SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 5, 1998
-------------------
Date of Report (Date of earliest event reported)
INNOVUS CORPORATION
-------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-26790 87-0461856
-------- ------- ----------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) No.)
4600 Campus Drive
Newport Beach, CA 92660
------------------------
(Address of principal executive offices)
(Zip Code)
(949) 833-1220
--------------
(Registrant's telephone number, including area code)
Not applicable
----------------
(Former name or address, if changed since last report.)
<PAGE>
Item 2. Acquisitions or Dispositions of Assets
On August 20, 1998, the Registrant filed a current report on Form 8-K
reporting under Item 2 the exchange by stock holders, option holders and note
holders of Intermark Corporation, a California corporation, with the Registrant
for shares of its Common Stock, par value $.001, Series H Preferred Stock, par
value $.001, and options to purchase Series H Preferred Stock. This Form 8-K/A
amends that report by providing financial information called for by Item 7.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
See Exhibit Index, Exhibit 99.1.
(b) Pro forma financial information.
See Exhibit Index, Exhibit 99.1.
(c) Exhibits. The following exhibits are incorporated herein by this
reference:
Exhibit No. Description of Exhibit
----------- ----------------------
2.1* Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Registrant; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation. Omitted from this Form 8-K filing
are the following schedules or attachments to
the agreement identified immediately above:
(A) Form of Certificate of Designation of
Series H Convertible Preferred Stock;
(B) Intermark Corporation Financial Statements
(Unaudited) for its 1997 Fiscal Year;
(C) Confidentiality Agreement dated March 1998
between the Registrant and Intermark
Corporation;
(D) Disclosure Schedule of Intermark
Corporation;
(E) Disclosure Schedule of the Registrant.
2.2** First Amendment, dated as of June 17, 1998, of
Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Registrant; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation
2.3** Second Amendment, dated as of July 30, 1998, of
Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Registrant; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation
4.10** Certificate of Designation - Series H Preferred
Stock
99.1*** INNOVUS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Unaudited Pro Forma Condensed Consolidated Financial Statements F-2
Unaudited Condensed Pro Forma Consolidated Balance Sheet
- June 30, 1998 F-3
Unaudited Condensed Pro Forma Consolidated Statements of
Operations for the Year Ended December 31, 1997 and for
the Six Months Ended June 30, 1998 F-4
Notes to Pro Forma Financial Statements F-5
<PAGE>
Intermark Corporation
Report of Independent Certified Public Accountants F-6
Balance Sheet - September 30, 1997 F-7
Statement of Income and Retained Earnings F-8
Statement of Cash Flows F-9
Notes to Financial Statements F-10
Condensed Balance Sheet - June 30, 1998 (Unaudited) F-15
Condensed Statements of Operations for the Three and Six
Months Ended June 30, 1998(Unaudited) F-16
Statements of Cash Flows for the Six Months Ending June
30, 1998 and 1997 (Unaudited) F-17
- ----------------
* Incorporated by reference to Exhibit 2.1 to the Form 8-K filed May 12, 1998 by
the Registrant with the Securities and Exchange Commission.
** Incorporated by reference to the same-numbered exhibit to the Form 8-K filed
August 20, 1998 by the Registrant with the Securities and Exchange Commission.
*** Filed herewith.
<PAGE>
SIGNATURES
Pursuant to 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 hereunto duly authorized.
INNOVUS CORPORATION
Date: September 19, 1998. By /s/ Tom Hemingway
----------------------------
Tom Hemingway,
Chief Executive Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit
----------- ----------------------
Exhibit No. Description of Exhibit
----------- ----------------------
2.1* Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Registrant; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation. Omitted from this Form 8-K filing
are the following schedules or attachments to
the agreement identified immediately above:
(A) Form of Certificate of Designation of
Series H Convertible Preferred Stock;
(B) Intermark Corporation Financial Statements
(Unaudited) for its 1997 Fiscal Year;
(C) Confidentiality Agreement dated March 1998
between the Registrant and Intermark
Corporation;
(D) Disclosure Schedule of Intermark
Corporation;
(E) Disclosure Schedule of the Registrant.
