10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 (Mark One)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period ended March 31, 2019

or

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act.

For the transition period from ___ to ____.

Commission File Number: 000-52991

INNOVUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Nevada	90-0814124
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)
8845 Rehco Road San Diego, CA	92121
(Address of Principal Executive Offices)	(Zip Code)

858-964-5123

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act: none

Securities registered pursuant to Section 12(g) of the Act: 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	INNV	OTCQB Marketplace

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of May 13, 2019, the registrant had 2,624,431 shares of common stock outstanding.

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements		1
	Condensed Consolidated Balance Sheets at March 31, 2019 (Unaudited) and December 31, 2018		1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and 2018		2
	Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018		3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018		4
	Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		21
Item 4.	Controls and Procedures		21
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		22
Item 1A.	Risk Factors		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3.	Defaults Upon Senior Securities		23
Item 4.	Mine Safety Disclosures		23
Item 5.	Other Information		23
Item 6.	Exhibits		23
	Signatures		24

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 INNOVUS PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Assets:
Cash	$	1,947		$	1,248
Accounts receivable, net		130			282
Prepaid expense and other current assets		1,574			1,116
Inventories		2,130			2,370
Total current assets		5,781			5,016
Property and equipment, net		229			247
Deposits		21			21
Operating lease right-of-use asset		649			-
Goodwill		953			953
Intangible assets, net		3,736			3,890
Total assets	$	11,369		$	10,127
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expense	$	2,799		$	2,622
Accrued compensation		1,480			1,252
Deferred revenue and customer deposits		282			108
Accrued interest payable		35			32
Short-term loan payable		422			266
Notes payable, net of debt discount of $736 and $1,008, respectively		2,230			3,073
Total current liabilities		7,248			7,353
Deferred Rent		-			181
Operating lease liability, net of current portion		676			-
Accrued compensation – less current portion		1,130			1,228
Contingent consideration – less current portion		1,254			1,256
Total non-current liabilities		3,060			2,665
Total liabilities		10,308			10,018
Commitments and contingencies
Stockholders’ equity:
Preferred stock: 7,500,000 shares authorized, at $0.001 par value, no shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		-			-
Common stock: 292,500,000 shares authorized, at $0.001 par value, 2,357,524 and 2,103,071 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		2			2
Additional paid-in capital		46,908			43,967
Accumulated deficit		(45,849	)		(43,860	)
Total stockholders' equity		1,061			109
Total liabilities and stockholders’ equity	$	11,369		$	10,127

See accompanying notes to these condensed consolidated financial statements.

1

INNOVUS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except weighted average share and per share amounts)

	For the Three Months Ended March 31,
	2019			2018
Net revenue:
Product sales, net	$	5,189		$	4,542
Service revenue		100			-
Cooperative marketing revenue		71			-
License revenue		3			3
Net revenue		5,363			4,545
Cost of product sales		1,778			864
Gross Profit		3,585			3,681
Operating expense:
Research and development		56			11
Sales and marketing		2,595			3,302
General and administrative		2,435			1,696
Total operating expense		5,086			5,009
Loss from operations		(1,501	)		(1,328	)
Other income (expense):
Interest expense		(490	)		(242	)
Loss on extinguishment of debt		-			(256	)
Fair value adjustment for contingent consideration		2			(3	)
Total other expense, net		(488	)		(501	)
Net loss	$	(1,989	)	$	(1,829	)
Net loss per share of common stock – basic and diluted	$	(0.81	)	$	(1.03	)
Weighted average number of shares of common stock outstanding – basic and diluted		2,445,471			1,780,321

See accompanying notes to these condensed consolidated financial statements.

2

INNOVUS PHARMACEUTICALS, INC.

Condensed Consolidated Statement of Stockholder's Equity

For the Three Months Ended March 31, 2019 and 2018

(In thousands, except share amounts)

					Additional
	Common Stock				Paid-in		Accumulated		Stockholders'
	Shares		Amount		Capital		Deficit		Equity
Balance at December 31, 2017		1,596,574	$	2	$	36,541	$	(35,640)	$	903
Common stock issued for services		2,444		-		21		-		21
Stock-based compensation		-		-		95		-		95
Exercise of warrants, net of offering costs		180,247		-		2,657		-		2,657
Common stock issued upon conversion of debt and interest		21,429		-		385		-		385
Common stock issued in connection with debt		26,355		-		292		-		292
Fair value of shares of common stock issued as financing fees in connection with notes payable		8,916		-		122		-		122
Reclassification of warrant derivative liability upon adoption of ASU 2017-11		-		-		-		59		59
Net loss		-		-		-		(1,829)		(1,829)
Balances at March 31, 2018		1,835,965	$	2	$	40,113	$	(37,410)	$	2,705
Balance at December 31, 2018		2,103,071	$	2	$	43,967	$	(43,860)	$	109
Common stock issued for services		5,600		-		28		-		28
Stock-based compensation		-		-		138		-		138
Relative fair value of shares of restricted common stock issued in connection with notes payable		18,000		-		61		-		61
Sales of common stock and warrants, net of offering costs		230,853		-		2,714		-		2,714
Net loss		-		-		-		(1,989)		(1,989)
Balances at March 31, 2019		2,357,524	$	2	$	46,908	$	(45,849)	$	1,061

3

INNOVUS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(1,989	)	$	(1,829	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		17			7
Recovery of allowance for doubtful accounts		(7	)		-
Common stock, restricted stock units and stock options issued to employees, board of directors and consultants for compensation and services		138			115
Loss on extinguishment of debt		-			256
Change in fair value of contingent consideration		(2	)		3
Amortization of debt discount		461			229
Amortization of intangible assets		185			158
Changes in operating assets and liabilities, net of acquisition amounts
Accounts receivable		158			(127	)
Prepaid expense and other current assets		(458	)		30
Inventories		552			77
Operating lease right-of-use asset and liability, net		(7	)		-
Accounts payable and accrued expense		30			122
Accrued compensation		130			170
Accrued interest payable		15			8
Deferred revenue and customer deposits		175			118
Net cash used in operating activities		(602	)		(663	)
Cash flows used in investing activities:
Purchase of property and equipment		-			(148	)
Purchase of intangible assets		(343	)		-
Net cash used in investing activities		(343	)		(148	)
Cash flows from financing activities:
Payments on short-term loans payable		(230	)		(33	)
Proceeds from short-terms loans payable		375			-
Proceeds from notes payable		400			1,873
Payments on notes payable		(1,615	)		(509	)
Proceeds from sale of common stock and warrants, net of offering costs		2,714			-
Proceeds from stock option and warrant exercises		-			2,839
Net cash provided by financing activities		1,644			4,170
Net change in cash		699			3,359
Cash at beginning of period		1,248			1,565
Cash at end of period	$	1,947		$	4,924
Supplemental disclosures of cash flow information:
Cash paid for operating lease liabilities	$	65		$	-
Cash paid for interest	$	21		$	2
Supplemental disclosures of non-cash investing and financing activities:
Common stock issued for conversion of convertible debentures, notes payable and accrued interest	$	-		$	167
Relative fair value of common stock issued in connection with notes payable recorded as debt discount	$	61		$	292
Offering costs in connection with warrant exercises included in accounts payable and accrued expense	$	-		$	181
Cumulative adjustment to accumulated deficit for the fair value of the warrant derivative liability upon adoption of ASU 2017-11 on January 1, 2018	$	-		$	59
Fair value of common stock issued as financing fees in connection with notes payable recorded as debt discount	$	28		$	123

See accompanying notes to these condensed consolidated financial statements.

4

INNOVUS PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Innovus Pharmaceuticals, Inc., a Nevada incorporated and San Diego-based company, together with its subsidiaries as follows (collectively referred to as “Innovus” or the “Company”): Semprae Laboratories, Inc., a Delaware corporation (“Semprae”); FasTrack Pharmaceuticals, Inc., a Delaware corporation (“FasTrack”); Novalere, Inc., a Delaware corporation (“Novalere”); Supplement Hunt, Inc., a Nevada corporation (“Supplement Hunt”); and Prime Savings Club, Inc., a Nevada corporation (“Prime Savings Club”), is an emerging over-the-counter (“OTC”) consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine, consumer care products, supplements and certain related devices to improve men’s and women’s health and vitality, urology, brain health, pain, respiratory diseases, among others. The Company delivers innovative and uniquely presented and packaged health solutions through its (a) OTC medicines, devices, consumer and health products, and clinical supplements, which we market directly, (b) commercial retail and wholesale partners, and (c) directly to consumers through the Company’s proprietary Beyond Human® Sales & Marketing Platform including print media, on-line channels, websites, retailers and wholesalers. The Company is dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products, supplements and certain related devices. Innovus actively pursues opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.

The Company’s business model leverages its ability to (a) develop and build its current pipeline of proprietary products, and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through the Company’s existing supply chain, retail and on-line (including our Amazon®, eBay®, Wish.com, Walmart.com®, and Walgreens.com on-line stores and other e-commerce business platforms) channels to tap new markets and drive demand for such products and to establish physician relationships. The Company currently sells its products direct to consumer primarily in the United States and Canada and sells to international commercial partners in multiple countries around the world.

Basis of Presentation and Principles of Consolidation

The condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited consolidated financial statements, and these unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and include all assets, liabilities, revenues and expenses of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. Certain information required by U.S. GAAP has been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The results for the period ended March 31, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2019, or for any future period. 

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such management estimates include the allowance for doubtful accounts, sales returns and chargebacks, realizability of inventories, valuation of deferred tax assets, goodwill and intangible assets, valuation of contingent acquisition consideration, recoverability of long-lived assets and goodwill and the valuation of equity-based instruments. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

Liquidity

The Company’s operations have been financed primarily through proceeds from convertible debentures and notes payable, sales of its common stock and revenue generated from its products domestically and internationally through the Company’s marketing platform and by its partners. These funds have provided Innovus with the resources to operate its business, sell and support its products, attract and retain key personnel and add new products to the Company’s portfolio. The Company has experienced net losses and negative cash flows from operations each year since its inception. As of March 31, 2019, the Company had an accumulated deficit of $45.8 million and a working capital deficit of $1.5 million.

As of March 31, 2019, we had $1.9 million in cash and $0.6 million held by merchant processors reported in other current assets for a total of $2.5 million and as of May 13, 2019 we had $2.2 million in cash and $0.7 million held by merchant processors. During the three months ended March 31, 2019, we had net cash used in operating activities of $0.6 million. We expect that our existing capital resources, together with revenue from sales of our products and upcoming sales milestone payments from the commercial partners signed for our products, will be sufficient to allow us to continue our operations, commence the product development process and launch selected products through at least the next 12 months.

In addition, our CEO, who is also a significant shareholder, has deferred the remaining payment of his salary earned through June 30, 2016, with a current balance totaling $1.1 million, and has agreed to refrain from receipt of any funds which may jeopardize the ability of the Company to operate. Our actual needs will depend on numerous factors, including timing of introducing our new products to the marketplace, our ability to attract additional international distributors for our products and our ability to in-license in non-partnered territories and/or develop new product candidates. Although no assurances can be given, we currently intend to raise additional capital through the sale of debt or equity securities to provide additional working capital, pay for further expansion and development of our business, and to meet current obligations. Such capital may not be available to us when we need it or on terms acceptable to us, if at all.

5

Fair Value Measurement

Our financial instruments are cash, accounts receivable, accounts payable, accrued liabilities, contingent consideration and debt. The recorded values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The fair value of the contingent acquisition consideration is based upon the present value of expected future payments under the terms of the agreements and is a Level 3 measurement.  Based on borrowing rates currently available to us, the carrying values of the notes payable and short-term loans payable approximate their respective fair values.  

We follow a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to measurements involving significant unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:

● Level 1 measurements are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

● Level 2 measurements are inputs other than quoted prices included in Level 1 that are observable either directly or indirectly.

● Level 3 measurements are unobservable inputs.

Revenue Recognition

The Company generates revenue from product sales and the licensing of the rights to market and commercialize our products.

