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: JUNE 30, 1996
OR
[ ] TRANSITION REPORT OR 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
2060 East 2100 South
SALT LAKE CITY, UTAH 94109
(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 Section 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 June 30, 1996: 5,084,831
<PAGE>
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1996 1995
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 25,813 $ 2,362,556
Accounts receivable 83,640 59,766
Receivable from stockholders 985,000 -
Prepaid expenses 20,226 43,738
Inventory 28,919 -
--------- ---------
TOTAL CURRENT ASSETS 1,143,598 2,466,060
--------- ---------
PROPERTY AND EQUIPMENT
Land 374,431 374,431
Building 422,231 422,231
Computer and office equipment 828,456 791,113
Furniture and fixtures 115,858 92,460
--------- ---------
1,740,976 1,680,235
Less: Accumulated depreciation (399,242) (317,134)
--------- ---------
NET PROPERTY AND EQUIPMENT 1,341,734 1,363,101
--------- ---------
OTHER ASSETS
Security deposits 77,497 34,816
Software development costs 990,838 886,153
--------- ---------
NET OTHER ASSETS 1,068,335 920,969
--------- ---------
TOTAL ASSETS 3,553,667 4,750,130
========= =========
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
1996 1995
----------- ------------
CURRENT LIABILITIES
Notes payable-current portion $ 398,208 $ 10,447
Notes payable to related parties 181,548 -
Capital lease obligations-current portion 21,242 18,539
Accounts payable 465,868 167,846
Accrued expenses 299,910 276,628
--------- ---------
TOTAL CURRENT LIABILITIES 1,366,776 473,460
--------- ---------
LONG-TERM LIABILITIES
Notes payable, net of current portion 676,941 682,096
Capital lease obligations, net of
current portion 33,641 40,689
--------- ---------
TOTAL LONG-TERM LIABILITIES 710,582 722,785
--------- ---------
TOTAL LIABILITIES 2,077,358 1,196,245
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - $0.001 par value; 1,000,000
shares authorized; 120,000 shares designated
as Series A; no shares issued and
outstanding, respectively - -
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 10,285,941 9,278,792
Deferred compensation (22,244) (23,437)
Accumulated deficit (8,792,472) (5,706,161)
--------- ---------
TOTAL STOCKHOLDERS EQUITY (Deficit) 1,476,309 3,553,885
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 3,553,667 $ 4,750,130
========== =========
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30 Ended June 30
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUES $ 156,638 $ 5,976 $ 213,100 $ 26,156
COSTS AND EXPENSES
Costs of products
and services sold 68,460 5,259 87,483 25,283
Amortization 198,850 - 275,548 -
Product development 277,690 281,848 642,529 608,752
Selling and marketing 898,415 298,054 1,802,927 511,090
General and administrative 261,403 194,759 468,181 521,863
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 1,704,818 779,920 3,276,668 1,666,988
--------- --------- --------- ---------
LOSS FROM OPERATIONS (1,548,180) (773,944) (3,063,568) (1,640,832)
INTEREST INCOME 3,632 5,320 20,915 10,097
INTEREST EXPENSE (20,911) (32,370) (43,658) (51,823)
--------- --------- --------- ---------
NET LOSS $(1,565,459) $ (800,994) $(3,086,311) $(1,682,558)
========== ========= ========== ==========
LOSS PER COMMON SHARE $ (0.33) $ (0.25) $ (0.65) $ (0.55)
========= ========= ========= =========
WEIGHTED NUMBER OF SHARES
OF COMMON STOCK USED IN
PER SHARE CALCULATION 4,790,349 3,152,187 4,740,693 3,072,032
========= ========= ========= =========
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months end June 30,
1996 1995
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,086,311) $ (1,682,558)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 357,656 46,624
Deferred compensation 1,194 -
Change in current assets and liabilities:
Accounts receivable (23,874) 2,562
Inventory (28,919) 17,782
Accounts payable and accrued expenses 358,924 322,126
Other 23,512 (4,277)
--------- ---------
NET CASH USED FOR OPERATING ACTIVITIES (2,397,818) (1,297,741)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (54,695) (293,496)
(Increase) decrease in security deposits (42,681) 8,431
Increase in software development costs (380,233) (440,375)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (477,609) (725,440)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 575,300 150,000
Payments to reduce notes payable and capital
lease obligations (40,705) (146,685)
Collection of stockholder notes receivable - 126,113
Proceeds from issuance of preferred and
common stock, net of offering costs paid 4,089 1,643,740
Increase in deferred offering costs - (70,625)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 538,684 1,702,543
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,336,743) (320,638)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,362,556 341,988
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,813 $ 21,350
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION - NOTE 2
See the accompanying notes to condensed consolidated financial statements.
