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, 1997
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
of incorporation or organization) Identification No.)
392 East 12300 South, Suite J
DRAPER, UTAH 84020
(Address of principal executive offices)
(801) 576-9333
(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 September 30, 1997: 7,441,570
Innovus Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(naudited)
ASSETS
September 30, December 31,
1997 1996
--------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 61,132 $ 886,122
Accounts receivable, net 5,370 116,761
Receivable from stockholders 140,000 -
Inventories 106,418 39,003
Prepaid expenses 23,189 119,849
--------- ---------
Total current assets 336,109 1,161,735
--------- ---------
PROPERTY AND EQUIPMENT, net 1,157,897 1,341,175
--------- ---------
OTHER ASSETS
Software development costs, net 1,129,402 809,824
Other 25,702 30,442
--------- ---------
1,155,104 840,266
--------- ---------
TOTAL ASSETS $ 2,649,110 $ 3,343,176
========= =========
See the accompanying notes to condensed consolidated financial statements.
Inovus Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
------------- ------------
CURRENT LIABILITIES
Accounts payable $ 716,539 $ 716,068
Accrued compensation 27,213 216,805
Accrued liabilities 5,050 126,022
Current maturities of long-term debt 159,223 28,477
Current maturities of capital
lease obligations 44,584 37,220
--------- ---------
Total current liabilities 952,609 1,124,592
--------- ---------
LONG-TERM DEBT,
less current maturities 663,058 671,564
CAPITAL LEASE OBLIGATIONS,
less current maturities 22,139 56,991
--------- ---------
Total liabilities 1,637,806 1,853,147
--------- ---------
COMMITMENTS - NOTE D
STOCKHOLDERS' EQUITY
Preferred stock - $0.001 par value;
1,000,000 shares authorized;78,658
and 87,100 shares issued and
outstanding, respectively 79 87
Common stock - $0.001 par value;
15,000,000 shares authorized;
7,441,570 and 5,052,811 shares
issued and outstanding, respectively 7,441 5,053
Additional paid-in capital 18,242,493 14,996,682
Deferred compensation (6,673) (14,486)
Accumulated deficit (17,232,036) (13,497,307)
---------- ----------
Total stockholders' equity 1,011,304 1,490,029
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,649,110 $ 3,343,176
========= =========
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,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $ 14,376 $ 185,749 $ 291,235 $ 398,849
Costs and operating expenses
Costs of products and
services sold 22,090 103,904 124,155 191,387
Amortization of software
development costs 242,859 247,710 742,838 523,258
Product development - 434,638 - 1,077,167
Selling and marketing 179,735 1,110,786 1,160,003 2,913,713
General and administrative 119,355 247,389 716,156 715,570
------- --------- --------- ---------
564,039 2,144,427 2,743,152 5,421,095
------- --------- --------- ---------
Operating loss (549,663) (1,548,180) (2,451,917) (5,022,246)
Other income (expense)
Interest income 1,255 2,204 14,301 23,119
Other income 9,363 - 25,968 -
Interest expense for
warrants issued with debt (688,091) - (1,187,643) -
Interest expense, other (30,550) (27,009) (89,741) (70,667)
------- -------- --------- --------
Other income (expense) (708,023) (24,805) (1,237,115) (47,548)
--------- --------- --------- ---------
Net Loss (1,257,686) (1,983,483 (3,689,032) (5,069,794)
Dividends on preferred stock (84,602) - (284,676) -
--------- --------- --------- ---------
Loss Applicable to
Common Shareholders $ (1,342,288) $ - $(3,973,708) $ -
Loss per common share $ (0.22) $ (0.39) $ (0.68) $ (1.04)
--------- ---------- --------- ---------
Weighted number of shares of
common stock used in per
share calculation 6,051,861 5,084,831 5,847,842 4,856,243
========= ========= ========= =========
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,
1997 1996
----------- ----------
Increase (decrease) in cash and
cash equivalents
Cash flows from operating activities:
Net loss $ (3,689,032) $ (5,069,794)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 904,195 651,375
Expenses for issued warrants 1,187,643 -
Changes in assets and liabilities:
Accounts receivable 111,391 (71,362)
Inventories (67,415) (23,908)
Prepaid expenses 96,660 -
Accounts payable and accrued expenses (300,159) 693,466
Other 4,740 (47,664)
--------- ---------
Net cash used in operating activities (1,751,977) (3,846,809)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (13,921) (73,622)
Disposition of property and equipment 43,656 -
Increase in software development costs (1,062,417) (380,233)
--------- -------
Net cash used in investing activities (1,032,682) (453,855)
--------- -------
Cash flows from financing activities:
Proceeds from borrowings 618,000 1,423,775
Payments to reduce long-term debt
and capital lease obligations (519,391) (435,462)
Net proceeds from issuance of preferred
and common stock 1,861,060 989,089
--------- ---------
Net cash provided by
financing activities 1,959,669 1,977,402
--------- ---------
Net decrease in cash and cash equivalents (824,990) (2,323,262)
Cash and cash equivalents at
beginning of year 886,122 2,362,556
-------- ---------
Cash and cash equivalents
at September 30 $ 61,132 $ 39,294
======== =========
Supplemental Cash Flow Information:
Interest paid $ 80,479 $ 61,830
====== ======
See the accompanying notes to condensed consolidated financial statements.