Revenue is measured based on consideration specified in a contract with a customer. A contract with a customer exists when the Company enters into an enforceable contract with a customer. The contract is based on either the acceptance of standard terms and conditions on the websites for e-commerce customers and via telephone with our third-party call center for our print media and direct mail customers, or the execution of terms and conditions contracts with retailers and wholesalers. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid prior to shipment via credit card or check when products are sold direct to consumers or approximately 30 days from the time control is transferred when sold to wholesalers, distributors and retailers. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer.

A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of over-the-counter drug and consumer care products to its customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to the carrier who takes control of the product that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. 

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to e-commerce and print media customers, upon request, within 30-90 days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do not offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. The estimated reserve for sales returns and allowances, which is included in accounts payable and accrued expense, was approximately $223,000 and $194,000 at March 31, 2019 and December 31, 2018, respectively.

The Company recognizes revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales.

The Company enters into exclusive distributor and license agreements that are within the scope of ASC Topic 606. The license agreements we enter into normally generate three separate components of revenue: (1) an initial nonrefundable payment due on signing or when certain specific conditions are met; (2) royalties that are earned on an ongoing basis as sales are made or a pre-agreed transfer price; and (3) sales-based milestone payments that are earned when cumulative sales reach certain levels. Revenue from the initial nonrefundable payments or licensing fee is recognized when all required conditions are met. If the consideration for the initial license fee is for the right to sell the licensed product in the respective territory with no other required conditions to be met, such type of nonrefundable license fee arrangement for the right to sell the licensed product in the territory is recognized ratably over the term of the license agreement. For arrangements with licenses that include sales-based royalties, including sales-based milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. The achievement of the sales-based milestone underlying the payment to be received predominantly relates to the licensee’s performance of future commercial activities.

Advertising Expense

Advertising costs, which primarily includes print and online media advertisements, are expensed as incurred and are included in sales and marketing expense in the accompanying condensed consolidated statements of operations. Advertising costs were approximately $2.0 and $2.5 million for the three months ended March 31, 2019 and 2018, respectively.

6

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding and vested but deferred RSUs during the period presented. Diluted net loss per share is computed using the weighted average number of common shares outstanding and vested plus deferred RSUs during the periods plus the effect of dilutive securities outstanding during the periods. For the three months ended March 31, 2019 and 2018, basic net loss per share is the same as diluted net loss per share as a result of our common stock equivalents being anti-dilutive.  See Note 7 for more details.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements. We adopted Topic 842 on its effective date in the first quarter of 2019 using a modified retrospective approach. We elected the available package of practical expedients upon adoption, which allowed us to carry forward our historical assessment of whether existing agreements contained a lease and the classification of our existing operating leases. We continue to report our financial position as of December 31, 2018 under the former lease accounting standard (Topic 840) in our condensed consolidated balance sheet. The adoption impact resulted in the recognition of an operating lease liability with a corresponding right-of-use asset based on the present value of our remaining minimum lease payments which offset the previously reported deferred rent balance.

The following table summarizes the impact of Topic 842 on our condensed consolidated balance sheet upon adoption on December 31, 2018 (in thousands):

	December 31, 2018
	(unaudited)
	Pre-adoption		Adoption Impact			Post-adoption
Assets
Operating lease right-of-use asset	$	-	$	675		$	675
Total assets	$	-	$	675		$	675
Liabilities and Stockholders' Equity
Accrued Liabilities	$	-	$	140		$	140
Deferred Rent		181	$	(181	)		-
Operating lease liabilities, net of current portion		-	$	716			716
Total liabilities and stockholders' equity	$	181	$	675		$	856

In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update aligns the accounting for share-based payment awards issued to nonemployees with those issued to employees. Under the new guidance, the nonemployee awards will be measured on the grant date and compensation costs will be recognized when achievement of the performance condition is probable. This new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of the new guidance does not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after December 15, 2019, and interim periods within that reporting period. While the Company is still in the process of completing our analysis on the impact this guidance will have on the consolidated financial statements and related disclosures, the Company does not expect the impact to be material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update modifies the disclosure requirements for recurring and nonrecurring fair value measurements, primarily those surrounding Level 3 fair value measurements and transfers between Level 1 and Level 2. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. The Company is currently evaluating the new guidance and does not expect it to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

7

NOTE 2 – REVENUE

Disaggregation of Revenue

Our revenue is primarily from distinct fixed-price product sales in the over-the-counter drug and consumer care products market, to similar customers and channels utilizing similar types of contracts that are short term in nature (less than one year). We do not sell service agreements or goods over a period of time and do not sell or utilize customer financing arrangements or time-and-material contracts.

The following is a table that presents product sales, net by geographical area:

	For the Three Months Ended March 31,
	2019		2018
United States	$	4,509	$	4,184
Canada		676		358
All Other		4		-
Product sales, net	$	5,189	$	4,542

All Other consists of Europe, Australia, Asia, and the Middle East.

Contract Balances

We do not have any contract assets such as work-in-process but do have certain contract liabilities such as customer advances for product sales under its license agreements. As of March 31, 2019, we had customer advances totaling $104,000 included in deferred revenue and customer deposits in the accompanying condensed consolidated balance sheet for advance payments on the future sale of Zestra® and Zestra Glide® products to Sothema and UriVarx® to Acerus Pharmaceuticals under their license agreements.

NOTE 3 – BUSINESS AND ASSET ACQUISITIONS

Acquisition of Prime Consultants, LLC Assets

On January 1, 2019 (the “Closing Date”), the Company entered into an Asset Purchase Agreement, pursuant to which the Company acquired substantially all of the assets of Prime Consultants, LLC (the “Seller”) in exchange for $343,000 in cash. The assets acquired include the established Amazon seller platform and inventory totaling $313,000. Prime Consultants, LLC is an e-commerce business with sales of products primarily through the Amazon® platform which generated $2.4 million in sales in 2018. The Company recorded intangible assets totaling $30,000.  The Company believes this business complements our existing business while providing an additional sales platform to add to the existing revenue channels.

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Acquisition of Novalere in 2015

On February 5, 2015 (the “Closing Date”), we acquired the worldwide rights to market and sell the FlutiCare® brand (fluticasone propionate nasal spray) and the related third-party manufacturing agreement for the manufacturing of FlutiCare® (“Acquisition Manufacturer”) from Novalere FP. The OTC Abbreviated New Drug Application (“ANDA”) for fluticasone propionate nasal spray was filed at the end of 2014 by our third-party manufacturer and partner, who is currently selling the prescription version of the drug, with the FDA and the OTC ANDA was approved in April 2019. An ANDA is an application for a U.S. generic drug approval for an existing licensed medication or approved drug. A prescription ANDA (“RX ANDA”) is for a generic version of a prescription pharmaceutical and an OTC ANDA is for a generic version of an OTC pharmaceutical.

Due to the delay in approval of the Acquisition Manufacturer’s OTC ANDA by the FDA, in May 2017, we announced a commercial relationship with a different third-party manufacturer (West-Ward Pharmaceuticals International Limited or “WWPIL”) who has an FDA approved OTC ANDA for fluticasone propionate nasal spray under which they have agreed to manufacture our FlutiCare® OTC product for sale in the U.S. (see Note 8). As we hold the worldwide rights to market and sell FlutiCare® under the manufacturing agreement with the Acquisition Manufacturer, we believe the agreement with the Acquisition Manufacturer will still provide us with the opportunity to market and sell FlutiCare® ex-U.S. and, with the approval of the OTC ANDA in April 2019, a second source of supply within the U.S. is available to Innovus.

The Novalere Stockholders are entitled to receive, if and when earned, earn-out payments (the “Earn-Out Payments”). For every $5.0 million in Net Revenue (as defined in the Merger Agreement) realized from the sales of FlutiCare® through the manufacturing agreement with the Acquisition Manufacturer, the Novalere Stockholders will be entitled to receive, on a pro rata basis, $500,000, subject to cumulative maximum Earn-Out Payments of $2.5 million. The Novalere Stockholders are only entitled to the Earn-Out Payments from the Acquisition Manufacturer’s OTC ANDA under review by the FDA and have no earn-out rights to the sales of FlutiCare® supplied by WWPIL under the commercial agreement entered into in May 2017.

During the three months ended March 31, 2019 and 2018, there was an (decrease) increase in the estimated fair value of the remaining 1,323 ANDA consideration shares totaling $(2,000) and $3,000 for the three months ended March 31, 2019 and 2018, respectively, which is included in fair value adjustment for contingent consideration in the accompanying condensed consolidated statements of operations. The remaining 1,323 ANDA consideration shares will be issued in the second quarter of 2019 with the FDA approval received in April 2019 of the ANDA filed by the Acquisition Manufacturer and the estimated fair value of such remaining shares of $6,000 is included in contingent consideration in the accompanying condensed consolidated balance sheet at March 31, 2019. The fair value of the contingent consideration was $1.1 and $1.2 million as of March 31, 2019 and December 31, 2018, respectively. 

NOTE 4 – INVENTORY

Inventories consist of the following:

	March 31,		December 31,
	2019		2018
Raw materials and supplies	$	186	$	238
Work in process		95		96
Finished goods		1,849		2,036
Total	$	2,130	$	2,370

NOTE 5 – INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Amortizable intangible assets consist of the following:

	March 31, 2019
	Amount		Accumulated Amortization			Net Amount		Useful Lives (years)
Patent & Trademarks	$	684	$	(195	)	$	489		7 – 15
Customer Contracts		625		(328	)		297		10
Sensum+® License (from CRI)		235		(137	)		98		10
Vesele® Trademark		25		(14	)		11		8
Beyond Human® Website and Trade Name		222		(121	)		101		5 – 10
Novalere Manufacturing Contract		4,681		(1,941	)		2,740		10
Other Beyond Human® Intangible Assets		5		(5	)		-		1 – 3
Total	$	6,477	$	(2,741	)	$	3,736

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	December 31, 2018
	Amount		Accumulated Amortization			Net Amount		Useful Lives (years)
Patent & Trademarks	$	654	$	(161	)	$	493		7 – 15
Customer Contracts		625		(311	)		314		10
Sensum+® License (from CRI)		234		(131	)		103		10
Vesele® Trademark		25		(12	)		13		8
Beyond Human® Website and Trade Name		222		(112	)		110		5 – 10
Novalere Manufacturing Contract		4,681		(1,824	)		2,857		10
Other Beyond Human® Intangible Assets		5		(5	)		0		1 – 3
Total	$	6,446	$	(2,556	)	$	3,890

Amortization expense for the three months ended March 31, 2019 and 2018 was $185,000 and $158,000, respectively. The following table summarizes the approximate expected future amortization expense as of March 31, 2019 for intangible assets:

Remainder of 2019	$	536
2020		714
2021		657
2022		614
2023		578
Thereafter		637
	$	3,736

NOTE 6 – NOTES PAYABLE AND SHORT-TERM LOANS PAYABLE

Notes Payable

The following table summarizes the outstanding notes payable at March 31, 2019 and December 31, 2018:

	2019			2018
Notes payable:
January and March 2018 Notes Payable	$	-		$	112
February and March 2018 5% Notes Payable		117			250
July 2018 5% Notes Payable		-			550
August 2018 Notes Payable		500			800
September 2018 5% Notes Payable		250			390
October 2018 5% Notes Payable		550			550
November and December 2018 Notes Payable		1,049			1,429
March 2019 Note Payable		500			-
Total notes payable		2,966			4,081
Less: Debt discount		(736	)		(1,008	)
Carrying value		2,230			3,073
Less: Current portion		(2,230	)		(3,073	)
Notes payable, net of current portion	$	-		$	-

The following table summarizes the future minimum payments as of March 31, 2019 for the notes payable:

Remainder of 2019	$	2,466
2020		500
	$	2,966

March 2019 Note Payable

On March 27, 2019, we entered into a securities purchase agreement with an unrelated third-party investor in which the investor loaned us gross proceeds of $400,000 pursuant to a 0% promissory note (“March 2019 Note Payable”). The note has an Original Issue Discount (“OID”) of $100,000 and requires payments of $47,000 in principal per month through March 2020.