2.2** First Amendment, dated as of June 17, 1998, of
Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Registrant; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation
2.3** Second Amendment, dated as of July 30, 1998, of
Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Registrant; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation
4.10** Certificate of Designation - Series H Preferred
Stock
99.1*** INNOVUS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Unaudited Pro Forma Condensed Consolidated Financial Statements F-2
Unaudited Condensed Pro Forma Consolidated Balance Sheet
- June 30, 1998 F-3
Unaudited Condensed Pro Forma Consolidated Statements of
Operations for the Year Ended December 31, 1997 and for
the Six Months Ended June 30, 1998 F-4
Notes to Pro Forma Financial Statements F-5
Intermark Corporation
Report of Independent Certified Public Accountants F-6
Balance Sheet - September 30, 1997 F-7
Statement of Income and Retained Earnings F-8
Statement of Cash Flows F-9
Notes to Financial Statements F-10
<PAGE>
<PAGE>
Condensed Balance Sheet - June 30, 1998 (Unaudited) F-15
Condensed Statements of Operations for the Three and Six
Months Ended June 30, 1998(Unaudited) F-16
Statements of Cash Flows for the Six Months Ending June
30, 1998 and 1997 (Unaudited) F-17
- ----------------
* Incorporated by reference to Exhibit 2.1 to the Form 8-K filed May 12, 1998 by
the Registrant with the Securities and Exchange Commission.
** Incorporated by reference to the same-numbered exhibit to the Form 8-K filed
August 20, 1998 by the Registrant with the Securities and Exchange Commission.
*** Filed herewith.
INNOVUS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Unaudited Pro Forma Condensed Consolidated Financial Statements F-2
Unaudited Condensed Pro Forma Consolidated Balance Sheet
- June 30, 1998 F-3
Unaudited Condensed Pro Forma Consolidated Statements of
Operations for the Year Ended December 31, 1997 and for
the Six Months Ended June 30, 1998 F-4
Notes to Pro Forma Financial Statements F-5
Intermark Corporation
Report of Independent Certified Public Accountants F-6
Balance Sheet - September 30, 1997 F-7
Statement of Income and Retained Earnings F-8
Statement of Cash Flows F-9
Notes to Financial Statements F-10
Condensed Balance Sheet - June 30, 1998 (Unaudited) F-15
Condensed Statements of Operations for the Three and Six
Months Ended June 30, 1998(Unaudited) F-16
Statements of Cash Flows for the Six Months Ending June
30, 1998 and 1997 (Unaudited) F-17
<PAGE>
INNOVUS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On August 5, 1998, Innovus Corporation ("Innovus") completed a business
combination with Intermark Corporation ("Intermark"). The following
unaudited pro forma condensed consolidated balance sheet has been
prepared to present the financial position of Innovus and subsidiaries as
though the reorganization of Intermark into a newly-formed subsidiary of
Innovus was consummated on June 30, 1998. The following unaudited pro
forma condensed consolidated statements of operations have been prepared
to present the losses from operations for the year ended December 31,
1997 and for the six months ended June 30, 1998 of the consolidated
companies assuming the reorganization had occurred on January 1, 1997.
The reorganization was accounted for as the reorganization of Intermark
and the acquisition of Innovus using the purchase method of accounting,
with Intermark being considered as the acquiring enterprise.