Innovus Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - CONDENSED 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 1997.
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, 1996.
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation. The reclassifications are not
material.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the following:
September 30, December 31,
Years 1997 1996
----- --------- ----------
Building 40 $ 422,231 $ 422,231
Computer and office equipment 5-7 792,029 907,499
Furniture and fixtures 5-7 115,859 115,859
--------- ---------
1,330,119 1,445,589
Less accumulated depreciation
and amortization (546,653) (478,845)
--------- ---------
783,466 966,744
Land 374,431 374,431
--------- ---------
$ 1,157,897 $ 1,341,175
========= =========
NOTE C - SOFTWARE DEVELOPMENT COSTS
In conjunction with the preparation of the second quarter financial
statements, the Company amended the Form 10-Q for the first quarter
ended March 31, 1997 resulting from the capitalization of previously
expensed product development costs to more accurately reflect the
activities of the product development group of the Company. The changes
to the condensed interim financial statements at March 31, 1997 and the
additional activity since March 31, 1997 are summarized as follows:
Software Development Costs:
Amended Original
--------- ---------
Balance at December 31, 1996 $ 809,824 $ 809,824
Additions during the first quarter 430,871 189,854
--------- -------
1,240,695 999,678
Less amortization (257,120) (257,120)
--------- --------
Balance at March 31, 1997 983,575 $ 742,558
Additions during the second quarter 404,846
---------
1,388,421
Less amortization (242,859)
---------
Balance at June 30, 1997 1,145,562
Additions during the third quarter 226,700
---------
1,372,262
Less amortization (242,860)
---------
Balance at September 30, 1997 $ 1,129,402
=========
NOTE D - SHORT-TERM OBLIGATIONS
In June 1997, the Company entered into bridge financing agreements, which
authorized the Company to borrow up to $500,000, from affiliates and
others. The lenders received, for each $1.00 loaned to the Company a
warrant to purchase one share of common stock of the Company; provided
that half of the warrants would not vest if the notes were prepaid within
45 days. The warrants were initially exercisable at $3.00 per share and
are exercisable over a three-year period.
The agreements bore interest at 10% in addition to the amortization of the
warrants' fair value resulting in an effective interest rate of 132%. The
agreements were subordinate to the security interest of the bank as
discussed in the Company's financial statements for the year ended
December 31, 1996, in substantially all of the assets of the Company.
In June and July, the Company borrowed $405,000 and issued 405,000 warrants
under these bridge financing agreements, of which $170,000 was from
unrelated lenders and $235,000 was from an officer and director of
the Company. The estimated fair value of the warrants on the
dates of grant approximated $526,500. This amount has been
amortized as interest expense over the life of the agreements. Subsequent
to the end of the quarter, the warrant holders agreed to cancel one-half
of the warrants and the Company agreed to re-price the remaining warrants
at $1.00 per share.
In August and September 1997, the Company borrowed another $65,000 from an
officer and director of the Company. This amount was unsecured and was
also surrendered to the Company in payment of certain stock subscriptions
discussed below.
