market value of $5.00 per share. Compensation relating to options
granted in March 1996, to purchase 75,000 shares at $7.50 per share, in
the amount of $23,437 has been deferred and is being recognized over the
vesting period which is through May 1999. These options were repriced on
October 31, 1996 to the quoted market value of $4.50 per share. No
compensation was required to be recognized as a result of these
repricings.
Warrants for 73,750 shares of common stock, which were exercisable at
$0.25 per share, were voluntarily surrendered by an officer and principal
shareholder and were canceled during August 1996.
Warrants and options for 253,332 shares of common stock were exercised
during 1996 at $0.25 per share. At October 31, 1996 non-qualified
warrants and options for 1,252,813 shares of common stocks, exercisable
at prices ranging from $0.25 through $8.25, were outstanding, of which
warrants and options for 584,688 shares were exercisable at that date.
NOTE 5--QUALIFIED STOCK OPTIONS
During 1996, options for 165,000 shares of common stock were granted
under the Omnibus Stock Option Plan which are exercisable at $5.50
through $13.00 per share. Options for 890,972 shares of common stock,
exercisable at prices ranging from $0.51 through $10.25 were outstanding
at October 31, 1996, of which options for 303,102 shares were exercisable
at that date. During 1996, options for 520,202 shares were surrendered
or allowed to expire by officers and employees, and canceled of which
361,952 had exercise prices from $0.25 to $0.51 per shares.
NOTE 6--STOCKHOLDERS' EQUITY
During April and May 1996, common stock purchase warrants and options
were exercised resulting in the Company issuing 259,794 shares of
common stock for $67,629. Included in these proceeds was the
conversion of $18,451 of notes payable as payment upon the exercise
of options for 72,644 shares. In October 1996, options for 117,360
shares of common stock were exercised for $36,675. Payment of $27,305
thereof was made by a principal shareholder surrendering 18,200 shares
of common stock valued at $1.50 per share. The shareholder also
surrendered 33,500 shares of common stock for which the Company made
no payment.
In June 1996, the Company issued 134,000 shares of common stock for
$939,912, net of $65,088 of offering costs. In September 1996, 45,000
shares of Series C Convertible Preferred Stock were issued in a private
placement offering for $2,205,982, net of $44,018 of offering costs.
In addition, 10,000 Series C Preferred Shares were issued for $492,500,
net of offering costs of $7,500 in November 1996.
There are 1,000,000 shares of preferred stock, par value $0.001 per
share, authorized of which 120,000 shares have been designated Series A
preferred stock (no shares outstanding) and 55,000 shares have been
designated Series C preferred stock. The Series C Preferred Stock has a
stated value of $50.00 per share. The holders of the Series C
Preferred Stock are entitled to dividends computed at an annual rate
of 5 percent of the stated value, or $2.50 per share per annum. The
dividends are cumulative and are payable at the time of conversion
or redemption (unless earlier declared and paid) in cash or shares
of common stock. The annual dividend accrual for the 55,000 shares
of Series C Preferred Stock is $137,500. The Preferred shareholders
normally have no voting rights and a liquidation preference equal to
the stated value of the preferred stock plus accrued but unpaid
dividends.
The Series C Preferred Stock is convertible into shares of common
stock at the option of the preferred shareholders the earlier of
January 13, 1997 or the date a registration statement relating to the
conversion is declared effective by the Securities and Exchange
Commission. The Company may call for conversion of the Preferred
Stock into common stock after September 30, 1997 if a registration
statement has been declared effective. The conversion ratio shall
be the lessor of $5.45 per share or 75% of the average per share market
value of the common stock for five trading days immediately preceding
the conversion date.
In connection with the Series C Preferred Stock private placement
offering, the holder of 134,000 shares of common stock issued in June
1996, as mentioned above, agreed to convert those shares of common
stock into 20,100 shares of newly authorized Series D convertible
preferred stock. The Series D Preferred shares also have a par value
of $0.001, a stated value of $50.00 per share, a 5 percent cumulative
dividend, based on the stated value, and a liquidation preference which
is senior to the common stock but junior to the Series C Preferred.
The holders of the Series D Preferred shares may convert them into
shares of common stock at the rate of one common share for each $4.00
originally invested, or approximately 12.5 common shares per share of
Series D Preferred stock. The Company is entitled to require conversion
of the Series D Preferred after one year from the original issuance
date. The annual dividend requirement for the Series D Preferred Stock
will be $52,750.