The following financial information was derived from, and should be read
in conjunction with the separate historical financial statements of
Innovus included in its annual report to shareholders on Form 10-KSB and
the financial statements of Intermark and the related notes to those
financial statements which are included elsewhere herein. The unaudited
pro forma condensed consolidated balance sheet and statements of
operations have been included herein for comparative purposes only and do
not purport to be indicative of the results of operations which actually
would have been obtained had the reorganization occurred June 30, 1998 or
January 1, 1997, or the results of operations which may be obtained in
the future. In addition, future results may vary significantly from the
results reflected in these pro forma financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
INNOVUS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
BALANCE SHEET
JUNE 30, 1998
Pro Forma
Innovus Intermark Adjustments Pro Forma
----------- --------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ - $ - $ - $ -
Accounts receivable, net - 326,717 - 326,717
Notes receivable - 309,168 - 309,168
Advances receivable - 60,484 - 60,484
Deferred tax asset - 2,600 - 2,600
----------- ---------- ----------- ---------
Total Current Assets - 698,969 - 698,969
----------- ---------- ----------- ---------
Equipment 113,036 67,107 - 180,143
Less accumulated depreciation (66,366) (19,158) - (85,524)
----------- ---------- ----------- ---------
Net Equipment 46,670 47,949 - 94,619
----------- ---------- ----------- ---------
Other Assets, net of accumulated
amortization - 11,244 - 11,244
----------- ---------- ----------- ---------
Total Assets $ 46,670 $ 758,162 $ - $ 804,832
=========== ========== =========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 500,213 $ 333,647 $ - $ 833,860
Accrued expenses 2,275 10,946 - 13,221
Capital lease obligations 768 - - 768
Accrued income taxes - 39,550 - 39,550
Preferred dividends payable 32,682 - - 32,682
Employee loans payable - 177,885 - 177,885
Notes payable 128,000 293,335 - 421,335
----------- ---------- ----------- ---------
Total Current Liabilities 663,938 855,363 - 1,519,301
----------- ---------- ----------- ---------
Stockholders' Equity
Preferred stock 4 - (B) 79 79
(A) (4)
Common stock 11,939 8,000 (B) (6,887) 13,188
(A) 215
Additional paid-in capital 18,690,383 (5,040) (B) (19,312,631) (627,575)
(A) (211)
Accumulated deficit (19,319,594) (100,161) (B) 19,319,594 (100,161)
----------- --------- ----------- ---------
Total Stockholders' Deficit (617,268) (97,201) - (714,469)
----------- ---------- ----------- ---------
Total Liabilities and Stockholders' Deficit $ 46,670 $ 758,162 $ - $ 804,832
=========== ========== =========== =========
<FN>
Notes to the Unaudited Condensed Pro Forma Consolidated Financial
Statements are presented on page F-5.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
INNOVUS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
Pro Forma
Innovus Intermark Adjustments Pro Forma
----------- ---------- ----------- ----------
FOR THE YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C> <C>
Sales $ 317,653 $ 501,514 (C) $ (317,653) $ 501,514
Cost of sales 245,227 186,653 (C) (245,227) 186,653
Gross profit 72,426 314,861 (72,246) 314,861
General and administrative expense 2,159,872 371,293 (C) (1,687,119) 844,046
Amortization of software development costs 1,918,407 - (C) (1,918,407) -
----------- ---------- ----------- ----------
Loss from operations (4,005,853) (56,432) 3,533,280 (529,185)
Interest expense (1,275,855) (5,610)(C) 996,931 (284,534)
Loss on asset disposition (151,228) - (C) 151,228 -
Other income 38,000 - - 38,000
----------- ---------- ----------- ----------
Loss from Continuing Operations (5,394,936) (62,042) 151,228 (775,719)
Preferred dividends 367,730 - (D) (367,730) -
----------- ---------- ----------- ----------
Loss from Continuing Operations Applicable
to Common Shares $(5,762,666) $ (62,042) (216,502) $ (775,719)
=========== ========== =========== ==========
Basic and Diluted Loss from Continuing
Operations Per Common Share $ (0.92) $ (0.02) $ (0.06)
=========== ========== ==========
Weighted average number of common shares
used in per share calculation 6,272,769 3,000,000 (B) 3,914,646 13,187,415
=========== ========== =========== ==========
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Sales $ 24,208 $ 338,640 (C) $ (24,208) 338,640
Cost of sales 1,752 178,963 (1,752) 178,963
----------- ---------- ----------- ----------
Gross profit 22,456 159,677 (22,456) 159,677
General and administrative expense 157,584 288,017 - 445,601
----------- ---------- ----------- ----------
Loss from operations (135,128) (128,340) (22,456) (285,924)
Interest expense (3,654) (1,944) - (5,598)
Interest income - 6,653 - 6,653
Other income 1,513 - - 1,513
----------- ---------- ----------- ----------
Loss from Continuing Operations (137,269) (123,631) (22,456) (283,356)
Preferred dividends 162,887 - (D) (162,887) -
----------- ---------- ----------- ----------
Loss from Continuing Operations
Applicable to Common Shares $ (300,156) $ (123,361) $ (185,343) $ (283,356)
=========== ========== ========== ==========
Basic and diluted loss from continuing
operations per common share $ (0.03) $ (0.04) $ (0.02)
=========== ========== ==========
Weighted average number of common shares
used in per share calculation 9,060,409 3,375,000 (B) 752,006 13,187,415
=========== ========== ========== ===========
<FN>
Notes to the Unaudited Condensed Pro Forma Consolidated Financial
Statements are presented on page F-5.