In connection with the March 2019 Note Payable, we issued the investor restricted shares of common stock totaling 18,000 shares. The fair value of the restricted shares of common stock issued was based on the market price of our common stock on the date of issuance of the March 2019 Note Payable. The allocation of the proceeds received to the restricted shares of common stock based on their relative fair value and the OID resulted in us recording a debt discount of $161,000 in March 2019. In connection with the financing, we issued 5,600 restricted shares of common stock in March 2019 to a third-party consultant. The fair value of the restricted shares of common stock issued of $28,000 was recorded as a debt discount to the carrying value of the notes payable. The discount is being amortized to interest expense using the effective interest method over the term of the March 2019 Note Payable.

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Interest Expense

We recognized interest expense on notes payable of $17,000 and $12,000 for the three months ended March 31, 2019 and 2018, respectively. Amortization of the debt discount to interest expense during the three months ended March 31, 2019 and 2018 totaled $461,000 and $229,000, respectively.

NOTE 7 – STOCKHOLDERS’ EQUITY

Issuances of Common Stock

Private Placement

On January 3, 2019, we completed a sale of common stock and warrants under a Securities Purchase Agreement. The gross proceeds to us from the offering were $3.2 million before underwriting discounts and commissions and other offering expenses ($2.7 million of net proceeds after underwriting discounts, commissions and expenses).

The Company completed the sale of common stock and warrants under a Securities Purchase Agreement with an accredited investor (the “Investor”), pursuant to which the Company sold an aggregate of 431,490 units (“Units”) for $7.35 per unit, with each Unit consisting of (i) one share of the Company’s common stock (“Shares”), (ii) one warrant to purchase one share of common stock at an exercise price of $7.35 per share (“Series A Warrant”), and (iii) one warrant to purchase one share of common stock at an exercise price of $8.40 per share (“Series B Warrant”) (the “Private Placement”); provided, however, that in order to ensure that the Investor’s beneficial ownership did not exceed 9.99% of the outstanding shares of Common Stock, the Investor elected to exercise its right to purchase 200,637 prefunded warrants (“Series C Warrants”) in lieu of Shares as part of the Units, which Series C Warrants have a nominal exercise price of $0.105 per share. In addition, the Company issued Series B Warrants to purchase 32,362 shares of common stock, an amount equal to 7.5% of the aggregate number of Shares, including Series C Warrants, sold in the Private Placement, at an exercise price of $9.19 per share to the designees of H.C. Wainwright & Co., LLC, the Company’s sole placement agent, as compensation for its services in connection with the Private Placement.

Other Stock Issuances and Related Stock-Based Compensation

In connection with the March 2019 Notes Payable, we issued 18,000 restricted shares of common stock in March 2019 and 5,600 restricted shares of common stock in March 2019 to a third-party consultant.  The fair value of the restricted share of common stock issued of $118,000 was recorded as a debt discount to the carrying value of the notes payable in March 2019 (see Note 6).  

2013 Equity Incentive Plan

We have issued common stock, restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the 2013 Equity Incentive Plan (“2013 Plan”), which was approved by our Board of Directors in February of 2013. The 2013 Plan allows for the issuance of up to 95,268 shares of our common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. As of March 31, 2019, there were no shares available under the 2013 Plan.

2014 Equity Incentive Plan

We have issued common stock, restricted stock units and stock options to employees, non-executive directors and outside consultants under the 2014 Equity Incentive Plan (“2014 Plan”), which was approved by our Board of Directors in November 2014. The 2014 Plan allows for the issuance of up to 190,477 shares of our common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. As of March 31, 2019, there were no shares available under the 2014 Plan.

2016 Equity Incentive Plan

On March 21, 2016, our Board of Directors approved the adoption of the 2016 Equity Incentive Plan and on October 20, 2016 adopted the Amended and Restated 2016 Equity Incentive Plan (“2016 Plan”). The 2016 Plan was then approved by our stockholders in November 2016. The 2016 Plan allows for the issuance of up to 190,477 shares of our common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. The 2016 Plan includes an evergreen provision in which the number of shares of common stock authorized for issuance and available for future grants under the 2016 Plan will be increased each January 1 after the effective date of the 2016 Plan by a number of shares of common stock equal to the lesser of: (a) 4% of the number of shares of common stock issued and outstanding on a fully-diluted basis as of the close of business on the immediately preceding December 31, or (b) a number of shares of common stock set by our Board of Directors. As of March 31, 2019, 131,532 shares were available under the 2016 Plan. In April 2019, our Board of Directors approved an increase of 84,051 shares of common stock to the shares authorized under the 2016 Plan in accordance with the evergreen provision in the 2016 Plan and therefore as of May 14, 2019 there were 215,583 shares available under the 2016 Plan.

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Stock Options

For the three months ended March 31, 2019 and 2018, the following weighted average assumptions were utilized for the calculation of the fair value of the stock options granted during the period using Black-Scholes:

	2019			2018
Expected life (in years)		7.3			7.9
Expected volatility		198.7	%		217.9	%
Average risk-free interest rate		2.82	%		2.28	%
Dividend yield		0	%		0	%
Grant date fair value	$	12.48		$	24.15

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the stock options. Expected life in years is based on the “simplified” method as permitted by ASC Topic 718. We believe that all stock options issued under its stock option plans meet the criteria of “plain vanilla” stock options. We use a term equal to the term of the stock options for all non-employee stock options. The risk-free interest rate is based on average rates for treasury notes as published by the Federal Reserve in which the term of the rate corresponds to the expected term of the stock options.

The following table summarizes the number of stock options outstanding and the weighted average exercise price:

	Options			Weighted average exercise price			Weighted remaining contractual life (years)		Aggregate intrinsic value
Outstanding at December 31, 2018		4,498		$	14.63			9.2	$	190
Granted		87			5.12			-		-
Exercised		-			-			-		-
Cancelled		(384	)		(16.42	)		-		-
Forfeited		-			-			-		-
Outstanding at March 31, 2019		4,201		$	14.27			9.0	$	86
Vested and Expected to Vest at March 31, 2019		4,201		$	14.27			9.0	$	86

The aggregate intrinsic value is calculated as the difference between the exercise price of all outstanding stock options and the quoted price of our common stock at March 31, 2019.  During the three months ended March 31, 2019 and 2018, we recognized stock-based compensation from stock options of $3,000 and $1,000, respectively. As of March 31, 2019, compensation expense related to unvested options not yet recognized in the condensed consolidated statement of operations was approximately $32,000 and will be recognized over a remaining weighted-average term of 2.8 years.

Restricted Stock Units

The following table summarizes the restricted stock unit activity for the three months ended March 31, 2019:

	Restricted Stock Units
Outstanding at December 31, 2018		175,765
Granted		8,603
Exchanged		-
Cancelled		-
Outstanding at March 31, 2019		184,368
Vested at March 31, 2019		119,180

The vested restricted stock units at March 31, 2019 have not settled and are not showing as issued and outstanding shares of the Company but are considered outstanding for earnings per share calculations. Settlement of these vested restricted stock units will occur on the earliest of (i) the date of termination of service of the employee or consultant, (ii) change of control of us, or (iii) 10 years from date of issuance. Settlement of vested restricted stock units may be made in the form of (i) cash, (ii) shares, or (iii) any combination of both, as determined by the board of directors and is subject to certain criteria having been fulfilled by the recipient.

We calculate the fair value of the restricted stock units based upon the quoted market value of the common stock at the date of grant. The grant date fair value of restricted stock units issued during the three months ended March 31, 2019 was $60,000. For the three months ended March 31, 2019 and 2018, we recognized $135,000 and $93,000, respectively, of stock-based compensation expense for the vested units. As of March 31, 2019, compensation expense related to unvested shares not yet recognized in the condensed consolidated statement of operations was approximately $748,000 and will be recognized over a remaining weighted-average term of 2.0 years.

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Warrants

In January 2015, we issued 2,381 warrants with an exercise price of $31.50 per share to a former executive in connection with the January 2015 debenture. The warrants expire on January 21, 2020. The warrants contain anti-dilution protection, including protection upon dilutive issuances. In connection with the convertible debentures issued in 2015, the exercise price of these warrants was reduced to $9.45 per share and an additional 5,588 warrants were issued per the anti-dilution protection afforded in the warrant agreement during the year ended December 31, 2015. Warrants to purchase 7,969 shares of common stock remain outstanding as of March 31, 2019.

In connection with the convertible debentures in 2015, we issued warrants with an exercise price of $31.50 per share and expiration in 2020 to investors and placement agents. Warrants to purchase 7,379 shares of common stock remain outstanding as of March 31, 2019.

In connection with the convertible debentures in 2016, we issued warrants to the investors and placement agents with an exercise price of $42.00 per share and expire in 2021. Warrants to purchase 40,201 shares of common stock remain outstanding as of March 31, 2019.

In connection with the public equity offering in March 2017, we issued Series A Warrants to purchase 244,455 shares of common stock at $15.75 per share and Series B Warrants to purchase 244,455 shares of common stock at $15.75 per share. The Series A Warrants expire in 2022. During 2018, certain investors elected to exercise 180,247 Series B Warrants and 953 Series A Warrants and the remaining Series B Warrants expired in March 2018. We also issued warrants to purchase 12,223 shares of common stock to our placement agent with an exercise price of $19.69 per share and expire in 2022, as well as in March 2018 we issued our placement agent warrants to purchase 8,219 shares of common stock with an exercise price of $19.69 per share and expire in 2023 in connection with the Series B Warrants exercised. Warrants to purchase 263,944 shares of common stock remain outstanding as of March 31, 2019.

In connection with the public equity offering in January 2019, we issued Series A Warrants to purchase 431,490 shares of common stock at $7.35 per share, Series B Warrants to purchase 431,490 shares of common stock at $8.40 per share and Series C Warrants to purchase 200,637 shares of common stock at $7.35 per share. The Series A and B Warrants expire in 2020 and 2024 respectively. The Series C Warrants were prefunded and have a nominal exercise price of $0.105 per share. We also issued warrants to purchase 32,362 shares of common stock to our placement agent with an exercise price of $9.19 per share and expire in 2024. Warrants to purchase 1,095,979 shares of common stock are remain outstanding as of March 31, 2019.

For the three months ended March 31, 2019, the following weighted average assumptions were utilized for the calculation of the fair value of the warrants issued during the period using Black-Scholes:

	2019
Expected life (in years)		5.0
Expected volatility		183.8	%
Average risk-free interest rate		2.69	%
Dividend yield		0	%

At March 31, 2019, there are 1,415,472 fully vested warrants outstanding. The weighted average exercise price of outstanding warrants at March 31, 2019 is $10.46 per share, the weighted average remaining contractual term is 3.5 years and the aggregate intrinsic value of the outstanding warrants is $0.

Net Loss per Share

Restricted stock units that are vested but which the issuance and delivery of the shares are deferred until the employee or director resigns are included in the basic and diluted net loss per share calculations.

The weighted average shares of common stock outstanding used in the basic and diluted net loss per share calculation for the three months ended March 31, 2019 and 2018 was 2,328,318 and 1,679,041, respectively.

The weighted average restricted stock units vested but which issuance of the common stock is deferred until there is a change in control, a specified date in the agreement or the employee or director resigns which were used in the basic and diluted net loss per share calculation for the three months ended March 31, 2019 and 2018 was 115,366 and 101,280, respectively.

The total weighted average shares outstanding used in the basic and diluted net loss per share calculation for the three months ended March 31, 2019 and 2018 was 2,445,471 and 1,780,321, respectively.

The following table shows the anti-dilutive shares excluded from the calculation of basic and diluted net loss per common share as of March 31, 2019 and 2018: 

	As of March 31,
	2019		2018
Gross number of shares excluded:
Restricted stock units – unvested		65,188		54,762
Stock options		4,201		2,062
Warrants		1,415,472		557,940
Total		1,484,861		614,764

The above table does not include the ANDA Consideration Shares related to the Novalere acquisition totaling 1,323 at March 31, 2019 and 2018 as they are considered contingently issuable (see Note 3).

