UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 0-26790
INNOVUS CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 87-0461856
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
4600 Campus Drive
Newport Beach, CA 92660
(Address of principal executive offices)
(801) 474-8228
(Issuer's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 No X
The number of common shares outstanding at March 31, 1998: 7,633,135
<PAGE>
Innovus Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS March 31, December 31,
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 9,274 $ 91,690
Accounts receivable, net (2,105) 1,494
Inventories 6,418 6,418
Prepaid expenses 21,321 29,159
---------- ---------
Total current assets 34,908 128,761
---------- ---------
PROPERTY AND EQUIPMENT, net 51,929 57,190
---------- ---------
OTHER ASSETS
Software development costs, net 489,858 775,569
Other 7,279 7,279
---------- ---------
Total other assets 497,137 782,848
---------- ---------
TOTAL ASSETS $ 583,974 $ 968,799
========== =========
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
Innovus Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1998 1997
------------- --------------
CURRENT LIABILITIES
Accounts payable $ 772,170 $ 748,448
Accrued compensation 17,095 21,113
Accrued liabilities 7,528 3,510
Notes Payable 18,962 28,099
------------- --------------
Total current liabilities 815,755 801,170
------------- --------------
OTHER LIABILITIES
Capital lease obligations 1,151 1,912
------------- --------------
Total other liabilities 1,151 1,912
------------- --------------
TOTAL LIABILITIES 816,906 803,082
------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock - $0.001 par value;
1,000,000 shares authorized; 77,358
issued and outstanding. 77 77
Common stock - $0.001 par value;
15,000,000 shares authorized; 7,633,135
issued and outstandind. 7,633 7,633
Additional paid-in capital 18,245,808 18,245,808
Accumulated deficit (18,486,450) (18,087,801)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY (232,932) 165,717
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 583,974 $ 968,799
============ =============
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Innovus Corporation and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 23,084 $ 273,474
------------ ------------
Costs and operating expenses
Costs of products and services sold 1,752 93,578
Amortization of software development costs 290,971 257,120
Product development 37,401 0
Selling and marketing 3,333 569,329
General and administrative 86,697 226,780
------------ ------------
420,154 1,146,807
------------ ------------
Operating loss (397,070) (873,333)
Other income (expense)
Interest income 8,320
Other income 6,642
Interest expense for warrants issued with debt (349,607)
Interest expense, other (1,579) (34,856)
------------ ------------
(1,579) (369,501)
------------ ------------
Net Loss (398,649) (1,242,834)
Dividends on preferred stock 0 (115,242)
------------ ------------
Loss Applicable to Common Shareholders $ (398,649) $(1,358,076)
=========== ===========
Loss per common share $ (0.05) $ (0.25)
=========== ===========
Weighted number of shares of common stock
used in per share calcution 7,672,769 5,479,956
=========== ===========
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Innovus Corporation and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
1998 1997
------------ --------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (398,649) $ (1,242,834)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 290,971 306,597
Expenses for issued warrants 0 349,607
Changes in assets and liabilities:
Accounts receivable 3,599 (150,382)
Inventories 0 (62,385)
Accounts payable and accrued expenses 14,585 (403,711)
Other 7,838 39,320
------------ --------------
Net cash used in operating activities (81,656) (1,163,788)
------------ --------------
Cash flows from investing activities:
Acquisition of property and equipment 0 (10,978)
Increase in software development cost 0 (430,871)
------------ --------------
Net cash used in investing activities: 0 (441,849)
------------ --------------
Cash flows from financing activities
Payment to reduce long-term debt and capital
lease obligations (760) (101,727)
Net proceeds from issuance of preferred and
common stock 0 1,861,060
------------ --------------
Net cash provided by (used in) financing activities (760) 1,759,333
------------ --------------
Net increase (decrease) in cash and cash equivalents (82,416) 153,696
Cash and cash equivalents at beginning of period 91,690 886,122
------------ --------------
Cash and cash equivalents at end of period $ 9,274 $ 1,039,818
=========== ==============
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
<PAGE>
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 1998.
On an ongoing basis, management reviews the amortization and capitalization of
intangible assets and necessary adjustments to carrying values, if any, are
recorded. Management is currently evaluating the carrying value of software
development costs for impairment purposes. Adjustments may be necessary and such
adjustments may be material.
The Company has omitted or condensed footnotes and other disclosure normally
included in financial statements.
The financial statements have been prepared on the basis of the Company being a
going concern. The Company has had continued losses, and currently has a
substantial accumulated deficit and lack of financial resources. There may be
substantial doubt regarding the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of such uncertainty.
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 and December 31, 1997.
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation. The reclassifications are not material.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
As of the date of this report, the Company had not completed the audit of its
financial statements for the year ended December 31, 1997. The financial
statements filed with this Form 10-QSB have not been audited and omit
substantially all footnote disclosure. The financial statements, including the
balances at the beginning of the period, are subject to adjustments on audit
(which management believes will consist of normally occurring adjustments and
possible adjustments to capitalized software costs). The possible adjustments to
the capitalized software costs may be material.
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, 1997 found in the Company's Form 10-KSB. Such
statements are unaudited and omit substantially all footnote disclosure.
The financial statements have been prepared on the basis of the Company being a
going concern. The Company has had continued losses, and currently has a
substantial accumulated deficit and lack of financial resources. There may be
substantial doubt regarding the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of such uncertainty.