</FN>
</TABLE>
F-4
<PAGE>
INNOVUS CORPORATION
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A- Innovus Corporation ("Innovus") had 4,300 preferred shares and
11,938,746 common shares outstanding at June 30, 1998. During July
1998, preferred shareholders converted 4,300 preferred shares into
215,000 common shares. After the conversion, no preferred shares
were outstanding and 12,153,746 common shares were outstanding.
B- On August 5, 1998, Intermark Corporation ("Intermark") merged into
a newly-formed subsidiary of Innovus. The Intermark security holders
exchanged their equity securities for 78,706 shares of Series H
preferred stock, 1,033,669 common shares and options to purchase
6,316,524 common shares. Each share of Series H preferred stock is
entitled to 5621/2 votes and is convertible into 5621/2 common
shares. The Intermark shareholders received 45,305,794 voting rights
or 79% of the total voting rights at meetings of the Innovus
shareholders as a result of the reorganization. Management of
Intermark also became management of the combined company. The
exchange of the Intermark equity securities for Innovus equity
securities was accounted for as a reorganization of Intermark. The
historical financial statements of Intermark have been restated for
the effects of the reorganization in a manner similar to a stock
split.
Innovus had discontinued all of its operation, had only nominal
assets and had approximately $664,000 of liabilities; therefore it
was essentially a shell corporation at the date of reorganization.
Inasmuch as Innovus had no business at the date of the
reorganization, no business was acquired; instead, the common shares
held by the Innovus shareholders were considered issued at the date
of the reorganization in exchange for the net liabilities of Innovus
at their historical book value.
C- To eliminate the discontinued operations of Innovus. Innovus
operated as only one segment through June 30, 1998. The operations
of that segment are reflected on the pro forma statements of
operations as discontinued.
D- All prior series of preferred stock have been converted to common
stock and therefore no preferred dividends will be required in the
future. The Series H preferred stock does not have a stated
dividend. Dividends on the Series H preferred stock are payable if
and when declared by the Board of Directors. Each share of Series H
preferred stock will receive dividends equal to 5621/2 times the
amount of the dividends for each common share.
F-5
<PAGE>
GRAY, PROCTOR & MCMANNIS
Certified Public Accountants, LLP
The Board of Directors and Stockholders
Intermark Corporation
We have audited the accompanying balance sheet of Intermark Corporation,
as of September 30, 1997. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion
on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall balance sheet presentation. We believe that our audit of the
balance sheet provides a reasonable basis for our opinion.
Because we were not engaged as auditors until after September 30, 1996,
we did not observe the physical inventory taken at that date, and we have
not been able to otherwise satisfy ourselves as to quantities on hand at
that date. Because inventory at September 30, 1996 enters significantly
into the determination of results of operations and cash flows for the
year ended September 30, 1997, the scope of our work was not sufficient
to enable us to express an opinion, and we do not express an opinion on
the accompanying statements of income and retained earnings, and cash
flows for the year then ended.
As described in Note 13, the Company entered into a definitive agreement
on May 8, 1998 whereby the Company will be acquired by Innovus
Corporation in exchange for common and preferred voting shares.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Intermark Corporation as
of September 30, 1997, in conformity with generally accepted accounting
principles.
