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INNV > SEC Filings for INNV > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for INNOVUS PHARMACEUTICALS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for INNOVUS PHARMACEUTICALS, INC.


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the discussion and analysis included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 19, 2013, as amended, as well as the consolidated financial statements and related notes contained therein.

Forward Looking Statements

This report makes certain forward-looking statements. Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 refer to the term "forward looking statements." Such statements may refer to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance, and similar matters.

Such words as "may", "will", "expect", "continue", "estimate", "project", and "intend" and similar terms and expressions are intended to identify forward looking statements. These terms may relate to events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. We advise readers that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements, including but not limited to, the risks described in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 19, 2013, and the risks described elsewhere in this report, as well as in other reports and documents we file with the SEC. Except as required by applicable law, we do not intend to update any of the forward-looking statement to conform these statement to actual results.

Overview

We are an emerging pharmaceutical company engaged in the commercialization, licensing, and development of prescription and non-prescription pharmaceutical products with a unique packaging and presentation. Our products are focused in the respiratory, dermatology and autoimmune therapeutic categories and will be marketed to primary care physicians, pediatricians, dermatologists and rheumatologists. Our business model leverages our ability to acquire and in-license commercial products, ongoing product development, business development and established physician relationships to drive strong growth in demand for our core products. Our future success is very dependent on these ongoing efforts.

Our corporate strategy focuses on two primary objectives:

Developing a diversified product portfolio of exclusive branded products through:

o acquisition of approved or late stage drug candidates awaiting approval from the U.S. Food and Drug Administration, or FDA;

o acquisition of proven brands;

o packaging our products in a kit format designed for better patient compliance and results;

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o introduction of line extensions, reformulations; and

o strategic development of our own products.

Building an innovative, global sales and marketing model through commercial partnerships with established complimentary partners that:

o generate revenue; and

o lower costs compared to traditional pharmaceutical companies.

Recent Updates

Our strategy is underway, but we are a development stage company, and we have not yet generated revenue from any of our products. We have signed one binding term sheet to acquire a portfolio of prescription and non-prescription products; and we recently acquired ex-US rights to CIRCUMserum. We have limited assets and operations and we are dependent on our President and Chief Executive Officer for operating capital through the second quarter of 2014. Additional capital will be required to maintain our corporate operations and we will need to seek additional funding for our product selection and development.

On April 19, 2013, we entered into an Asset Purchase Agreement with Centric Research Institute, Inc., or CRI, pursuant to which we acquired on the same day:

all of CRI's rights in past, present and future CIRCUMserumTM product formulations and presentations, and

an exclusive, perpetual license to commercialize CIRCUMserumTM products in all territories except for the United States of America.

CRI will retain commercialization rights for CIRCUMserumTM in the United States.

In consideration for such assets and license, we agreed to issue to CRI shares of our common stock valued at $250,000 within 10 days of the closing. We will be required to issue to CRI shares of our common stock valued at $100,000 within 30 days of receiving human safety data showing no serious adverse events and minimal-to-no adverse events related to use of the Product. We will be required to issue to CRI additional shares of our common stock valued at $100,000 within 30 days of receiving statistically significant positive human clinical efficacy safety data in a certain indication for product. In each case, the number of shares to be issued was or will be determined based on the average of the closing price for the 10 trading days immediately preceding the issue date. CRI will have certain "piggyback" registration rights with respect to the shares described above, which rights provide that, if the Company registers shares of its common stock under the Securities Act in connection with a public offering, CRI will have the right to include such shares in that registration, subject to certain exceptions.

In connection with this transaction, we engaged Dr. Albert Liu, CEO of CRI, as a consultant to assist in the technology transfer and manufacturing of the product. In consideration of such services, we agreed to issue to Dr. Liu shares of our common stock valued at $25,000 on each of the 30th, the 60th and the 90th day following the closing. In each case, the number of shares to be issued will be determined based on the average of the closing price for the 10 trading days immediately preceding the issue date. The issuance of such shares will be pursuant to our 2013 Equity Incentive Plan.

The Asset Purchase Agreement also requires us to pay to CRI up to $7 million in cash milestone payments based on first achievement of annual net sales targets plus a royalty based on annual net sales. The obligation for these payments expires on April 19, 2023 or the expiration of the last of CRI's patent claims covering the product or its use outside the United States, whichever is sooner.