The Company had been engaged in the sale of multimedia authoring and
presentation software, with related application templates and media packages.
Due to lagging sales and lack of resources, the Company ceased development and
marketing activities in late 1997. In May, 1998, the Company signed an Agreement
and Plan of Share Exchange with Intermark Corporation ("Intermark") whereby
current Intermark shareholders would obtain securities representing 75% of the
Company's voting power. The Intermark Agreement has not been consummated.
Results of Operations
During the quarter ended March 31, 1998, sales were negligible. Net sales were
$23,084, compared to $273,474 for the comparable period of the prior year.
Although some sales of INNOVUS Multimedia and related products continue, the
Company does not expect significant sales unless the Company is able to
aggressively promote the software. Even if the Company were able to promote the
software, the market shift to web-based software would likely restrict sales of
the software unless large scale revisions were made.
As described under "Liquidity and Capital Resources" below, if the Company does
not implement a new business plan to generate revenues or raise additional
<PAGE>
capital, the Company's viability as a going concern is in question. Other than
the Agreement with Intermark, the Company does not currently have any plans
which it believes are likely to generate significant revenue.
The costs of products and services sold in the three months ended March 31, 1998
and 1997 were $1,752 and $93,578 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.
Operating loss for the three months ended March 31, 1998 was $397,070 compared
to an operating loss of $1,515,388 for the three months ended March 31, 1997.
The reduction in operating loss reflects the substantial reduction in business
activity by the Company. Comparison of the current quarter when the Company was
doing little other than attempting to determine a new business plan to the first
quarter of 1997 when the Company was actively attempting to market its software
is not meaningful. Operating loss for the first quarter of 1998 includes
$290,971 from the amortization of software development costs. If adjustments are
made to the carrying value of capitalized software development costs at December
31, 1997, the amortization for the quarter will be adjusted accordingly.
The Company incurred $1,579 and $369,501 in net interest expense during the
three months ended March 31, 1998 and 1997, respectively.
The Company sustained a net loss of $398,649 for the three months ended March
31, 1998 compared to a net loss of $1,599,093 for the three months ended March
31, 1997.
As explained in "Liquidity and Capital Resources" below, the Company does not
have the ability to sustain additional losses, even at the reduced levels of the
first quarter of 1998. There can be no assurance that the Company will be able
to develop or implement a business plan which will allow it to continue as a
going concern. If the Intermark transaction is consummated, there is no
assurance that the combined entity will be profitable or able to attract new
capital. If the Intermark transaction is not consummated, the Company does have
any firm plans to attract additional capital. In order to prepare this filing,
in 1998 the Company privately issued debentures secured by substantially all of
the assets of the Company. Without the Intermark transaction or an alternative
business plan, the Company will not be able to pay the debentures when they come
due.
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
<PAGE>
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 March 31, 1998 the Company had $9,274 of cash and cash equivalents and a
deficit in working capital (current liabilities in excess of current assets) of
$780,847. 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. Management's efforts to obtain additional equity
financing have been unsuccessful. The company does not have any firm commitments
for additional equity financing. 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. Management does not believe that the
Company will be able to obtain new financing unless the preferred stock
structure is revised and a new business acquired.
The Company estimates that it is currently using approximately $20,000 more cash
each month than is generated by operations. Without additional financing, the
Company does not foresee operations improving significantly enough to eliminate
the negative cash flow.
Subsequent to March 31, 1998, the Company borrowed $75,000 from an officer and
director and two other persons pursuant to convertible debentures. The
debentures are secured by substantially all the assets of the Company.
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.
At March 31, 1998, the Company had long term liabilities of $30,011. This
reflects the sale of the Company's building, relieving the Company from the
first and second mortgages, as well as the sale of telephone equipment subject
to a lease obligation.
There is doubt whether the Company can 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.
<PAGE>
PART II
Item 2 - Changes in Securities
(c) The following securities were issued by the Company during the
quarter ended March 31, 1998 without registration under the Securities Act of
1933 (other than issuances pursuant to Regulation S):
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
Those exhibits previously filed with the Securities and Exchange
Commission as required by Item 601 of Regulation S-K, are incorporated
herein by reference in accordance with the provisions of Rule 12b-32.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the period reported upon.
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 20, 1998
INNOVUS CORPORATION
By: /s/ TERRY R. HAAS
--------------------------------------
Terry R. Haas, President and Principal
Executive Officer
By: /s/ DAVID M. MOCK
-----------------------------------
David M. Mock, Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,274
<SECURITIES> 0
<RECEIVABLES> (2,105)
<ALLOWANCES> 0
<INVENTORY> 6,418
<CURRENT-ASSETS> 34,908
<PP&E> 51,929
<DEPRECIATION> 0
<TOTAL-ASSETS> 583,974
<CURRENT-LIABILITIES> 815,755
<BONDS> 0
0
77
<COMMON> 7,633
<OTHER-SE> 18,245,808
<TOTAL-LIABILITY-AND-EQUITY> 583,974
<SALES> 23,084
<TOTAL-REVENUES> 23,084
<CGS> 1,752
<TOTAL-COSTS> 420,154
<OTHER-EXPENSES> 1,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,579
<INCOME-PRETAX> (398,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (398,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (398,649)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