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NOTE 8 – COMMITMENTS AND CONTINGENCIES

In May 2017, we entered into a commercial agreement with West-Ward Pharmaceuticals International Limited (“WWPIL”), a wholly-owned subsidiary of Hikma Pharmaceuticals PLC (“Hikma”) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY). Pursuant to the commercial agreement, WWPIL provided us with the rights to launch our branded, fluticasone propionate nasal spray USP, 50 mcg per spray (FlutiCare®), under WWPIL’s FDA approved ANDA No. 207957 in the U.S. in mid-November 2017. The initial term of the commercial agreement is for two years, and upon expiration of the initial term, the agreement will automatically renew for subsequent one-year terms unless either party notifies the other party in writing of its desire not to renew at least 90 days prior to the end of the then current term. The agreement requires us to meet certain minimum product batch purchase requirements in order for the agreement to continue to be in effect. We have met the minimum product batch purchase requirements through May 2019.

Leases

We lease approximately 172,000 square feet of office and warehouse facilities under a non-cancellable operating lease. Our lease has a remaining term of 4 years, which represents the non-cancellable periods of the lease. We exclude extension options that are not reasonably certain to be exercised from our lease terms. Our lease payment consists of fixed rental payments for the right to use the underlying assets over the lease term as well as payments for common-area-maintenance and administrative services. We have also received customary incentives from our landlord for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for the lease.

Operating lease right-of-use assets and liabilities on our condensed consolidated balance sheets represent the present value of our remaining lease payments over the remaining lease terms. We do not allocate lease payments to non-lease components; therefore, fixed payments for common-area-maintenance and administrative services are included in our operating lease right-of-use assets and liabilities. We use our incremental borrowing rate to calculate the present value of our lease payments, as the implicit rates in our lease is not readily determinable.

As of March 31, 2019, the maturities of our operating lease were as follows (in thousands):

	Remaining Lease Payments
2019	$	194
2020		267
2021		274
2022		282
Thereafter		94
Total remaining lease payments		1,111
Less: imputed interest		(288	)
Total operating lease liabilities		823
Less: current portion		(147	)
Long-term operating lease liabilities		676
Weighted-average remaining lease term	4 years
Weighted-average discount rate		15	%

The components of our lease costs included in our condensed consolidated statement of operations consist of operating lease costs of $57,000. Operating lease costs consist of the fixed lease payments included in our operating lease liability and are recorded on a straight-line basis over the lease term.

Litigation

James L. Yeager, Ph.D., and Midwest Research Laboratories, LLC v. lnnovus Pharmaceuticals, Inc. On January 18, 2018, Dr. Yeager and Midwest Research Laboratories (the "Plaintiffs") filed a complaint in the Illinois Northern District Court in Chicago, Illinois, which Plaintiffs amended on February 26, 2018 ("Amended Complaint''). The Amended Complaint alleges that the Company violated Dr. Yeager's right of publicity and made unauthorized use of his name, likeness an identity in advertising materials for its product Sensum+®. Plaintiffs seek actual and punitive damages, costs and attorney's fees, an injunction and corrective advertising. In October 2018, we filed a motion to dismiss the action. In February 2019, the Judge in the Illinois action issued a ruling invalidating some of Plaintiff’s causes of action, while accepting others and the case continues in that jurisdiction. The parties are currently engaged in discovery.

We believe that the Plaintiffs’ allegations and claims are wholly without merit, and we intend to defend the case vigorously and assert counterclaims against the Plaintiffs.  More specifically, we believe that we secured and paid for all of the rights claimed by Dr. Yeager from his company Centric Research Institute (“CRI”) pursuant to agreements with CRI (the “CRI Agreements”) and that CRI has indemnification obligations under the CRI Agreements for all expenses and losses associated with the claims made by the Plaintiffs.

On January 23, 2019 we filed a complaint in the U.S. Federal District Court for the Southern District located in San Diego, California against Dr. Yeager, Servet Buyuktimken and Nadir Buyuktimkin (the “021 Patent Claimed Inventors”), who are all the inventors names on the US issued patent number 9,821,021 entitled Sensitization Composition and Methods of Action (the “021 Patent”), for copyright infringement relating to a clinical study table (the “Innovus Pharm Clinical Study Table”) included in the 021 Patent. We claim that the 021 Patent Claimed Inventors illegally stole and used the Innovus Pharm Clinical Study Table and the suit requests certain damages and injunctive relief described therein.

Marin County District Attorney’s Letter. On August 24, 2018, the Company received a letter from the Marin County District Attorney's Office requesting substantiation for certain advertising claims made for certain of the Company's products, DiabaSens®, and Apeaz® that were marketed and sold to customers in that County. The Marin County District Attorney's Office is part of a larger ten county Northern California Task Force of district attorneys to handle customer protection matters. In November 2018, the Company responded through its regulatory attorneys, Olshan, to the Marin County’s District Attorney’s letter. In March 2019, the Company has heard back from the Marin County District Attorney.  In April 2019, the Company responded to the letter.

In the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. Management believes the outcomes of currently pending claims are not likely to have a material effect on our consolidated financial position and results of operations.

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NOTE 9 – SUBSEQUENT EVENTS

Promissory Notes

In April 2019, we entered into promissory note agreements and securities purchase agreements with two unrelated third-party investors in which the investors loaned us gross proceeds of $850,000 in consideration for the issuance of 5% promissory notes. The notes have an OID of $90,000 and require payment of principal and interest of $140,000 in October 2019, $704,000 in January 2020, and $132,000 in April 2020. As additional consideration for the purchase of the note, we issued 98,334 shares of restricted common stock to the investors.

In April 2019, we entered into promissory note conversion agreement with an unrelated third-party investor in which we converted $175,000 of the balance of the October 2018 5% Notes Payable in exchange for 100,000 restricted shares of common stock.

In May 2019, we entered into a promissory note agreement and securities purchase agreement with an unrelated third-party investor in which the investors loaned us gross proceeds of $400,000 in consideration for the issuance of 0% promissory notes. The notes have an OID of $100,000 and require payment of principal and interest of $42,000 monthly through April 2020. As additional consideration for the purchase of the note, we issued 34,000 shares of restricted common stock to the investors. In connection with this financing, we issued 10,257 restricted shares of common stock in May 2019 to a third-party consultant.

During April and May 2019, we issued 24,316 restricted shares of common stock in exchange for services rendered.

We have evaluated subsequent events through the filing date of this Form 10-Q and determined that no additional subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosures in the notes thereto other than as disclosed in the accompanying notes to the condensed consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Innovus Pharmaceuticals, Inc., together with its subsidiaries, are collectively referred to as “Innovus,” the “Company,” “us,” “we,” or “our.” The following information should be read in conjunction with the condensed 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, 2018, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2019, as well as the consolidated financial statements and related notes contained therein.

Forward Looking Statements

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We file reports with the SEC. You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

Overview

We are an emerging over-the-counter (“OTC”) consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine, consumer care products, supplements and certain related devices to improve men’s and women’s health and vitality, urology, brain health, pain and respiratory diseases. We deliver innovative and uniquely presented and packaged health solutions through our (a) OTC medicines, devices, consumer and health products, and clinical supplements, which we market directly, (b) commercial retail and wholesale partners to primary care physicians, urologists, gynecologists and therapists, and (c) directly to consumers through our proprietary Beyond Human™ Sales & Marketing Platform including print media, on-line channels, websites, retailers and wholesalers. We are dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products, supplements and certain related devices. We are actively pursuing opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.

Our business model leverages our ability to (a) develop and build our current pipeline of proprietary products, and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through our existing supply chain, retail and on-line (including our Amazon®, eBay®, Wish.com, Sears.com, Walmart.com®, and Walgreens.com on-line stores and other e-commerce business platforms) channels to tap new markets and drive demand for such products and to establish physician relationships. 

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Our Strategy

Our corporate strategy focuses on the following primary objectives:

1. Developing a diversified product portfolio of exclusive, unique and patented non-prescription OTC and branded ANDA drugs, devices, consumer health products, and clinical supplements through: (a) the introduction of line extensions and reformulations of either our or third-party currently marketed products; (b) the development of new proprietary OTC products, supplements and devices; and (c) the acquisition of products or obtaining exclusive licensing rights to market such products; and

2. Building an innovative, U.S. and global sales and marketing model through direct to consumer approaches such as our proprietary Beyond Human® sales and marketing platform, the addition of new online platforms such as Amazon®, eBay®, Wish.com, Sears.com, Walmart.com® and Walgreens.com and commercial partnerships with established international complementary partners that: (a) generates revenue, and (b) requires a lower cost structure compared to traditional pharmaceutical companies, thereby increasing our gross margins.

3. Developing and acquiring on-line marketplaces such as Supplementhunt.com and Primesavingsclub.com that focus on certain market segments such as lower priced, soon to expire supplement business with the Supplementhunt.com acquisition and with the select consumer product business through Primesavingsclub.com among others in which we sell third party, brand or non-branded products.

Our Products

Marketed Products

We currently market and sell over 35 products in the U.S. and more than 10 in multiple countries around the world through our 12 international commercial partners. The following represents these core products:

1.	Vesele®
2.	UriVarx®
3.	FlutiCare®
4.	Apeaz®
5.	Diabasens®
6.	Prostagorx®
7.	Sensum+®

In addition, we currently expect to launch in the U.S. the following products in 2019 and/or 2020, subject to the applicable regulatory approvals, if required:

1.	ThermoMax® is a hand cream with two strengths that provide up to eight hours of hand warming relief (second quarter of 2019);
2.	BreastLift™ is a clinically tested cream that provides a safe and natural way to firm sagging breasts (second quarter of 2019);
3.	HealthiFeet® is a foot cream that provides foot warming relief (second quarter of 2019);
4.	MZS Sleeping Aid™ with Hemp-Derived THC-free oil and melatonin is in tincture form (launched in first quarter of 2019);
5.	Trexar™ is a supplement that provides neuropathy support and enhanced sensation (second quarter of 2019);
6.	Musclin® is a proprietary supplement made of two FDA Generally Recognized As Safe (GRAS) approved ingredients designed to increase muscle mass, endurance and activity (second half of 2019).  The main ingredient in Musclin® is a natural activator of the transient receptor potential cation channel, subfamily V, member 3 (TRPV3) channels on muscle fibers responsible to increase fibers width resulting in larger muscles;
7.	Regenerum™ is a proprietary product containing two natural molecules: the first is an activator of the TRPV3 channels resulting in the increase of muscle fiber width, and the second targets a different unknown receptor to build the muscle's capacity for energy production and increases physical endurance, allowing longer and more intense exercise.  Regenerum™ is being developed for patients suffering from muscle wasting.  We currently expect to launch this product in 2020 pending successful clinical trials in patients with muscle wasting or cachexia;
8.	Octiq™ is an expected FDA ophthalmic OTC monograph compliant product for the treatment of eye redness and eye lubrication (late 2019/early 2020); and
9.	Regoxidine™ is an ANDA approved 5% Minoxidil foam for men and women for hair growth on the top of the scalp.

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Sales and Marketing Channels

Print and Direct Mail Marketing

Through our Beyond Human® sales and marketing platform, we have access to advertise in the vast majority of newspapers and magazines on a regular basis. We have developed our own proprietary algorithm which allows us to target customers looking for specific health products allowing us to increase the return on our investment and reduce the cost to acquire new customers. We have expanded our reach to Canada with the approval of twelve of our products by Health Canada and successfully expanded our Beyond Human® sales and marketing platform.

E-Commerce

We have an extensive on-line media channel through our Amazon®, NewEgg®, Walmart.com®, eBay®, Wish.com, and Walgreens.com sites, in addition to our own InnovusPharma.com site along with sites for each of our products individually.  Our expertise allows us to successfully drive product sales through proper marketing campaigns through third-party sites as well as through email marketing campaigns to increase traffic to our own sites. Additionally, we have recognized that maintaining a proper e-commerce presence allows those customers who read our advertisements in the newspapers and magazine or receive our direct mail another avenue to purchase products.

Retail/Wholesale

We are continuously introducing our products to varieties of retail and wholesale partners to enhance the brand and product awareness for our customers. Since 2018, we significantly increased our advertising expenses specifically in the Print and Direct Mail Marketing channel which, in turn, has had a direct positive impact to the success of products in retail.  We intend to continue to demonstrate to our retail and wholesale partners the advantages of incorporating our products in their stores, especially due to our proprietary consumer targeted marketing approach that our print advertising allows us to achieve.