NOTE 7--NOTES PAYABLE
In May 1996, the Company entered into a line of credit with a bank,
with a base amount of $500,000 with an additional $1,000,000, available
to borrow subject to qualifying collateral. Interest is computed at
prime plus 1-1/2% (10% at September 30, 1996), payable monthly, with
maturity in one year and is secured by substantially all of the
Company's assets, including its inventory, accounts receivable and
technology. At September 30, 1996, the Company had drawn $453,895
under the base amount portion, which was repaid in October, 1996.
In September 1996, the Company entered into bridge financing
agreements, which authorized the Company to borrow up to $625,000,
from certain related parties and stockholders. The notes bear
interest at prime plus 1% (9.5% at September 30, 1996) and are
subordinate to the security interest of the bank in the software
and technology of the Company. In the event the Company prepays
the notes prior to March 31, 1997 the Company has the right to
demand return of any principal amount of any prepayment, which
demand may be made on the holders of the notes. The financing
was accomplished by issuing units which included the issuance of
warrants for the purchase of 312,500 shares of common stock at
$5.50 per share. Inasmuch as the quoted market value of the
common stock was equal to the exercise price of the options on
the date the units were issued, none of the proceeds of the
financing have been assigned to the warrants. At September 30,
1996 the Company had drawn $575,000 under these financing agreements,
of which $200,000 was repaid in October 1996. In October 1996 the
Company borrowed and repaid another $50,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion should be read in conjunction with the
financial statements and notes thereto found elsewhere herein.
The discussion assumes that the reader is familiar with or has
access to the Company's financial statement for the year ended
December 31, 1995 and the notes thereto found in the Company's
Form 10-K.
Innovus operated as a value added reseller of multimedia
presentations and kiosks between 1987 and 1995. Commencing
in July, 1993, Innovus began hiring additional staff and
otherwise incurring additional expense to begin a full scale
revision of its multimedia software to address the
Windows business software market. Sales of the initial
commercial release version of the software to value added
resellers (VARs) began in March, 1996. The substantial increase
in expenses related to software development and marketing as the
software reached commercial release affects the comparability of
1996 to prior periods.
Results of Operations
Innovus Corporation (the "Company") provides a powerful, yet easy
to use software tool, INNOVUS Multimedia, for creating interactive
business multimedia applications and presentations. Initial sales
of INNOVUS Multimedia to small value added resellers (VARs) and
corporate information services departments began in late March,
1996. In October, 1996 the Company announced an aggressive
repricing and repositioning of the software to appeal to the
individual desktop PC user. Following the re-pricing Egghead
Software agreed to sell the software through its retail outlets.
The software is also being wholesaled by Tech Data, the second
largest distributor of computer software and hardware in the world,
and corporate resellers such as Software Spectrum, Software House
International, Stream and ASAP Software Express. The Company's
products are also be offered through mail order catalog companies
such as MicroWarehouse, PC Connection, and Programmers Paradise.
The Company has also established a site on the World Wide Web for
direct sales of the software. In addition the INNOVUS Multimedia
software tool, the Company currently offers two application template
packages for specific applications. Additional application templates
and business-oriented media packages are scheduled for release during
the remainder of 1996.
During the three and nine months ended September 30, 1996, the
Company had revenues of $185,749 and $398,849 respectively, compared
to $1,060 and $27,216 for the comparable periods of the prior year.
Approximately 35% of the 1996 revenues was generated by shrinkwrap
software sales, approximately 54% was generated by sales of the
INNOVUS Multimedia software tool combined with customized service
or content production and the balance was generated by training and
related sales. The sale of multimedia information kiosks, which had
accounted for all revenue in the 1995 periods, did not materially
contribute to 1996 revenue.
The Company utilizes the percentage of completion method of
accounting for revenues from fixed-price software servicing
contracts. Recognition of revenue for accounting purposes may differ
from progress billings under the contract. Changes in contract
performance, conditions, and estimated profitability, including
those arising from contract penalty provisions, and final contract
settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
Although the Company does not have a history of fixed price
service contracts, management believes that the Company's
experience with multimedia presentation and kiosk contracts will
enable management to accurately estimate the costs and labor
requirements for service contracts.