Liquidity and Capital Resources

At March 31, 2013, we had $112,759 in cash as compared to $18,445 at December 31, 2012.

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In the three months ended March 31, 2013, we received additional debt financing. In January 2013, we issued an 8% convertible debenture to Henry Esber, Ph.D., a board member, in the amount of $70,000 and entered into a $250,000 convertible debenture with Bassam Damaj, Ph.D., our President and Chief Executive Officer, which provided for requests of funding from time to time by our company, which Dr. Damaj had the right to accept or decline in his discretion. In March 2013, that instrument was amended and restated to increase the maximum principal amount to $500,000 and in May 2013, that instrument was further amended to increase the maximum principal amount to $1,000,000, $264,100 of which has been funded through the date of this report. Dr. Damaj is required to provide additional funds under such debenture if we have insufficient liquidity to meet any material payment obligations arising in the ordinary course of business as they come due, up to the maximum of $1,000,000 in funding. The funding commitment increases by the gross amount of any cash salary, bonus or severance payments provided to Dr. Damaj under his employment agreement with our company. Dr. Damaj's salary has been accrued and not paid under the provision of such employment agreement stating that salary payments will be accrued and not paid for so long as payment of such salary would jeopardize our ability to continue as a going concern. We have the right to pre-pay interest and principal under Dr. Damaj's convertible debenture. We anticipate that Dr. Damaj's salary will continue to be so accrued at least until we have received at least $500,000 in external funding. Dr. Damaj's funding commitment terminates on the earlier to occur of (i) the consummation of one or more transactions pursuant to which we raise net proceeds of at least $1,000,000 or (ii) July 1, 2014.

Each of these convertible debentures bear an annual interest rate of 8% and is payable in cash at the earlier of July 1, 2014, or when we complete a financing with minimum proceeds of $4 million. The holders of the convertible debentures have the option to convert their principal and interest accrued into securities that may be issued in any future financing of our company with minimum proceeds of $4 million. In the event of a default on repayment, the annual interest rate would increase to 13% and the holders of the convertible debentures would have the option to convert to common stock at a value of $0.05 per share. With the exception of Dr. Damaj's convertible debenture, we do not have the right to pre-pay the convertible debentures.

Also in January 2013, we and each holder of the 8% convertible debentures we issued in January 2012 (totaling $162,668 in principal amount) agreed to extend the maturity date of such notes to January 14, 2014 at the same interest rate of 8% per annum. In May 2013, we and holders of debentures totaling $68,000 in principal of the 8% convertible debentures, each of whom is a director of our company, agreed to further extend the maturity date of such notes to July 1, 2014 at the same interest rate of 8% per annum.

We have experienced net losses and negative cash flows from operations each year since our inception. Through March 31, 2013, we had an accumulated deficit of approximately $2,786,170. Our operations have been financed through advances from officers and directors and related parties and to a lesser extent from outside capital. We have not yet had sufficient funds to significantly develop or commercialize our technologies.

In February 2013, we signed a binding term sheet for the acquisition of a portfolio of products. The initial purchase price for this portfolio will be in the form of our common stock, with subsequent royalty payments in cash. In April 2013, we acquired Ex-US rights to CIRCUMserum, a product for male sexual dysfunction. See "Recent Events" above.

Results of Operations

For the three months ended March 31, 2013 and 2012

Overview

For the three months ended March 31, 2013 and 2012, we had no revenues, and consequently, no cost of sales or gross profits.

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Operating Expenses

Operating expenses for the three months ended March 31, 2013 and 2012 totaled $331,816 and $56,277, respectively, a $275,539 increase year-over-year, primarily due to professional fees incurred by us in 2013 and compensation costs attributable to our new leadership.

Other Income

We recognized interest expense of $5,533 and $3,983 for the three months ended March 31, 2013 and 2012, respectively, an increase of $1,550 year-over-year. This increase was primarily the result of an increase in the amount of outstanding debt during 2013 compared to 2012.

Net Loss

We recognized a net loss in the amount of $337,349 and $60,260 for the three months ended March 31, 2013 and 2012, respectively. The increase in net loss results primarily from the factors described above.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs).

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