International Distribution

We continue to work with our exclusive commercial partners outside of the U.S. that would be responsible for sales and marketing in those territories. We evaluate the performance of each of these partners to ensure a steady flow of consumer activity for each of our products. Our strategy outside the U.S. is to partner with companies who can effectively market and sell our products in their countries through their direct marketing and sales teams. The strategy of using our partners to commercialize our products is designed to limit our expenses and fix our cost structure, enabling us to increase our reach while minimizing our incremental spending.

Results of Operations for the Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018

	Three Months Ended March 31, 2019	Three Months Ended March 31, 2018	$ Increase (Decrease)	% Increase (Decrease)
Net revenue:
Product sales, net	$ 5,189	$ 4,542	$ 647	14	%
Service revenue	100	-	100	(100)	%
Cooperative marketing revenue	71	-	71	(100)	%
License revenue	3	3	-	-	%
Net revenue	5,363	4,545	818	18	%
Cost of product sales	1,778	864	914	106	%
Gross Profit	3,585	3,681	(96)	(3)	%
Operating expense:
Research and development	56	11	45	409	%
Sales and marketing	2,595	3,302	(707)	(21)	%
General and administrative	2,435	1,696	739	44	%
Total operating expense	5,086	5,009	77	2	%
Loss from operations	(1,501)	(1,328)	(173)	(13)	%
Other income (expense):
Interest expense	(490)	(242)	(248)	(102)	%
Loss on extinguishment of debt	-	(256)	256	100	%
Fair value adjustment for contingent consideration	2	(3)	5	167	%
Total other expense, net	(488)	(501)	13	3	%
Net loss	$ (1,989)	$ (1,829)	$ (160)	(9)	%

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Net Revenue  

We recognized net revenue of approximately $5.4 million and $4.5 million for the three months ended March 31, 2019 and 2018, respectively. The increase in net revenue in the three months ended March 31, 2019 was primarily the result of the addition of the Supplement Hunt and Prime Savings Club platforms, which were acquired in December 2018 and January 2019, respectively. During the first quarter of 2019, we focused on increasing revenues from e-commerce channels to continue to diversify the revenue channels recognized.  During the three months ended March 31, 2019, e-commerce sales represented approximately 30% of total net revenue.  During the three months ended March 31, 2019 and 2018, we shipped 163,691 units and 83,873 units of our core products, respectively.

Cost of Product Sales

We recognized cost of product sales of approximately $1.8 million and $864,000 for the three months ended March 31, 2019 and 2018, respectively. The cost of product sales includes the cost of inventory, internal and third-party shipping and warehouse costs, royalties and salaries and benefits for our warehouse employees. The increase in cost of product sales is a result of higher shipping and fulfillment costs relating to our Supplement Hunt entity, for which we currently utilize the services of a third-party fulfillment company, and higher costs of products in the Prime Savings Club entity due to a more diverse product mix. The decrease in the gross margin to 66.8% in 2019 compared to 81.0% in 2018 is due to the increase in e-commerce revenues as a percentage of total revenues during the current period, which generate lower gross margins due to pricing competition, as well as an increase in the cost of shipping and fulfillment especially related to Supplement Hunt and Prime Savings Club, which have products that are more costly to ship due to their size and weight.

Research and Development

We recognized research and development expense of approximately $56,000 and $11,000 for the three months ended March 31, 2019 and 2018, respectively. The research and development expenses include costs for stability testing, clinical trials of certain products and other development related costs for our products.

Sales and Marketing

We recognized sales and marketing expense of approximately $2.6 million and $3.3 million for the three months ended March 31, 2019 and 2018, respectively. Sales and marketing expenses consist primarily of print advertisements and sales and marketing support. The decrease in the sales and marketing expense is a direct result of the increased focus on e-commerce channels of the business which does not require as large of upfront marketing costs as the traditional direct-to-consumer channel requires. Additionally, we have focused marketing efforts in the traditional direct-to-consumer channel to those that have experienced lower cost of customer acquisition. 

General and Administrative

We recognized general and administrative expense of approximately $2.4 million and $1.7 million for the three months ended March 31, 2019 and 2018, respectively. The increase in general and administrative expenses is directly related to the increase in employee headcount, especially management level employees, from approximately 10 employees as of March 31, 2018 to 22 employees as of March 31, 2019.  General and administrative expense consists primarily of investor relation expense, legal, accounting, public reporting costs and other infrastructure expense related to the launch of our products. Additionally, our general and administrative expense includes professional fees, insurance premiums and general corporate expense.

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Other Income and Expense

We recognized interest expense of approximately $490,000 and $242,000 for the three months ended March 31, 2019 and 2018, respectively. Interest expense primarily includes interest related to our debt and amortization of debt discounts (see Note 6 to the accompanying condensed consolidated financial statements). Due to the shares and cash discounts provided to our lenders, the effective interest rate is significantly higher than the coupon rate. The increase in interest expense during the three months ended March 31, 2019 is due to the larger amount of debt discount amortization in 2019 compared to 2018 as a result of the note payable financings completed in both 2018 and 2019.

We recognized a loss on extinguishment of debt of approximately $0 and $256,000 during the three months ended March 31, 2019 and 2018, respectively. The loss on debt extinguishment in 2018 was the result of the securities exchange agreement entered into with a certain note payable holder in March 2018. In exchange for the issuance of 21,429 shares of common stock with a fair value of approximately $385,000, we settled the principal balance totaling $166,667 with the noteholder. The remaining loss on debt extinguishment was the write off of the remaining unamortized debt discount as of the date of settlement. There were no securities exchange agreements entered into during the three months ended March 31, 2019.

Net Loss

Net loss for the three months ended March 31, 2019 was approximately $2.0 million or $0.81 basic and diluted net loss per share compared to a net loss for the same period in 2018 of $1.8 million or $1.03 basic and diluted net loss per share.

Liquidity and Capital Resources

Historically, we have funded losses from operations through the sale of equity and issuance of debt instruments. Combined with revenue, these funds have provided us with the capital to operate our business, to sell and support our products, attract and retain key personnel, and add new products to our portfolio. To date, we have experienced net losses each year since our inception. As of March 31, 2019, we had an accumulated deficit of $45.8 million and working capital deficit of $1.5 million.

As of March 31, 2019, we had approximately $1.9 million in cash and $0.6 million held by merchant processors reported in other current assets for a total of $2.5 million and as of May 13, 2019 we had approximately $2.2 million in cash and $0.7 million held by merchant processors for a total of $2.9 million. Although no assurances can be given, we currently plan to raise additional capital through the sale of equity or debt securities. We expect, however, that our existing capital resources, revenue from sales of our products and upcoming new product launches and sales milestone payments from the commercial partners signed for our products, and equity instruments available to pay certain vendors and consultants, will be sufficient to allow us to continue our operations, commence the product development process and launch selected products through at least the next 12 months. In addition, our CEO, who is also a significant shareholder, has deferred the remaining payment of his salary earned through June 30, 2016 totaling $1.1 million for at least the next 12 months if such receipt would jeopardize the ability of the Company to operate.

Our actual needs will depend on numerous factors, including timing of introducing our new products to the marketplace, our ability to attract additional Ex-U.S. distributors for our products and our ability to in-license in non-partnered territories and/or develop new product candidates. In addition, we continue to seek new licensing agreements from third-party vendors to commercialize our products in territories outside the U.S., which could result in upfront, milestone, royalty and/or other payments.

We currently intend to raise additional capital through the sale of debt or equity securities to provide additional working capital, for further expansion and development of our business, and to meet current obligations, although no assurances can be given. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly issued equity or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders. If we raise funds by incurring additional debt, we may be required to pay significant interest expense and our leverage relative to our earnings or to our equity capitalization may increase. Obtaining commercial loans, assuming they would be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities, such as financial and operating covenants. Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including investment banking fees, legal fees, accounting fees, printing and distribution expense and other costs. We may also be required to recognize non-cash expense in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial results. We may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals industries, or our operating history. In addition, the fact that we are not and have never been profitable could further impact the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us. If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations entirely.

The Company’s principle debt instruments include the following:

February and March 2018 5% Notes Payable

In February and March 2018, we entered into securities purchase agreements with two unrelated third-party investors, pursuant to which the investors loaned us gross proceeds of $650,000 pursuant to 5% promissory notes (“February and March 2018 5% Notes Payable”). The February and March 2018 5% Notes Payable have an OID of $70,000 and require payment of $720,000 in principal. The February and March 2018 5% Notes Payable bear interest at the rate of 5% per annum and the principal amount and accrued interest are payable at maturity on October 28, 2018 for the note issued in February 2018 and in three installments on October 1, 2018, January 1, 2019 and April 1, 2019 for the note issued in March 2018. In connection with the February and March 2018 5% Notes Payable, we issued the investors restricted shares of common stock totaling 1,485,000. The remaining principal balance under these notes was $117,000 at March 31, 2019.

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August 2018 Notes Payable

In August 2018, we entered into securities purchase agreements with two unrelated third-party investors, pursuant to which the investors loaned us gross proceeds of $1,000,000 pursuant to 0% promissory notes (“August 2018 Notes Payable”). The August 2018 Notes Payable have an OID of $200,000 and require twelve payments of $100,000 in principal per month through August 2019. The August 2018 Notes Payable bear no interest per annum. In connection with the August 2018 Notes Payable, we issued the investors restricted shares of common stock totaling 1,000,000 shares. The remaining principal balance under these notes was $500,000 at March 31, 2019.

September 2018 5% Notes Payable

In September 2018, we entered into a promissory note agreement and a securities purchase agreement with an unrelated third-party investor, pursuant to which the investor loaned us gross proceeds of $350,000 pursuant to 5% promissory notes (“September 2018 5% Notes Payable”). The September 2018 5% Notes Payable have an OID of $40,000 and require aggregate payments of $390,000 in principal. The September 2018 5% Notes Payable bear interest at the rate of 5% per annum and the principal amount and accrued interest are payable in three installments on March 12, 2019, June 12, 2019 and September 12, 2019. In connection with the September 2018 5% Notes Payable, we issued the investor restricted shares of common stock totaling 1,000,000. The remaining principal balance under these notes was $250,000 at March 31, 2019.

October 2018 5% Notes Payable

On October 22, 2018, the Company entered into a promissory note agreement and securities purchase agreement with an unrelated third-party investor in which the investor loaned the Company gross proceeds of $500,000 pursuant to 5% promissory notes (“October 2018 5% Notes Payable”). The notes have an OID of $50,000 and require payments of $550,000 in principal. The notes bear interest at the rate of 5% per annum and the principal amount and interest are payable at maturity on May 1, 2019. In connection with the October 2018 5% Notes Payable, the Company issued the investor restricted shares of common stock totaling 15,239 shares. The fair value of the restricted shares of common stock issued was based on the market price of our common stock on the date of issuance of the October 2018 5% Notes Payable. The allocation of the proceeds received to the restricted shares of common stock based on their relative fair value and the OID resulted in us recording a debt discount of $176,000. The remaining principal balance under this note was $550,000 at March 31, 2019.

November and December 2018 Notes Payable

On November 6, 2018, November 8, 2018 and December 12, 2018, the Company entered into promissory note agreements and securities purchase agreements with three unrelated third-party investors, pursuant to which the investors loaned the Company gross proceeds of $1.25 million pursuant to 0% promissory notes (“November and December 2018 Notes Payable”). The notes have an OID of $270,000 and require aggregate payments of $1.52 million in principal. The notes bear interest at the rate of 0% per annum. In connection with the November and December 2018 Notes Payable, the Company issued the investors restricted shares of our common stock totaling 14,763 shares. The fair value of the restricted shares of common stock issued was based on the market price of our common stock on the date of issuance of the November and December 2018 Notes Payable. The allocation of the proceeds received to the restricted shares of common stock based on their relative fair value and the OID resulted in us recording a debt discount of $374,000 in November 2018 and $125,000 in December 2018. The remaining principal balance under these notes was $1.0 million at March 31, 2019.