During the quarter, the Company received subscriptions for the sale of
1,220,000 shares of common stock and warrants to purchase up to 305,000
shares of common stock from an affiliate and others. The subscription
price was $2.00 for each unit consisting of four shares of common stock
and one warrant. The warrants are exercisable at $0.75 per share.
As of September 30, the Company had realized $470,000 relating to the
stock subscriptions, of which $405,000 was from conversion of the
outstanding bridge loans and $65,000 was from the conversion of the
unsecured debt. The remaining $140,000 of the subscription proceeds,
was received by the Company in cash subsequent to September 30.
In August 1997, the Company borrowed $150,000 against its interest in
its building and land, in the form of a second mortgage. Interest was
to be paid in the form of 150,000 warrants with an exercise price of
$1.75 per share. The warrants are exercisable for three years. The
estimated fair value of the warrants on the date of grant approximated
$195,000. This amount has been amortized as interest expense over the
life of the loan. This note was paid in full upon the sale of the building
as discussed in Note H below.
NOTE E - CONVERSION OF PREFERRED STOCK
During the three months ended September 30, 1997, preferred stockholders
converted 2,042 shares of Series C into a total of 190,279 shares of
common stock in several transactions at an average price of $0.54 per
share. The 190,279 shares above includes 8,830 shares which were issued
upon conversion of $4,931 of dividends associated with the Series C
preferred stock.
NOTE F - STOCK WARRANTS
During July 1997, the Company authorized and granted an additional 235,000
warrants relating to the bridge loans discussed in Note D above. The
warrants were initially exercisable at $3.00 per share, which was equal to
or greater than the market value of the common stock on the date the
warrants were issued. Subsequent to September 30, the warrant holders
agreed to cancel one-half of the warrants and the Company agreed to re-price
the remaining warrants at $1.00 per share.
NOTE G - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share". The
statement is effective for financial statements for periods ending after
December 15, 1997, and changes the method in which earnings per share will
be determined. Adoption of this statement by the Company will not have a
material impact on earnings per share.
NOTE H - SUBSEQUENT EVENTS
In October 1997, the Company sold its interest in its corporate offices
(building and land) for approximately $878,000 and was relieved of the
first mortgage of approximately $675,000 and the second mortgage of
$150,000. The balance of the proceeds went to pay closing costs. The
Company realized no cash proceeds from the sale.
In conjunction with the sale of its corporate offices, the Company sold
to the buyer its interest in certain telephony equipment for approximately
$64,000 and was relieved of the related debt. The Company realized no cash
proceeds from the sale of the telephony equipment.
In conjunction with the sale and related relief of debt of the telephony
equipment, the Company anticipates the cancellation of a Letter of Credit
granted by a bank to the financing institution of the telephony equipment.
Upon the cancellation of the Letter of Credit, the bank has agreed to
surrender its security interest in the assets of the Company, as discussed
in the notes to the Company's financial statements for the year ended
December 31, 1996.
At the time of the sale of the building, the Company entered into a
short-term lease, at a cost of $500, with the buyer of the building to
allow the Company to continue to occupy the building until the Company
could complete the build-out of its new corporate offices. The Company
relocated to its new corporate offices during the first week of
November 1997.
The Company has entered into a six-month lease, beginning November 1997
for its new corporate offices of approximately 1,800 square feet. The
monthly lease cost is approximately $1,800 per month.
NOTE I - NON-CASH ITEMS
During the nine months ended September 30, the Company has expensed a
total of $1,187,643 as warrant interest expense.
In September 1997, bridge loans in the amount of $470,000 plus accrued
interest have been surrendered to the Company in satisfaction of certain
stock subscriptions discussed above.
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, 1996 and the notes
thereto found in the Company's Form 10-K.