INNOVUS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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 six months ended June 30, 1996 and 1995, the Company paid interest
of $36,386 and $62,796, respectively. During the six months ended June 30,
1996, the Company issued 134,000 shares of common stock for $939,912 after
netting deferred offering costs, including preparation for a public offering.
The issuance of stock resulted in a receivable from the shareholders. The
receivable was collected in July 1996.
NOTE 3 -- STOCK OPTIONS
In August 1996, the Board of Directors granted options for a total 50,000
shares of common stock, with vesting over two years, to two outside directors
and granted options for 200,000 shares of common stock to the new president
and chief executive officer, who assumed office in July 1996. Vesting is
over three years.
In August 1996, an officer and principal shareholder voluntarily surrendered
to the Company options for 122,566 shares of common stock with exercise
prices from $0.254 to $3.00 per share.
NOTE 4 -- NOTES PAYABLE
In May 1996, the Company entered into a $1,500,000 line of credit with a
bank. Interest is computed at prime plus 1.5%, payable monthly, with
maturity in one year. At June 30, 1996 the Company had drawn $375,300 under
the line of credit.
In May 1996, an officer and principal stockholder of the Company, had
advanced to the Company $181,548, of which $50,421 was repaid in July, 1996.
Interest is computed at nine percent.
<PAGE>
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
statements 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 authoring software to address the Windows
business software market. General sales of the initial commercial release
version of the software 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
The Company's core software product, INNOVUS Multimedia 2.1, was released for
commercial sale in late March, 1996. Initial sales were directly to small
value added resellers (VARs) and corporate information services departments.
In July of this year, the Company signed a distribution agreement with Tech
Data, the second largest distributor of computer software and hardware in the
world. Under the terms of the agreement, Tech Data immediately began
distribution of INNOVUS software products including INNOVUS Multimedia and
QuickStart Notes, a Lotus Notes training application. In addition, the
Company has entered into marketing agreements with the following corporate
resellers: Software Spectrum, Software House International, Stream and ASAP
Software Express. The Company's product will also be offered through
premiere mail order catalog companies such as MicroWarehouse, PC Connection,
and Programmers Paradise. This distributed channel approach allows the
Company to leverage thousands of channel sales personnel that will be trained
and qualified to sell Innovus products to their customers. For example, Tech
Data's seven hundred sales reps sell to more than 50,000 VARs and retail
dealers. Management believes that this broader distribution model will
provide much quicker access to target customers buying desktop business
tools than direct sales to VARs alone.
During the three and six months ended June 30, 1996, the Company had revenues
of $156,638 and $213,100 respectively, compared to $5,976 and $26,156 for the
comparable periods of the prior year. This increase reflects the initial
acceptance of Innovus tools by the VAR community prior to mass distribution.
The sale of multimedia presentations and information kiosks, which had
accounted for all revenue in the 1995 periods, did not materially contribute
to 1996 revenue.
The costs of products and services sold in the three and six months ended
June 30, 1996 were $68,460 or 44% of sales and $87,483 or 41% of sales,
respectively. During the comparable periods of the prior year, such costs
for the presentation and kiosk business were $5,259 or 88% of sales and
$25,283 or 97% of sales. These improved percentages are difficult to compare
due to the change in the nature of the revenue stream. The Company is now in
the process of building its revenue model from software and associated
product sales as well as service revenue, and has discontinued the kiosk
business.
Selling and marketing expenses increased to $898,415 in the three months
ended June 30, 1996 compared to $298,054 in 1995. For the six month periods,
selling and marketing expenses increased to $1,802,927 in 1996 compared to
$511,090 in 1995. These increased expenditures reflect the first quarter
support of the VAR release of INNOVUS 2.0 and the subsequent marketing, trade
show, and one-time costs for building a direct sales force. Marketing
expenses currently exceed revenues and the Company believes that continued
aggressive marketing efforts are necessary as the Company prepares for its
fall promotional campaign of INNOVUS Multimedia 2.1 in the distributed
channel model through Tech Data, corporate resellers, and catalog marketers.