Gray, Proctor & McMannis
Certified Public Accountants, LLP
July 21, 1998
-------------------------------------------------------------------------
3991 MacArthur Blvd., Suite 240, Newport Beach, CA 92660
714-251-4888 - Fax: 714-251-9332
F-6
<PAGE>
INTERMARK CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
Current Assets
Cash $ 7,490
Accounts receivable-trade, net of allowance for
doubtful accounts of $2,400 46,387
Inventory 2,481
Advances - employees 6,662
Notes receivable - stockholders 200,860
Deferred taxes 2,600
---------
Total Current Assets 266,480
---------
Property and Equipment 47,284
---------
Other Assets
Organizational cost, net of amortization of $1,130 1,694
---------
Total Assets $ 315,458
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 22,893
Current portion of long-term debt 49,375
Accounts payable - trade 111,679
Accrued payroll and payroll taxes 16,516
Income taxes payable 34,050
---------
Total Current liabilities 234,513
Long-Term Liabilities
Notes payable - individuals, net of current portion -
Deferred taxes 5,500
---------
Total Long-Term Debt 5,500
---------
Total Liabilities 240,013
---------
Stockholders' Equity
Common stock, 10,000,000 shares authorized,
3,000,000 shares issued and outstanding 8,000
Paid-in capital (5,040)
Retained earnings 72,485
---------
Total Stockholders' Equity 75,445
---------
Total Liabilities and Stockholders' Equity $ 315,458
=========
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
INTERMARK CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Sales $ 585,592
Cost of sales 220,984
---------
Gross profit 364,608
Selling, general and administrative 372,387
---------
Operating loss (7,779)
Other income 5,922
---------
Loss before provision for taxes (1,857)
Provision for income taxes 551
---------
Net loss (2,408)
Retained Earnings, Beginning of Year 74,893
---------
Retained Earnings, End of Year $ 72,485
=========
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
INTERMARK CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Cash Flows From Operating Activities
Net income (loss) $ (2,408)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,340
Increase in accounts receivable (6,776)
Decrease in inventory 61,344
Decrease in prepaid royalties 40,000
Increase in employee advances (6,662)
Increase in accounts payable 32,461
Increase in accrued payroll and payroll taxes 8,537
Increase in deferred taxes 700
Increase in income taxes payable 4,601
---------
Net Cash Provided by Operating Activities 141,137
---------
Cash Flows From Investing Activities
Acquisition of fixed assets (24,481)
---------
Net Cash Used by Investing Activities (24,481)
---------
Cash Flows From Financing Activities
Proceeds from line of credit 22,893
Proceeds from long-term debt 9,375
Loan to stockholders (142,354)
---------
Net Cash Used by Financing Activities (110,086)
---------
Net Increase in Cash 6,570
Cash at Beginning of Year 920
---------
Cash at End of Year $ 7,490
=========
Supplemental disclosures (Note 12)
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
INTERMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity - The Company was incorporated October 1995 and is
closely held. The Company derives its revenues from two sources,
traditional retail sales, and turnkey sales and marketing services. The
Company has completed development of an Electronic Software Distribution
(ESD) solution through the internet; consequently, the Company's ability
to collect amounts due from customers is affected by economic
fluctuations in the computer industry.
Accounts Receivable - The Company utilizes the reserve method to
recognize losses on realization of receivables. A reserve of $2,400 was
considered uncollectible at September 30, 1997.
Inventory - Inventory is stated at lower of cost (first-in, first-out
method) or market. Inventory consists of raw materials of $2,481 at
September 30, 1997.
Property and Equipment - Property and equipment are recorded at cost.
Expenditures for maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of the assets
are capitalized. Gains or losses on dispositions of fixed assets are
included in operations in year of disposal.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets.
Intangible Assets - Intangible assets subject to amortization consist of
organization costs which are being amortized on a straight-line basis
over a sixty month period.
Major Customers - The Company received revenues representing more than
64% of its business from three customers during the year ended September
30, 1997. Further, companies representing over 50% of revenue had
terminated contracts at year end. Management has indicated that they have
made sales in excess of $375,000 in the nine months ended June 30, 1998.
Additionally management has changed direction toward Electronic Software
Distribution.
Income Taxes - The Company has adopted SFAS 109, Accounting for Income
Taxes, to account for deferred income taxes. Deferred taxes are computed
based on the tax liability or benefit in future years of the reversal of
temporary differences in the recognition of income or deduction of
expenses between financial and tax reporting purposes. The principal
items resulting in the differences are California franchise taxes, MACRS
depreciation, and the allowance for doubtful accounts. The net difference
between tax expense and taxes currently payable is reflected in the
balance sheet as deferred taxes. Deferred tax assets and/or liabilities
are classified as current and noncurrent based on the classification of
the related asset or liability for financial reporting purposes, or based
on the expected reversal date for deferred taxes that are not related to
an asset or liability.
NOTE 2--ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F-10
<PAGE>
NOTE 3-PROPERTY AND EQUIPMENT
Property and equipment are summarized below:
Estimated
Useful Life Amounts
----------- ----------
Furniture and fixtures 7 years $ 3,933
Computer equipment 5 years 44,237
Office equipment 5 - 7 years 11,072
----------
59,242
Less: Accumulated amortization (11,958)
----------
$ 47,284
==========
Depreciation expense was $8,775 for the year ended September 30, 1997.