The costs of products and services sold in the three and nine
months ended September 30, 1996 were $103,904 or 56% of sales
and $191,387 or 48% of sales, respectively. During the comparable
periods of the prior year, such costs for the presentation and
kiosk business were $767 or 72% of sales and $26,050 or 96% of
sales. The gross margins for 1996 and 1995 are not directly
comparable due to the change in the nature of the revenue stream.
The Company has established its pricing structure for business
multimedia software to appeal to the individual power user. As a
result of this agressive price decrease announced in October 1996,
management expects to increase software unit sales and total
revenues. The effect of the new pricing will not be reflected until
the fourth quarter.
Selling and marketing expenses increased to $1,110,786 in the
three months ended September 30, 1996 compared to $318,062 in 1995.
For the nine month periods, selling and marketing expenses increased
to $2,913,713 in 1996 compared to $829,152 in 1995. These increased
expenditures reflect increased efforts toward marketing of the
general release of the software. Although marketing expenses
currently exceed revenue, the Company believes that continued
aggressive marketing efforts are necessary as the Company promotes
its positioning of INNOVUS Multimedia to the individual desktop
PC user.
Following completion of the commercial version of the software,
product development expenditures have continued for application
templates to be used with the software tool and preparations for
future updates to the software tool. For the quarter ended
September 30, 1996, product development costs were $434,638,
compared to $247,243 of such expenditures in the comparable
quarter of 1995. Certain software development costs were capitalized
through the second quarter of 1996 but no amounts were capitalized
during the third quarter of 1996. Therefore, these expenditures
are not directly comparable. Product development for the nine
months ended September 30, 1996 increased to $1,077,167 from
$855,995 in 1995. In the three and nine months ended September 30,
1996, $247,710 and $523,258 of capitalized software development
costs were amortized, respectively. The Company anticipates
continued development costs for future versions of INNOVUS
Multimedia, as well as the addition and completion of other
QuickStart templates and applications providing users with
additional products enhancing INNOVUS Multimedia.
The Company incurred losses from operations of $1,958,678 and
$715,548 during the three month periods ended September 30, 1996
and 1995, respectively. For the comparable nine month periods,
the losses from operations were $5,022,246 and $2,356,380,
respectively.
The Company icurred net interest expense for the quarter and nine
months ended September 30, 1996 of $24,805 and $47,548,
respectively. Net interest income for the comparable quarter of
1995 was $14,694 and net interest expense for the comparable nine
month period was $27,031.
The Company sustained a net loss of $1,983,483 for the third
quarter of 1996 compared to a loss of $700,854 for the third
quarter of 1995. The net loss for the nine month periods ended
September 30, 1996 and 1995 was $5,069,794 and $2,383,412,
respectively. On a per share basis, the net loss for the three
and nine months ended September 30, 1996 was $0.39 and $1.04,
respectively, compared to net losses of $0.16 and $0.69 for the
comparable periods of the prior year.
Forward Looking Information
Statements regarding the company's expectations as to future sales
of software, future capital resources and certain other statements
presented in this Form 10-Q constitute forward looking information
within the meaning of the Private Securities Litigation Reform Act
of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge
of its business and operations, there can be no assurance that
actual results will not differ materially from expectations. In
addition to matters affecting the Company's industry generally,
factors which could cause actual results to differ from expectations
include, but are not limited to (i) sales of the Company's software
may never rise to the level of profitability; (ii) due to the
rapidly changing and competitive nature of the industry, competitors
may introduce new products with significant competitive advantages
over the Company's products; and (iii) the Company may not have
sufficient resources, including any future financing it is able to
obtain, to sustain marketing and other operations.
Liquidity and Capital Resources
Following the commercial release of the software, the Company
has been dedicating all available funds to INNOVUS Multimedia
marketing and support. Marketing expenses have exceeded software
revenue and the Company's liquid resources have been depleted as
a result. At September 30, 1996, the Company had total current
assets of $2,535,732 and working capital (current assets in excess
of current liabilities) of $329,162. This reflects a $2,250,000
receivable from investors in a private placement which was
collected in October 1996. During the nine months ended September
30, 1996, the Company incurred a net loss of $5,069,794 and had
negative cash flow from operations of $3,867,887. The Company
anticipates that it will incur additional negative operating
cash flow until such time as software sales and service revenues
increase substantially. The Company does not anticipate that
software sales and service revenues will produce positive cash
flow until at least 1997. The Company is continuing a transition
from a software development company to a sales and marketing model.
The future rate of revenue generation cannot be predicted with
accuracy at this stage of the Company's growth.