Following completion of the commercial version of the software, product
expenditures have primarily consisted of the development and completion of
network deployable applications including QuickStart Notes, a Lotus Notes
training product, and a human resources application called QuickStart
Employee Orientation. For the second quarter ended June 30, 1996, product
development costs were $277,690, a small decline from the $281,848 of such
expenditures in the second quarter of 1995 and a significant reduction from
the $364,839 spent in the first quarter of 1996. Due to the higher first
quarter spending while the commercial software release was being finalized,
product development for the six months ended June 30, 1996 increased to
$642,529 from $608,752 in 1995. In the three and six months ended June 30,
1996, $198,850 and $275,548 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 for vertical
markets, providing users with additional products enhancing INNOVUS
Multimedia.
Following the completion of INNOVUS Multimedia 2.1, the Company repositioned
its personnel in anticipation of the revenues expected over the remainder of
1996. The Company recently reduced its employee count from 68 to 51, and has
reassigned personnel to a client services division to keep pace with customer
demand for developing custom multimedia applications.
The Company incurred losses from operations of $1,548,180 and $773,944 during
the three month periods ended June 30, 1996 and 1995, respectively. For the
comparable six month periods, the losses from operations were $3,063,568 and
$1,640,832, respectively. Net interest expense for the quarters ended June
30, 1996 and 1995 was $17,279 and $27,050, respectively. Net interest
expense for the six months ended June 30, 1996 and 1995 was $22,743 and
$41,726, respectively. The Company sustained a net loss of $1,565,459 for
the second quarter of 1996 compared to a loss of $800,994 for the second
quarter of 1995. The net loss for the six month periods ended June 30, 1996
and 1995 was $3,086,311 and $1,682,558, respectively. On a per share basis,
the net loss for the three and six months ended June 30, 1996 was $.33 and
$.65, respectively, compared to net losses of $.25 and $.55 for the
comparable periods of the prior year.
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 June 30, 1996, the Company had
total current assets of $1,143,598 and a deficit in working capital (current
liabilities in excess of current assets) of $223,178. During the six months
ended June 30, 1996, the Company incurred a net loss of $3,086,311 and had
negative cash flow from operations of $2,397,818. 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 second quarter the Company raised $1,005,000
(prior to deduction of current offering costs and previously deferred
offering costs) from an institutional investor. Management is currently
evaluating several options for the sale of either common or preferred stock
to interested institutional investors. 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 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, while the line is outstanding
without the lender's approval. The balance owed to the Bank was $375,300 at
June 30, 1996 and was reduced to $200,000 at July 31, 1996.
At June 30, 1996, the Company had long term liabilities of $710,582,
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 June 30, 1996.
PART II
Item 5 - Other Information
During July and August, 1996 the Company's transition from a software
development company to a software sales company was reflected by changes in
senior management. As a result of these changes, Terry Haas has been named
as President, Chief Executive Officer and a Director. David Mock is
Chairman, Chief Financial Officer and a Director. David Broadbent remains as
a Director, but has resigned from other offices and duties with the Company.
<PAGE>
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: August 19, 1996 By /s/
------------------------------
Terry Haas
Chief Executive Officer
By /s/
------------------------------
David M. Mock
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements as of June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,813
<SECURITIES> 0
<RECEIVABLES> 1,068,640
<ALLOWANCES> 0
<INVENTORY> 28,919
<CURRENT-ASSETS> 1,143,598
<PP&E> 1,740,976
<DEPRECIATION> 399,242
<TOTAL-ASSETS> 3,553,667
<CURRENT-LIABILITIES> 1,366,776
<BONDS> 710,582
0
0
<COMMON> 10,291,025
<OTHER-SE> (22,244)
<TOTAL-LIABILITY-AND-EQUITY> 3,553,667
<SALES> 213,100
<TOTAL-REVENUES> 213,100
<CGS> 87,483
<TOTAL-COSTS> 87,483
<OTHER-EXPENSES> 3,189,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,743
<INCOME-PRETAX> (3,086,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,086,311)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> 0
</TABLE>