NOTE 4--NOTES RECEIVABLE - STOCKHOLDERS
Notes receivable - Budd
Demand note due on or before
September 30, 1998, including
accrued interest at 5.09% $ 63,236
Notes receivable - Hemingway
Demand note due on or before
September 30, 1998, including accrued
interest at 5.09% 62,349
Notes receivable - Hutt
Demand note due on or before
September 30, 1998, including accrued
interest at 5.09% 75,275
----------
$ 200,860
==========
NOTE 5--ORGANIZATIONAL COSTS
Organizational costs are summarized
below
Organizational cost $ 2,824
Less accumulated amortization (1,130)
----------
$ 1,694
==========
Amortization expense was $565 for the year ended September 30, 1997.
F-11
<PAGE>
NOTE 6--SHORT TERM - LINE OF CREDIT
In September 1997, the Company established a line of credit payable with
Union Bank of California, due September 8, 1998, with a limit of $25,000.
The loan is secured by all assets of the Company, and bears interest at
3% over prime rate. The balance outstanding, including accrued interest,
at September 30, 1997 is $22,893.
NOTE 7--FACTORING AGREEMENT
The Company has a factoring agreement with Heritage Capital Corporation.
Amounts borrowed are secured by specific accounts receivable and all
assets of the Company. The balance outstanding at September 30, 1997 is
$0.
NOTE 8--NOTES PAYABLE - INDIVIDUALS
Notes Payable - Saunders Note payable, due March 1998, including
interest at 10%, secured by the rights to games and license. On
March 31, 1998, the note was changed to a note convertible to
common
stock. $ 18,543
Notes Payable - Tyson Note payable, due January 1998, including
interest at 10%, secured by equipment. On March 31, 1998, the note
was established as a convertible note; in the event the Company
merges, the note will be converted into common
stock of the Company. (See Note 13.) 30,832
----------
49,375
Less current portion (49,375)
----------
$ -
==========
Future maturities of long-term debt are as follows:
Year Ending
September 30,
-------------
1998 $ 49,375
1999 -
2000 -
2001 -
2002 -
----------
$ 49,375
==========
F-12
<PAGE>
NOTE 9--OPERATING LEASES
Facilities - The Company maintains its office space under a two-year
noncancellable operating lease expiring May 31, 1998. There in an option
to renew the lease for an additional two year period.
The following is a schedule of future minimum lease payments required
under the lease as of September 30, 1997:
Year Ending
September 30, Amounts
------------- ---------
1998 $ 37,600
1999 -
2000 -
2001 -
2002 -
---------
$ 37,600
=========
Rental expense for the year ended September 30, 1997 amounted to $46,880.
In July, 1998, the Company exercised their option to renew the lease
through May 31, 2000 at $4,700 per month.
NOTE 10--CONTINGENCIES
The Company is a defendant in various lawsuits, all in the ordinary
course of business. Outside counsel for the Company has advised that at
this stage they cannot offer an opinion as to their probable outcome. In
the opinion of management, the ultimate liabilities, if any, resulting
from these claims will not have a material adverse effect on the business
or financial position of the Company.
NOTE 11--PROVISION FOR INCOME TAXES
The provision for income taxes for the year ended September 30, 1997,
consists of the following:
Current provision
Federal, net operating loss carryback $ (949)
State 800
---------
Total current provision (149)
---------
Deferred income taxes (benefits)
Federal 1,000
State (300)
---------
Total deferred taxes (benefits) 700
---------
Total tax provision $ 551
=========
Deferred tax assets and liabilities consist of the following at September
30, 1997:
F-13
<PAGE>
Deferred Tax Assets
Allowance for doubtful accounts $ 600
State Tax deduction 200
Accrued expenses 1,200
State tax on deferred tax liabilities 600
---------
Gross deferred tax assets - current $ 2,600
=========
Deferred Tax Liabilities
Depreciation $ 5,400
State tax savings on deferred tax assets 100
---------
Gross Deferred Tax Liabilities $ 5,500
=========
Income tax expense amounted to $551. The actual tax expense differs from
the expected tax (computed by applying a U.S. federal corporation tax
rate of 25% to the income before income taxes) as follows:
Expected statutory tax on income before taxes $ (602)
Nondeductible items 353
California taxes, net 800
---------
$ 551
=========
NOTE 12--SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and income taxes during the year ended September
30, 1997 are as follows:
Interest $ -
=========
Income taxes $ -
=========
NOTE 13--SUBSEQUENT EVENTS
Intermark Corporation, Newport Beach, California and Innovus Corporation,
Salt Lake City, Utah, on May 8, 1998 signed a definitive agreement,
whereby Intermark will be acquired by Innovus in exchange for Innovus
common and convertible preferred voting shares.