The Company cannot sustain its current rate of negative cash flows
from operations and software development without additional sources
of cash. In the long term, needed cash must be generated by
operations in order for the Company to sustain itself. The
Company previously deferred a public equity funding scheduled
for June of this year due to adverse financial market conditions.
At the end of the third quarter the Company raised $2,250,000
(prior to deduction of offering costs) from accredited investors
and an additional $500,000 of gross proceeds were received from
one of these investors in November, 1996. Management is currently
evaluating several options for the sale of additional equity.
There can be no assurance that the terms of any new financing will
be favorable to the Company. However, based upon the Company's
past experience in the capital markets, management believes it is
likely that the Company will be able to raise sufficient capital
to sustain its operations as the Company continues to grow.
As of May 2, 1996 the Company obtained a line of credit from a
commercial lending bank pursuant to a Loan and Security Agreement.
Provided that the terms of the agreement are met, the Company is
allowed to borrow up to $500,000 without regard to the value of
specific assets. Borrowing above this base amount, up to an
additional $1,000,000, is allowed only to the extent that the
loan balance is less than 75% of the Company's eligible accounts
receivable. Advances under the line bear interest at 1.5% per
annum above the Bank's prime rate. Advances under the line are
due no later than May 2, 1997. The line is secured by substantially
all of the Company's assets, including its inventory, accounts
receivable, and technology. The Company is prohibited from certain
corporate transactions, such as the payment of dividends and
redemption of the Company's equity securities, while the line
is outstanding without the lender's approval. The balance owed
to the Bank was $453,895 at September 30, 1996. At September 30,
1996 the Company owed approximately $575,000 pursuant to bridge
financing notes to certain affiliates and third party investors.
The bank line was repaid and $200,000 of the bridge notes were
repaid in October 1996, but may be drawn again as the need arises.
At September 30, 1996, the Company had long term liabilities of
$703,065, consisting primarily of the mortgage on the Company's
building. Although the Company will require additional funds to
sustain operations, the Company did not have any other significant
capital commitments at September 30, 1996.
PART II
Item 2 - Changes in Securities
The Company's Certificate of Incorporation authorizes 1,000,000
shares of Preferred Stock. The Board of Directors has the power
to divide the Preferred Stock into series and to designate the
relative rights and preferences of each series. As described in
the Form 8-K dated October 7, 1996, the Board of Directors has
designated 55,000 shares of the Preferred Stock as the Series C
Convertible Preferred Stock and 20,100 shares as the Series D
Convertible Preferred Stock.
The Series C Preferred Stock and the Series D Preferred Stock
are senior to the Common Stock with respect to payment of dividends
and distributions on liquidation. The Company is restricted in its
ability to pay dividends on the Common Stock while the Series C
Preferred Stock or the Series D Preferred Stock is outstanding.
Neither the Series C nor Series D Preferred Stock are entitled to
vote except on those matters for which Delaware law requires a
class vote. Reference is made to the Certificates of Designation
of the Series C Preferred Stock and Series D Preferred Stock
which are filed as exhibits to the Form 8-K described below.
Item 6 - Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1996. Subsequent to the end of the quarter,
the Company filed a Form 8-K dated October 7, 1996 describing the
private placement of Series C Preferred Stock and Series D Preferred
Stock and a Form 8-K dated November 7, 1996 describing a change in
certifying accountant.
SIGNATURES
In accordance with the requirements 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.
INNOVUS CORPORATION
Date: November 13, 1996 By /s/
Terry Haas
Chief Executive Officer
By /s/
David Mock
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements as of Septebmer 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 39,294
<SECURITIES> 0
<RECEIVABLES> 2,381,128
<ALLOWANCES> 0
<INVENTORY> 23,908
<CURRENT-ASSETS> 2,535,732
<PP&E> 1,759,903
<DEPRECIATION> 440,477
<TOTAL-ASSETS> 4,612,024
<CURRENT-LIABILITIES> 2,206,570
<BONDS> 703,065
0
2,205,982
<COMMON> 10,291,025
<OTHER-SE> (18,663)
<TOTAL-LIABILITY-AND-EQUITY> 4,612,024
<SALES> 398,849
<TOTAL-REVENUES> 398,849
<CGS> 191,387
<TOTAL-COSTS> 191,387
<OTHER-EXPENSES> 5,229,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,548
<INCOME-PRETAX> (5,069,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,069,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,069,794)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> 0
</TABLE>