The Company has been engaged in the sale of multimedia authoring and
presentation software, with related application templates and media
packages. During the first quarter of the fiscal year, the Company
experienced significant sales of its recently re-priced and re-positioned
products through retail channels. Sales in the second quarter drastically
declined, which the Company believes is primarily due to the Company's
inability to aggressively promote the products and a market shift from
authoring to internet-based software. Following the end of the second
quarter, the Company reduced its personnel to bare minimums in order to
conserve the Company's remaining resources. The Company is exploring
alternative plans, including the potential sale or licensing of its
existing products, development of a Year 2000 application, or additional
partnering arrangements with database software vendors similar to the
existing arrangement discussed in "Results of Operations" below. The
success of any of such plans will depend on the Company's ability to
obtain additional financing. There is no assurance that the Company
will be able to obtain sufficient financing to remain in business or
pursue an alternative business plan.
Results of Operations
During the nine months ended September 30, 1997, the Company had net sales
of $291,235, compared to $398,849 for the comparable period of the prior
year. For the three months ended September 30, 1997, net sales were $14,376
compared to $185,749 for the comparable period of the prior year. As
described in the Company's Form 10-Q for the second quarter ended
June 30, 1997, the Company believes the Company's inability to finance
aggressive promotion of the products, together with a market shift from
authoring software generally to web-based software, has drastically
reduced sales of the Company's existing products. The decline in sales
was exacerbated by the elimination of the Company's services business in
the first quarter and an unexpectedly high rate of product returns from
retailers to the Company's distributors in the second quarter due to lack
of promotional support.
The Company expended most of its energy during the third quarter analyzing
disappointing second quarter sales, formulating a new business plan and
raising additional capital to maintain minimal operations. The Company
did not have resources to promote its products. The Company believes
that the minimal sales that did occur during the quarter were mainly the
result of "word of mouth" referrals from prior users and demand from
developers from catalog sales.
As described below, the Company is in the process of re-directing its
marketing efforts to de-emphasize retail store distribution in favor of
internet distribution, catalog sales and partnering arrangements. Any
such redirection will be conditioned on the Company's ability to obtain
sufficient additional capital. See "Liquidity and Capital Resources"
below.
The costs of products and services sold in the three and nine months ended
September 30, 1997 were $22,090 and $124,155 respectively. During the
comparable three and nine month periods of the prior year, such costs were
$103,904 and $191,387 respectively. Due to the low amount of net sales
for the current quarter, comparison of the costs of sales between periods
may not be meaningful.
Selling and marketing expenses were $179,735 for the three months ended
September 30, 1997, a decrease from $410,939 in the three months ended
June 30, 1997 and $1,110,786 in the three months ended September 30, 1996.
The reduction in these expenses was made in conjunction with the Company's
overall restructuring and downsizing. Even at the reduced level of these
expenses, the Company believes that it does not have sufficient resources
to continue marketing the software through broad-based traditional retail
outlets. The alternatives, which the Company is planning to implement
include the following:
(i) Completion and follow through of a partnering arrangement
with IBM which is scheduled to result in IBM's distribution of
approximately 30,000,000 copies of an evaluation version of
INNOVUS software to users of IBM's DB2 database software. IBM
made a limited distribution of the disk in September, 1997, but
has delayed the commencement of the year long, full-scale
distribution to coincide with COMDEX in November, 1997. The Company
will attempt to upgrade these evaluation copies to full licenses
or sales of DB2 specific templates through direct mail follow-ons
and customer support telephone up-selling. The Company believes
that similar partnering arrangements may be available with other
major database software vendors.
(ii) Granting of limited source code licenses to software
developers who can incorporate the interactive multimedia
capabilities of INNOVUS into their application products within
specified vertical markets (e.g. existing computer based training
applications which do not have the fully interactive capabilities
of INNOVUS).
(iii) Distribution through internet based vendors and catalogs
serving software developers. By distributing current product
versions at low cost to these serious users, the Company believes
it can create demand for the next scheduled upgrade (INNOVUS
Multimedia 3.0).
(iv) Acquisition from third parties of products falling into more
readily defined market categories with synergies to the Company's
existing products and expertise. The Company does not have any
agreements for such a product acquisition at this time, and any
such acquisition (even if completed for stock or other non-cash
consideration) would likely require substantial additional
capital.