As a result of the above exchange, Intermark will be a wholly owned
subsidiary of Innovus and the previous holders of Intermark securities
will receive shares of Innovus that represent 75% of the voting power and
outstanding stock of Innovus, fully diluted.
F-14
<PAGE>
INTERMARK CORPORATION
CONDENSED BALANCE SHEET
(Unaudited)
June 30,
1998
---------
ASSETS
Current Assets
Cash and cash equivalents $ -
Accounts receivable 326,717
Notes receivable 309,168
Advances receivable 60,484
Deferred tax asset 2,600
---------
Total Current Assets 698,969
=========
Property and Equipment, Net 47,949
Other Assets, Net of Accumulated Amortization 11,244
---------
Total Assets $ 758,162
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 333,647
Accrued liabilities 10,946
Income taxes payable 39,550
Employee loans payable 177,885
Notes payable 293,335
---------
Total Current Liabilities 855,363
---------
Stockholders' deficit
Common stock - 10,000,000 shares authorized;
3,000,000 shares issued and outstanding 8,000
Additional paid-in capital (5,040)
Accumulated deficit (100,161)
---------
Total Stockholders' Deficit (97,201)
---------
Total Liabilities and Stockholders' Deficit $ 758,162
=========
F-15
<PAGE>
<TABLE>
<CAPTION>
INTERMARK CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 109,351 $ 156,741 $ 338,640 $ 312,942
---------- ---------- ---------- ----------
Costs and Operating Expenses
Costs of products and services
sold 23,322 76,870 178,963 153,740
General and administrative 179,538 68,314 288,016 136,628
---------- ---------- ---------- ----------
Total Costs and Operating
Expenses 202,860 145,814 466,979 290,368
---------- ---------- ---------- ----------
Operating Income (Loss) (93,509) 11,557 (128,339) 22,574
---------- ---------- ---------- ----------
Other Income (Expense)
Interest income 884 401 6,653 801
Interest expense (3,566) - (1,944) -
---------- ---------- ---------- ----------
Other Income (Expense), Net (2,682) 401 4,709 801
---------- ---------- ---------- ----------
Net Income (Loss) (96,191) 11,958 (123,630) 23,375
---------- ---------- ---------- ----------
Basic and Diluted Earnings
(Loss) Per Share $ (0.03) $ $ (0.04) $
========== ========== ========== ==========
Weighted number of shares of
common stock used in per share
calculation 3,375,000 3,375,000
========== ========== ========== ==========
</TABLE>
F-16
<PAGE>
INTERMARK CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
---------------------
1998 1997
---------- ---------
Cash Flows From Operating Activities
Net income (loss) $ (123,630) $ 23,375
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,100 5,502
Changes in assets and liabilities:
Accounts receivable (271,950) (14,524)
Employee advances (54,984) 26,495
Other assets (10,000) 1,629
Accounts payable 202,114 27,582
Accrued expenses (967) 89
Income taxes payable - 800
---------- ---------
Net Cash Provided by (Used in) Operating
Activities (254,317) 70,948
---------- ---------
Cash Flows From Investing Activities
Acquisition of property and equipment (365) (14,826)
---------- ---------
Net Cash Used in Investing Activities (365) (14,826)
---------- ---------
Cash Flows From Financing Activities
Proceeds from long-term debt 227,444 10,174
Proceeds from loans from employees 114,240 3,171
Borrowings to shareholders (87,002) (71,070)
---------- ---------
Net Cash Provided by (Used in) Financing
Activities 254,682 (57,725)
---------- ---------
Net Decrease in Cash and Cash Equivalents - (1,603)
Cash and Cash Equivalents at Beginning of Period - 1,603
---------- ---------
Cash and Cash Equivalents at End of Period $ - $ -
========== =========
F-17