March 2019 Note Payable

On March 27, 2019, we entered into a promissory note agreement and securities purchase agreement with an unrelated third-party investor in which the investor loaned us gross proceeds of $400,000 pursuant to a 0% promissory note (“March 2019 Note Payable”). The note has an OID of $100,000 and requires payments of $47,000 in principal per month through March 2020. In connection with the March 2019 Note Payable, we issued the investor restricted shares of common stock totaling 18,000 shares. The fair value of the restricted shares of common stock issued was based on the market price of our common stock on the date of issuance of the March 2019 Note Payable. The allocation of the proceeds received to the restricted shares of common stock based on their relative fair value and the OID resulted in us recording a debt discount of $161,000 in March 2019. In connection with the financing, we issued 5,600 restricted shares of common stock in March 2019 to a third-party consultant. The fair value of the restricted shares of common stock issued of $28,000 was recorded as a debt discount to the carrying value of the notes payable. The remaining principal balance under this note was $500,000 at March 31, 2019.

Net Cash Flows

	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Net cash used in operating activities	$	(602	)	$	(663	)
Net cash used in investing activities		(343	)		(148	)
Net cash provided by financing activities		1,644			4,170
Net change in cash		699			3,359
Cash at beginning of period		1,248			1,565
Cash at end of period	$	1,947		$	4,924

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Operating Activities

For the three months ended March 31, 2019, cash used in operating activities was approximately $0.6 million, consisting primarily of the net loss for the period of approximately $2.0 million, which was primarily offset by non-cash common stock, restricted stock units and stock options issued for services and compensation of approximately $138,000, amortization of debt discount of $461,000, and amortization of intangible assets of $185,000. Additionally, working capital changes consisted of cash increases of approximately $0.6 million related primarily to the reduction of inventory levels due to improved management of inventory purchasing and more experience to understand inventory turnover for each product as well as an increase in customer deposit for sales occurring toward the end of the first quarter.

Investing Activities

For the three months ended March 31, 2019, cash used in investing activities was approximately $343,000, which consisted of the purchase of assets from the Prime Consultants LLC entity on January 1, 2019.

Financing Activities

For the three months ended March 31, 2019, cash provided by financing activities was approximately $1.6 million, consisting primarily of the net proceeds from the private placement completed on January 3, 2019, for a total net proceeds of $2.7 million and the issuance of a promissory note agreement of $400,000 in March 2019 offset by the repayment of outstanding notes payable of $1.6 million during the period. 

Critical Accounting Policies and Estimates

On January 1, 2019, we adopted Financial Accounting Standards Board (“FASB”) ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements. We elected the available package of practical expedients upon adoption, which allowed us to carry forward our historical assessment of whether existing agreements contained a lease and the classification of our existing operating leases. We continue to report our financial position as of December 31, 2018 under the former lease accounting standard (Topic 840) in our condensed consolidated balance sheet. The adoption impact resulted in the recognition of an operating lease liability with a corresponding right-of-use asset based on the present value of our remaining minimum lease payments which offset the previously reported deferred rent balance.

On January 1, 2019, we adopted FASB ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update aligns the accounting for share-based payment awards issued to nonemployees with those issued to employees. Under the new guidance, the nonemployee awards will be measured on the grant date and compensation costs will be recognized when achievement of the performance condition is probable. This new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of the new guidance does not have a material impact on its consolidated financial statements.

For the three months ended March 31, 2019, there were no other material changes to the “Critical Accounting Policies” discussed in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the year ended December 31, 2018.

Off- Balance Sheet Arrangements

None. 

Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements included in this Quarterly Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

As of March 31, 2019, we evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

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Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2019, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including chief executive officer and vice president, finance, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any disclosure control and procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in internal control over financial reporting.

During the quarter ended March 31, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

James L. Yeager, Ph.D., and Midwest Research Laboratories, LLC v. lnnovus Pharmaceuticals, Inc. On January 18, 2018, Dr. Yeager and Midwest Research Laboratories (the "Plaintiffs") filed a complaint in the Illinois Northern District Court in Chicago, Illinois, which Plaintiffs amended on February 26, 2018 ("Amended Complaint''). The Amended Complaint alleges that the Company violated Dr. Yeager's right of publicity and made unauthorized use of his name, likeness an identity in advertising materials for its product Sensum+®. Plaintiffs seek actual and punitive damages, costs and attorney's fees, an injunction and corrective advertising. In October 2018, we filed a motion to dismiss the action. In February 2019, the Judge in the Illinois action issued a ruling invalidating some of Plaintiff’s causes of action, while accepting others and the case continues in that jurisdiction. The parties are currently engaged in discovery.

We believe that the Plaintiffs’ allegations and claims are wholly without merit, and we intend to defend the case vigorously and assert counterclaims against the Plaintiffs.  More specifically, we believe that we secured and paid for all of the rights claimed by Dr. Yeager from his company Centric Research Institute (“CRI”) pursuant to agreements with CRI (the “CRI Agreements”) and that CRI has indemnification obligations under the CRI Agreements for all expenses and losses associated with the claims made by the Plaintiffs.

On January 23, 2019 we filed a complaint in the U.S. Federal District Court for the Southern District located in San Diego, California against Dr. Yeager, Servet Buyuktimken and Nadir Buyuktimkin (the “021 Patent Claimed Inventors”), who are all the inventors names on the US issued patent number 9,821,021 entitled Sensitization Composition and Methods of Action (the “021 Patent”), for copyright infringement relating to a clinical study table (the “Innovus Pharm Clinical Study Table”) included in the 021 Patent. We claim that the 021 Patent Claimed Inventors illegally stole and used the Innovus Pharm Clinical Study Table and the suit requests certain damages and injunctive relief described therein.

Marin County District Attorney’s Letter. On August 24, 2018, the Company received a letter from the Marin County District Attorney’s Office requesting substantiation for certain advertising claims made for certain of the Company's products, DiabaSens® and Apeaz® that were marketed and sold to customers in that County. The Marin County District Attorney’s Office is part of a larger ten county Northern California Task Force of district attorneys to handle consumer protection matters. In November 2018, the Company responded through its regulatory attorneys, Olshan, to the Marin County’s District Attorney’s letter. In March 2019, the Company received a response from the Marin County District Attorney. In April 2019 we responded to the letter.

From time to time, in addition to the matters identified above, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in the matter identified above or other matters may harm our business.

ITEM 1A. RISK FACTORS

The risks described in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, could materially and adversely affect our business, financial condition and results of operations. These risk factors do not identify all of the risks that we face. Our business, financial condition and results of operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial. There have been no material changes to the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

In January 2019 we issued 5,600 restricted shares of common stock a third-party consultant for services rendered.

In March 2019, we entered into a securities purchase agreement with an unrelated third-party investor pursuant to which the investor loaned us gross proceeds of $400,000 and we issued to such investor (i) promissory notes in the aggregate principal amount of $500,000, and (ii) 18,000 restricted shares of common stock.

22

We believe that each of the offers, sales and issuances of securities described were exempt from registration under the Securities Act pursuant to Regulation D under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the stock certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

Use of Proceeds from the Sale of Registered Securities

On February 12, 2019, our registration statement on Form S-1 (File No. 333-229223) was declared effective by the SEC for our public offering pursuant to which we sold an aggregate of 230,853 shares of our common stock at an offering price of $7.35 per share.  There has been no material change in our use of proceeds from our public offering as described in our final prospectus filed with the SEC on February 13, 2019, pursuant to Rule 424(b).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description
31.1*	Certification of Bassam Damaj, Ph.D., principal executive officer, pursuant to Rule 13-a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Ryan Selhorn, CPA, principal financial officer, pursuant to Rule 13-a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Bassam Damaj, Ph.D., principal executive officer, and Ryan Selhorn, CPA, principal financial officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language of such filing.

23

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 thereunto duly authorized.

	Innovus Pharmaceuticals, Inc.
	(Registrant)
Date: May 15, 2019	/s/ Bassam Damaj
	Bassam Damaj, Ph.D. President, Chief Executive Officer and Director (Principal Executive Officer)

/s/ Ryan Selhorn

Ryan Selhorn, CPA

Vice President, Chief Financial Officer

(Principal Financial Officer)

24

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bassam Damaj, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Innovus Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2019 /s/ Bassam Damaj Bassam Damaj, Ph.D. President, Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ryan Selhorn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Innovus Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2019	/s/ Ryan Selhorn
	Ryan Selhorn, CPA
	Vice President, Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION REQUIRED BY

SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his capacity as the specified officer of Innovus Pharmaceuticals, Inc. (the “Company”), that, to the best of his knowledge, the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 2019 fully complies with the requirements of Section 13 (a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

Date: May 15, 2019

/s/ Bassam Damaj

Bassam Damaj, Ph.D.

President, Chief Executive Officer and Director

(Principal Executive Officer)

Date: May 15, 2019

/s/ Ryan Selhorn

Ryan Selhorn, CPA

Vice President, Chief Financial Officer

(Principal Financial Officer)

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 13, 2019
Document Information [Line Items]
Entity Registrant Name	INNOVUS PHARMACEUTICALS, INC.
Entity Central Index Key	0001411879
Trading Symbol	innv
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		2,624,431
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets:
Cash	$ 1,947	$ 1,248
Accounts receivable, net	130	282
Prepaid expense and other current assets	1,574	1,116
Inventories	2,130	2,370
Total current assets	5,781	5,016
Property and equipment, net	229	247
Deposits	21	21
Operating lease right-of-use asset	649
Goodwill	953	953
Intangible assets, net	3,736	3,890
Total assets	11,369	10,127
Liabilities:
Accounts payable and accrued expense	2,799	2,622
Accrued compensation	1,480	1,252
Deferred revenue and customer deposits	282	108
Accrued interest payable	35	32
Short-term loan payable	422	266
Notes payable, net of debt discount of $736 and $1,008, respectively	2,230	3,073
Total current liabilities	7,248	7,353
Deferred Rent		181
Operating lease liability, net of current portion	676
Accrued compensation – less current portion	1,130	1,228
Contingent consideration – less current portion	1,254	1,256
Total non-current liabilities	3,060	2,665
Total liabilities	10,308	10,018
Commitments and contingencies
Stockholders’ equity:
Preferred stock: 7,500,000 shares authorized, at $0.001 par value, no shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
Common stock: 292,500,000 shares authorized, at $0.001 par value, 2,357,524 and 2,103,071 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	2	2
Additional paid-in capital	46,908	43,967
Accumulated deficit	(45,849)	(43,860)
Total stockholders' equity	1,061	109
Total liabilities and stockholders’ equity	$ 11,369	$ 10,127

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Notes payable, discount, current	$ 736	$ 1,008
Preferred stock, shares authorized (in shares)	7,500,000	7,500,000
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, shares authorized (in shares)	292,500,000	292,500,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares issued (in shares)	2,357,524	2,103,071
Common stock, shares outstanding (in shares)	2,357,524	2,103,071

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net revenue:
Net revenue	$ 5,363	$ 4,545
Cost of product sales	1,778	864
Gross Profit	3,585	3,681
Operating expense:
Research and development	56	11
Sales and marketing	2,595	3,302
General and administrative	2,435	1,696
Total operating expense	5,086	5,009
Loss from operations	(1,501)	(1,328)
Other income (expense):
Interest expense	(490)	(242)
Loss on extinguishment of debt		(256)
Fair value adjustment for contingent consideration	2	(3)
Total other expense, net	(488)	(501)
Net loss	$ (1,989)	$ (1,829)
Net loss per share of common stock – basic and diluted (in dollars per share)	$ (0.81)	$ (1.03)
Weighted average number of shares of common stock outstanding – basic and diluted (in shares)	2,445,471	1,780,321
Product [Member]
Net revenue:
Net revenue	$ 5,189	$ 4,542
Service [Member]
Net revenue:
Net revenue	100
Cooperative Marketing [Member]
Net revenue:
Net revenue	71
License [Member]
Net revenue:
Net revenue	$ 3	$ 3