Product development efforts other than development towards planned
version 3.0 of INNOVUS Multimedia were curtailed during the quarter ended
September 30, 1997. For the three and nine months ended September 30,
1997 the Company did not incur any product development expense, although
it did capitalize $226,700 and $1,062,417 of software development costs,
respectively. In the three and nine months ended September 30, 1997
$242,860 and $742,838 of capitalized software development costs were
amortized, respectively, compared to $247,710 and $523,258 for the three
and nine month period of the prior year.
General and administrative expenses were $119,355 and $716,156 for the
three and nine months ended September 30, 1997, respectively, compared to
$247,389 and $715,570 in 1996.
The Company is deemed to have incurred $688,091 and $1,187,643 in interest
expense during the three and nine months ended September 30, 1997 in
connection with warrants issued as part of bridge financing from
affiliates and others and from the second mortgage.
The Company sustained a net loss of $1,257,686 and $3,689,032 for the
three and nine months ended September 30, 1997 compared to net losses
of $1,983,483 and $5,069,794 for the three and nine months ended
September 30, 1996.
As explained in "Liquidity and Capital Resources" below, the Company
does not currently have the ability to sustain additional losses of
this magnitude. The Company has substantially reduced its personnel
and other expenses and, as described above, is pursuing less cost-intensive
means of distributing its products. There can be no assurance that these
reductions will be sufficient to sustain operations.
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
At September 30, 1997 the Company had $61,132 of cash and cash equivalents
and a deficit in working capital (current liabilities in excess of current
assets) of $616,500. The Company has been relying upon short-term
borrowings from affiliates and others, as well as increases in accounts
payable owed to vendors and a second mortgage on the Company's building,
to provide the means to maintain minimal operations. Approximately $470,000
of such short-term debt has been converted to equity and the second mortgage
was repaid upon sale of the building. Management of the Company has been
actively seeking additional equity financing. Other than the conversion
of debt and subscriptions for approximately $140,000 of additional equity
funded after the end of the quarter, as of the date of this report, the
Company has not obtained needed equity financing nor has it obtained firm
commitments therefor. Management believes that the market overhang caused
by variable conversion features of certain series of the Company's
preferred stock, coupled with the risks inherent in restructuring the
Company's business, have discouraged new investment. Although management
believes that the Company is likely to obtain new financing, the terms of
the financing may be unfavorable to prior investors.
As a result of downsizing during the quarter and sale of the Company's
building after the end of the quarter, the Company estimates that it is
currently using approximately $20,000 more cash each month than is
generated by operations. If the Company is successful in obtaining
additional capital it will pursue the plan outlined above to market
through database partners, internet vendors and catalogs. If these
plans can be implemented, the Company may position itself to again attempt
retail distribution in the future.
The Company has made plans to aggressively position its products as
multimedia utilities, including the development of utilities for Windows
NT and 95 that are based on JAVA for cross-platform functionality. The
Company has also made plans to develop Year 2000 or other application
specific multi-media applications. All such plans are contingent on the
Company obtaining at least $1,000,000 in additional capital and implementing
its downsized marketing plan for the existing products.
If the Company cannot obtain additional capital, management will continue
to pursue other means to continue in business. In such event, however,
it is possible that the Company may have little alternative but to sell
or liquidate its business operations or product line to satisfy its
creditors.
During 1997, the Company borrowed $405,000 from affiliates and other
individuals pursuant to bridge financing. These amounts were secured
by a second priority interest in substantially all assets of the Company.
In September, 1997 the holders of the bridge financing and the holders of
an additional $65,000 of unsecured debt, agreed to convert the debt into
common stock.
At September 30, 1997, the Company had long term liabilities of $663,058
consisting primarily of the mortgage and second mortgage on the Company's
building. After the end of the quarter, the Company sold its building to
a third party. The sales proceeds were sufficient to pay closing costs
and the two mortgages.
The auditor's report on the Company's December 31, 1996 financial statements
notes that the Company's substantial operating losses raise substantial
doubt about the Company's ability to continue as a going concern. There
can be no assurance that additional financing will be available to the
Company or that operating results will improve as management currently
anticipates.
The Company's common stock is currently quoted on the NASDAQ SmallCap
Market. The current maintenance criteria for the common stock to
continue to qualify for NASDAQ quotation, include maintaining a $1.00
minimum bid price, $2,000,000 total assets and $1,000,000 net tangible
assets. In August, 1997, NASDAQ approved new maintenance criteria,
including a requirement of $2,000,000 net tangible assets or $35,000,000
market capitalization, which will be effective after a six-month transition
period. If the market price does not increase over $1.00, or if the
Company does not meet the new maintenance criteria when they become
effective, the common stock will be delisted from NASDAQ.
In the event of delisting, trading, if any, in the Company's securities
would be expected to be conducted in the over-the-counter market in what
is commonly referred to as the "pink sheets" or the "Electronic Bulletin
Board." As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of the Company's
securities. The loss of continued price quotations as provided by the
NASDAQ System could also cause a decline in the price of the Common Stock,
a loss of news coverage of the Company and difficulty in obtaining
subsequent financing.
PART II
Item 2 - Changes in Securities
(c) The following securities were issued by the Company during
the quarter ended September 30, 1997 without registration under
the Securities Act of 1933 (other than issuances pursuant to
Regulation S):
(i) During the quarter, the Company issued 190,279 which includes
shares issued on conversion of dividends shares of common stock upon
conversion of 2,042 shares of Series C Preferred pursuant to the
terms of such series of preferred stock. The offering was made to
existing securities holders of the Company without the payment of
commissions and is therefore exempt from registration pursuant to
Section 3(a)(9) of the Act.
(ii) During the quarter, the Company issued warrants to purchase
up to 235,000 shares of common stock to an affiliate and an
unaffiliated investor in connection with a bridge loan from such
persons. The warrants are exercisable at $3.00 per share.
Although the Company did not receive payment for the warrants
other than the loan proceeds, the Company was deemed to have
incurred additional interest expense of $493,091 as a result
of the warrant issuance. Subsequent to the end of the quarter,
the warrant holders agreed to cancel one-half of the warrants and
the Company agreed to re-price the remaining warrants at $1.00.
The offering was made to a limited number of accredited persons
without the payment of commissions and is therefore exempt from
registration pursuant to Section 4(2) of the Act.
(iii) During the quarter, the Company issued warrants to purchase
up to 150,000 shares of common stock to a single accredited
investor in exchange for reduced interest on a second mortgage
loan to the Company. The loan was repaid upon the sale of the
Company's building. The warrants are exercisable at $1.75 per
share through September 1, 2000. The offering was made to a
limited number of accredited persons without the payment of
commissions and is therefore exempt from registration pursuant
to Section 4(2) of the Act.
(iv) During the quarter, the Company received subscriptions
for the sale of 1,220,000 shares of common stock and warrants
to purchase up to 305,000 shares of common stock from an
affiliate and others. The subscription price was $2.00 for
each unit consisting of four shares of common stock and one
warrant. The warrants are exercisable at $.75 per share. In
September, the Company received $470,000 on conversion of
outstanding bridge loans and unsecured debt from an affiliate
and others and subsequent to the end of the quarter, the Company
received cash proceeds of such subscriptions in the amount of
$140,000. The offering was made to a limited number of
accredited persons without the payment of commissions and is
therefore exempt from registration pursuant to Section 4(2) of
the Act.
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
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 19, 1997 By /x/
David Mock
Chairman, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements as of September 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 61,132
<SECURITIES> 0
<RECEIVABLES> 204,592
<ALLOWANCES> (59,222)
<INVENTORY> 106,418
<CURRENT-ASSETS> 336,109
<PP&E> 1,704,550
<DEPRECIATION> (546,653)
<TOTAL-ASSETS> 2,649,110
<CURRENT-LIABILITIES> 952,609
<BONDS> 685,197
0
3,587,068
<COMMON> 14,662,945
<OTHER-SE> (6,673)
<TOTAL-LIABILITY-AND-EQUITY> 2,649,110
<SALES> 14,376
<TOTAL-REVENUES> 14,376
<CGS> 22,090
<TOTAL-COSTS> 22,090
<OTHER-EXPENSES> 541,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 708,023
<INCOME-PRETAX> (1,257,686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,257,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,257,686)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> 0
</TABLE>