XML

Condensed Consolidated Statement of Stockholder's Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2017	1,596,574
Balance at Dec. 31, 2017	$ 2	$ 36,541	$ (35,640)	$ 903
Common stock issued for services (in shares)	2,444
Common stock issued for services		21		21
Stock-based compensation		95		95
Exercise of warrants, net of offering costs (in shares)	180,247
Exercise of warrants, net of offering costs		2,657		2,657
Common stock issued upon conversion of debt and interest (in shares)	21,429
Common stock issued upon conversion of debt and interest		385		385
Common stock issued in connection with debt (in shares)	26,355
Common stock issued in connection with debt		292		292
Fair value of shares of common stock issued as financing fees in connection with notes payable (in shares)	8,916
Fair value of shares of common stock issued as financing fees in connection with notes payable		122		122
Reclassification of warrant derivative liability upon adoption of ASU 2017-11			59	59
Net loss			(1,829)	(1,829)
Balance (in shares) at Mar. 31, 2018	1,835,965
Balance at Mar. 31, 2018	$ 2	40,113	(37,410)	$ 2,705
Balance (in shares) at Dec. 31, 2018	2,103,071			2,103,071
Balance at Dec. 31, 2018	$ 2	43,967	(43,860)	$ 109
Common stock issued for services (in shares)	5,600
Common stock issued for services		28		28
Stock-based compensation		138		138
Fair value of shares of common stock issued as financing fees in connection with notes payable (in shares)	18,000
Fair value of shares of common stock issued as financing fees in connection with notes payable		61		61
Reclassification of warrant derivative liability upon adoption of ASU 2017-11
Net loss			(1,989)	(1,989)
Sales of common stock and warrants, net of offering costs (in shares)	230,853
Sales of common stock and warrants, net of offering costs		2,714		$ 2,714
Balance (in shares) at Mar. 31, 2019	2,357,524			2,357,524
Balance at Mar. 31, 2019	$ 2	$ 46,908	$ (45,849)	$ 1,061

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net loss	$ (1,989,000)	$ (1,829,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	17,000	7,000
Recovery of allowance for doubtful accounts	(7,000)
Common stock, restricted stock units and stock options issued to employees, board of directors and consultants for compensation and services	138,000	115,000
Loss on extinguishment of debt		256,000
Change in fair value of contingent consideration	(2,000)	3,000
Amortization of debt discount	461,000	229,000
Amortization of intangible assets	185,000	158,000
Changes in operating assets and liabilities, net of acquisition amounts
Accounts receivable	158,000	(127,000)
Prepaid expense and other current assets	(458,000)	30,000
Inventories	552,000	77,000
Operating lease right-of-use asset and liability, net	(7,000)
Accounts payable and accrued expense	30,000	122,000
Accrued compensation	130,000	170,000
Accrued interest payable	15,000	8,000
Deferred revenue and customer deposits	175,000	118,000
Net cash used in operating activities	(602,000)	(663,000)
Cash flows used in investing activities:
Purchase of property and equipment		(148,000)
Purchase of intangible assets	(343,000)
Net cash used in investing activities	(343,000)	(148,000)
Cash flows from financing activities:
Payments on short-term loans payable	(230,000)	(33,000)
Proceeds from short-terms loans payable	375,000
Proceeds from notes payable	400,000	1,873,000
Payments on notes payable	(1,615,000)	(509,000)
Proceeds from sale of common stock and warrants, net of offering costs	2,714,000
Proceeds from stock option and warrant exercises		2,839,000
Net cash provided by financing activities	1,644,000	4,170,000
Net change in cash	699,000	3,359,000
Cash at beginning of period	1,248,000	1,565,000
Cash at end of period	1,947,000	4,924,000
Supplemental disclosures of cash flow information:
Cash paid for operating lease liabilities	65,000
Cash paid for interest	21,000	2,000
Supplemental disclosures of non-cash investing and financing activities:
Common stock issued for conversion of convertible debentures, notes payable and accrued interest		167,000
Relative fair value of common stock issued in connection with notes payable recorded as debt discount	61,000	292,000
Offering costs in connection with warrant exercises included in accounts payable and accrued expense		181,000
Cumulative adjustment to accumulated deficit for the fair value of the warrant derivative liability upon adoption of ASU 2017-11 on January 1, 2018		59,000
Fair value of common stock issued as financing fees in connection with notes payable recorded as debt discount	$ 28,000	$ 123,000

XML

Note 1 - Organization and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

NOTE

1

– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Innovus Pharmaceuticals, Inc., a Nevada incorporated and San Diego-based company, together with its subsidiaries as follows (collectively referred to as “Innovus” or the “Company”): Semprae Laboratories, Inc., a Delaware corporation (“Semprae”); FasTrack Pharmaceuticals, Inc., a Delaware corporation (“FasTrack”); Novalere, Inc., a Delaware corporation (“Novalere”); Supplement Hunt, Inc., a Nevada corporation (“Supplement Hunt”); and Prime Savings Club, Inc., a Nevada corporation (“Prime Savings Club”), is an emerging over-the-counter (“OTC”) consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine, consumer care products, supplements and certain related devices to improve men’s and women’s health and vitality, urology, brain health, pain, respiratory diseases, among others. The Company delivers innovative and uniquely presented and packaged health solutions through its (a) OTC medicines, devices, consumer and health products, and clinical supplements, which we market directly, (b) commercial retail and wholesale partners, and (c) directly to consumers through the Company’s proprietary Beyond Human® Sales & Marketing Platform including print media, on-line channels, websites, retailers and wholesalers. The Company is dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products, supplements and certain related devices. Innovus actively pursues opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.

The Company’s business model leverages its ability to (a) develop and build its current pipeline of proprietary products, and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through the Company’s existing supply chain, retail and on-line (including our Amazon®, eBay®, Wish.com, Walmart.com®, and Walgreens.com on-line stores and other e-commerce business platforms) channels to tap new markets and drive demand for such products and to establish physician relationships. The Company currently sells its products direct to consumer primarily in the United States and Canada and sells to international commercial partners in multiple countries around the world.

Basis of Presentation and Principles of Consolidation

The condensed consolidated balance sheet as of

December 31, 2018,

which has been derived from audited consolidated financial statements, and these unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and include all assets, liabilities, revenues and expenses of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in our Annual Report on Form

10

-K for the year ended

December 31, 2018.

Certain information required by U.S. GAAP has been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The results for the period ended

March 31, 2019 

are

not

necessarily indicative of the results to be expected for the entire fiscal year ending

December 31, 2019,

or for any future period. 

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such management estimates include the allowance for doubtful accounts, sales returns and chargebacks, realizability of inventories, valuation of deferred tax assets, goodwill and intangible assets, valuation of contingent acquisition consideration, recoverability of long-lived assets and goodwill and the valuation of equity-based instruments. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

Liquidity

The Company’s operations have been financed primarily through proceeds from convertible debentures and notes payable, sales of its common stock and revenue generated from its products domestically and internationally through the Company’s marketing platform and by its partners. These funds have provided Innovus with the resources to operate its business, sell and support its products, attract and retain key personnel and add new products to the Company’s portfolio. The Company has experienced net losses and negative cash flows from operations each year since its inception. As of

March 

31,

2019,

the Company had an accumulated deficit of

$45.8

 million and a working capital deficit of

$1.5

 million.

As of

March 31, 2019,

we had

$1.9

million

 in cash and

$0.6

million

 held by merchant processors reported in other current assets for a total of

$2.5

million and as of

May 13

,

2019

we had

$2.2

 million

 in cash and

$0.7

million

 held by merchant processors. During the

three

months ended

March 31, 2019,

we had net cash used in operating activities of

$0.6

million. We expect that our existing capital resources, together with revenue from sales of our products and upcoming sales milestone payments from the commercial partners signed for our products, will be sufficient to allow us to continue our operations, commence the product development process and launch selected products through at least the next

12

months.

In addition, our CEO, who is also a significant shareholder, has deferred the remaining payment of his salary earned through

June 30, 2016,

with a current balance totaling

$1.1

million, and has agreed to refrain from receipt of any funds which

may

jeopardize the ability of the Company to operate. Our actual needs will depend on numerous factors, including timing of introducing our new products to the marketplace, our ability to attract additional international distributors for our products and our ability to in-license in non-partnered territories and/or develop new product candidates. Although

no

assurances can be given, we currently intend to raise additional capital through the sale of debt or equity securities to provide additional working capital, pay for further expansion and development of our business, and to meet current obligations. Such capital

may

not

be available to us when we need it or on terms acceptable to us, if at all.

Fair Value Measurement

Our financial instruments are cash, accounts receivable, accounts payable, accrued liabilities, contingent consideration and debt. The recorded values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The fair value of the contingent acquisition consideration is based upon the present value of expected future payments under the terms of the agreements and is a Level

3

measurement.  Based on borrowing rates currently available to us, the carrying values of the notes payable and short-term loans payable approximate their respective fair values.  

We follow a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level

1

) and the lowest priority to measurements involving significant unobservable inputs (Level

3

). The

three

levels of the fair value hierarchy are as follows:

● Level 1 measurements are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

● Level 2 measurements are inputs other than quoted prices included in Level 1 that are observable either directly or indirectly.

● Level 3 measurements are unobservable inputs.

Revenue Recognition

The Company generates revenue from product sales and the licensing of the rights to market and commercialize our products.

Revenue is measured based on consideration specified in a contract with a customer. A contract with a customer exists when the Company enters into an enforceable contract with a customer. The contract is based on either the acceptance of standard terms and conditions on the websites for e-commerce customers and via telephone with our

third

-party call center for our print media and direct mail customers, or the execution of terms and conditions contracts with retailers and wholesalers. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid prior to shipment via credit card or check when products are sold direct to consumers or approximately

30

days from the time control is transferred when sold to wholesalers, distributors and retailers. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer.

A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of over-the-counter drug and consumer care products to its customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to the carrier who takes control of the product that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. 

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to e-commerce and print media customers, upon request, within 

30

-

90

days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do

not

offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. The estimated reserve for sales returns and allowances, which is included in accounts payable and accrued expense, was approximately

$223,000

and

$194,000

 at

March 

31,

2019

and

December 31, 2018,

respectively.

The Company recognizes revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales.

The Company enters into exclusive distributor and license agreements that are within the scope of ASC Topic

606.

 The license agreements we enter into normally generate

three

separate components of revenue: (

1

) an initial nonrefundable payment due on signing or when certain specific conditions are met; (

2

) royalties that are earned on an ongoing basis as sales are made or a pre-agreed transfer price; and (

3

) sales-based milestone payments that are earned when cumulative sales reach certain levels. Revenue from the initial nonrefundable payments or licensing fee is recognized when all required conditions are met. If the consideration for the initial license fee is for the right to sell the licensed product in the respective territory with

no

other required conditions to be met, such type of nonrefundable license fee arrangement for the right to sell the licensed product in the territory is recognized ratably over the term of the license agreement. For arrangements with licenses that include sales-based royalties, including sales-based milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. The achievement of the sales-based milestone underlying the payment to be received predominantly relates to the licensee’s performance of future commercial activities.

Advertising Expense

Advertising costs, which primarily includes print and online media advertisements, are expensed as incurred and are included in sales and marketing expense in the accompanying condensed consolidated statements of operations. Advertising costs were approximately

$2.0

 and

$2.5

million for the

three

months ended

March 31, 2019 

and

2018,

respectively.

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding and vested but deferred RSUs during the period presented. Diluted net loss per share is computed using the weighted average number of common shares outstanding and vested plus deferred RSUs during the periods plus the effect of dilutive securities outstanding during the periods. For the

three

months ended

March 31, 2019 

and

2018,

basic net loss per share is the same as diluted net loss per share as a result of our common stock equivalents being anti-dilutive.  See Note

7

for more details.

Recently Adopted Accounting Pronouncements

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

. The update requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements. We adopted Topic

842

on its effective date in the

first

quarter of

2019

using a modified retrospective approach. We elected the available package of practical expedients upon adoption, which allowed us to carry forward our historical assessment of whether existing agreements contained a lease and the classification of our existing operating leases. We continue to report our financial position as of

December 31, 2018

under the former lease accounting standard (Topic

840

) in our condensed consolidated balance sheet. The adoption impact resulted in the recognition of an operating lease liability with a corresponding right-of-use asset based on the present value of our remaining minimum lease payments which offset the previously reported deferred rent balance.

The following table summarizes the impact of Topic

842

on our condensed consolidated balance sheet upon adoption on

December 31, 2018 (

in thousands):

	December 31, 2018
	(unaudited)
	Pre-adoption		Adoption Impact			Post-adoption
Assets
Operating lease right-of-use asset	$	-	$	675		$	675
Total assets	$	-	$	675		$	675
Liabilities and Stockholders' Equity
Accrued Liabilities	$	-	$	140		$	140
Deferred Rent		181	$	(181	)		-
Operating lease liabilities, net of current portion		-	$	716			716
Total liabilities and stockholders' equity	$	181	$	675		$	856

In

June 2018,

the FASB issued ASU

2018

-

07,

Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting

. The update aligns the accounting for share-based payment awards issued to nonemployees with those issued to employees. Under the new guidance, the nonemployee awards will be measured on the grant date and compensation costs will be recognized when achievement of the performance condition is probable. This new standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within that fiscal year. Early adoption is permitted. The adoption of the new guidance does

not

have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In

January 2017,

the FASB issued ASU

2017

-

04,

 

Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment

. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step

2

from the goodwill impairment test. Step

2

measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after

December 15, 2019,

and interim periods within that reporting period. While the Company is still in the process of completing our analysis on the impact this guidance will have on the consolidated financial statements and related disclosures, the Company does

not

expect the impact to be material.

In

August 2018,

the FASB issued ASU

2018

-

13,

Fair Value Measurement (Topic

820

): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement

. The update modifies the disclosure requirements for recurring and nonrecurring fair value measurements, primarily those surrounding Level

3

fair value measurements and transfers between Level

1

and Level

2.

The new standard is effective for fiscal years beginning after

December 15, 2019,

including interim periods within that reporting period. The Company is currently evaluating the new guidance and does

not

expect it to have a material impact on its consolidated financial statements.

In

August 2018,

the FASB issued ASU

2018

-

15,

 

Customer

’

s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This ASU becomes effective for the Company in the year ending

December 31, 2020

and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

In

November 2018,

the FASB issued ASU

2018

-

18,

 

Clarifying the Interaction Between Topic

808

and Topic

606

, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic

606.

 This ASU becomes effective for the Company in the year ending

December 31, 2020

and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

XML

Note 2 - Revenue

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE

2

– REVENUE

Disaggregation of Revenue

Our revenue is primarily from distinct fixed-price product sales in the over-the-counter drug and consumer care products market, to similar customers and channels utilizing similar types of contracts that are short term in nature (less than

one

year). We do

not

sell service agreements or goods over a period of time and do

not

sell or utilize customer financing arrangements or time-and-material contracts.

The following is a table that presents product sales, net by geographical area:

	For the Three Months Ended March 31,
	2019		2018
United States	$	4,509	$	4,184
Canada		676		358
All Other		4		-
Product sales, net	$	5,189	$	4,542

All Other consists of Europe, Australia, Asia, and the Middle East.

Contract Balances

We do

not

have any contract assets such as work-in-process but do have certain contract liabilities such as customer advances for product sales under its license agreements. As of

March 31, 2019,

we had customer advances totaling

$104,000

 included in deferred revenue and customer deposits in the accompanying condensed consolidated balance sheet for advance payments on the future sale of Zestra® and Zestra Glide® products to Sothema and UriVarx® to Acerus Pharmaceuticals under their license agreements.

XML

Note 3 - Business and Asset Acquisitions

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE

3

 – BUSINESS AND ASSET ACQUISITIONS

Acquisition of Prime Consultants, LLC Assets

On

January 1, 2019 (

the “Closing Date”), the Company entered into an Asset Purchase Agreement, pursuant to which the Company acquired substantially all of the assets of Prime Consultants, LLC (the “Seller”) in exchange for

$343,000

in cash. The assets acquired include the established Amazon seller platform and inventory totaling

$313,000.

 Prime Consultants, LLC is an e-commerce business with sales of products primarily through the Amazon® platform which generated

$2.4

million in sales in

2018.

 The Company recorded intangible assets totaling

$30,000.

  The Company believes this business complements our existing business while providing an additional sales platform to add to the existing revenue channels.

Acquisition of Novalere in

2015

On

February 5, 2015 (

the “Closing Date”), we acquired the worldwide rights to market and sell the FlutiCare® brand (fluticasone propionate nasal spray) and the related

third

-party manufacturing agreement for the manufacturing of FlutiCare® (“Acquisition Manufacturer”) from Novalere FP. The OTC Abbreviated New Drug Application (“ANDA”) for fluticasone propionate nasal spray was filed at the end of

2014

by our

third

-party manufacturer and partner, who is currently selling the prescription version of the drug, with the FDA and the OTC ANDA was approved in

April 2019.

An ANDA is an application for a U.S. generic drug approval for an existing licensed medication or approved drug. A prescription ANDA (“RX ANDA”) is for a generic version of a prescription pharmaceutical and an OTC ANDA is for a generic version of an OTC pharmaceutical.

Due to the delay in approval of the Acquisition Manufacturer’s OTC ANDA by the FDA, in

May 2017,

we announced a commercial relationship with a different

third

-party manufacturer (West-Ward Pharmaceuticals International Limited or “WWPIL”) who has an FDA approved OTC ANDA for fluticasone propionate nasal spray under which they have agreed to manufacture our FlutiCare® OTC product for sale in the U.S. (see Note

8

). As we hold the worldwide rights to market and sell FlutiCare® under the manufacturing agreement with the Acquisition Manufacturer, we believe the agreement with the Acquisition Manufacturer will still provide us with the opportunity to market and sell FlutiCare® ex-U.S. and, with the approval of the OTC ANDA in

April 2019, 

a

second

source of supply within the U.S. is available to Innovus.

The Novalere Stockholders are entitled to receive, if and when earned, earn-out payments (the “Earn-Out Payments”). For every

$5.0

million in Net Revenue (as defined in the Merger Agreement) realized from the sales of FlutiCare® through the manufacturing agreement with the Acquisition Manufacturer, the Novalere Stockholders will be entitled to receive, on a pro rata basis,

$500,000,

subject to cumulative maximum Earn-Out Payments of

$2.5

million. The Novalere Stockholders are only entitled to the Earn-Out Payments from the Acquisition Manufacturer’s OTC ANDA under review by the FDA and have

no

earn-out rights to the sales of FlutiCare® supplied by WWPIL under the commercial agreement entered into in

May 2017.

During the

three

months ended

March 31, 2019 

and

2018,

there was an (decrease) increase in the estimated fair value of the remaining

1,323

ANDA consideration shares totaling $(

2,000

) and

$3,000

 for the

three

months ended

March 31, 2019

and

2018,

respectively, which is included in fair value adjustment for contingent consideration in the accompanying condensed consolidated statements of operations. The remaining

1,323

ANDA consideration shares will be issued in the

second

quarter of

2019

with the FDA approval received in

April 2019

of the ANDA filed by the Acquisition Manufacturer and the estimated fair value of such remaining shares of

$6,000

is included in contingent consideration in the accompanying condensed consolidated balance sheet at

March 31, 2019.

The fair value of the contingent consideration was

$1.1

 and

$1.2

million as of

March 31, 2019 

and

December 31, 2018,

respectively. 

XML

Note 4 - Inventory

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE

4

– INVENTORY

Inventories consist of the following:

	March 31,		December 31,
	2019		2018
Raw materials and supplies	$	186	$	238
Work in process		95		96
Finished goods		1,849		2,036
Total	$	2,130	$	2,370

XML

Note 5 - Intangible Assets and Goodwill

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE

5

– INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Amortizable intangible assets consist of the following:

	March 31, 2019
	Amount		Accumulated Amortization			Net Amount		Useful Lives (years)
Patent & Trademarks	$	684	$	(195	)	$	489		7 – 15
Customer Contracts		625		(328	)		297		10
Sensum+® License (from CRI)		235		(137	)		98		10
Vesele® Trademark		25		(14	)		11		8
Beyond Human® Website and Trade Name		222		(121	)		101		5 – 10
Novalere Manufacturing Contract		4,681		(1,941	)		2,740		10
Other Beyond Human® Intangible Assets		5		(5	)		-		1 – 3
Total	$	6,477	$	(2,741	)	$	3,736

	December 31, 2018
	Amount		Accumulated Amortization			Net Amount		Useful Lives (years)
Patent & Trademarks	$	654	$	(161	)	$	493		7 – 15
Customer Contracts		625		(311	)		314		10
Sensum+® License (from CRI)		234		(131	)		103		10
Vesele® Trademark		25		(12	)		13		8
Beyond Human® Website and Trade Name		222		(112	)		110		5 – 10
Novalere Manufacturing Contract		4,681		(1,824	)		2,857		10
Other Beyond Human® Intangible Assets		5		(5	)		0		1 – 3
Total	$	6,446	$	(2,556	)	$	3,890

Amortization expense for the

three

months ended

March 31, 2019 

and

2018

 was

$185,000

and

$158,000,

respectively. The following table summarizes the approximate expected future amortization expense as of

March 31, 2019

for intangible assets:

Remainder of 2019	$	536
2020		714
2021		657
2022		614
2023		578
Thereafter		637
	$	3,736

XML

Note 6 - Notes Payable and Short-term Loans Payable

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Long-term Debt [Text Block]

NOTE

6

– NOTES PAYABLE AND SHORT-TERM LOANS PAYABLE

Notes Payable

The following table summarizes the outstanding notes payable at

March 31, 2019 

and

December 31, 2018:

	2019			2018
Notes payable:
January and March 2018 Notes Payable	$	-		$	112
February and March 2018 5% Notes Payable		117			250
July 2018 5% Notes Payable		-			550
August 2018 Notes Payable		500			800
September 2018 5% Notes Payable		250			390
October 2018 5% Notes Payable		550			550
November and December 2018 Notes Payable		1,049			1,429
March 2019 Note Payable		500			-
Total notes payable		2,966			4,081
Less: Debt discount		(736	)		(1,008	)
Carrying value		2,230			3,073
Less: Current portion		(2,230	)		(3,073	)
Notes payable, net of current portion	$	-		$	-

The following table summarizes the future minimum payments as of

March 31, 2019 

for the notes payable:

Remainder of 2019	$	2,466
2020		500
	$	2,966

March 2019

Note Payable

On

March 27, 2019,

we entered into a securities purchase agreement with an unrelated

third

-party investor in which the investor loaned us gross proceeds of

$400,000

pursuant to a

0%

promissory note (

“March 2019 

Note Payable”). The note has an Original Issue Discount (“OID”) of

$100,000

and requires payments of

$47,000

in principal per month through

March 2020.

In connection with the

March 2019

Note Payable, we issued the investor restricted shares of common stock totaling

18,000

shares. The fair value of the restricted shares of common stock issued was based on the market price of our common stock on the date of issuance of the

March 2019

Note Payable. The allocation of the proceeds received to the restricted shares of common stock based on their relative fair value and the OID resulted in us recording a debt discount of

$161,000

 in

March 2019. 

In connection with the financing, we issued

5,600

restricted shares of common stock in

March 2019

to a

third

-party consultant. The fair value of the restricted shares of common stock issued of

$28,000

 was recorded as a debt discount to the carrying value of the notes payable. The discount is being amortized to interest expense using the effective interest method over the term of the

March 2019

Note Payable.

Interest Expense

We recognized interest expense on notes payable of

$17,000

and

$12,000

for the

three

months ended

March 31, 2019

and

2018,

respectively. Amortization of the debt discount to interest expense during the

three

months ended

March 31, 2019 

and

2018

 totaled

$461,000

and

$229,000,

respectively.

XML

Note 7 - Stockholders' Equity

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

7

 – STOCKHOLDERS’ EQUITY

Issuances of Common Stock

Private Placement

On

January 3, 2019,

we completed a sale of common stock and warrants under a Securities Purchase Agreement. The gross proceeds to us from the offering were

$3.2

million before underwriting discounts and commissions and other offering expenses (

$2.7

million of net proceeds after underwriting discounts, commissions and expenses).

The Company completed the sale of common stock and warrants under a Securities Purchase Agreement with an accredited investor (the “Investor”), pursuant to which the Company sold an aggregate of

431,490

units (“Units”) for

$7.35

per unit, with each Unit consisting of (i)

one

share of the Company’s common stock (“Shares”), (ii)

one

warrant to purchase

one

share of common stock at an exercise price of

$7.35

per share (“Series A Warrant”), and (iii)

one

warrant to purchase

one

share of common stock at an exercise price of

$8.40

per share (“Series B Warrant”) (the “Private Placement”); provided, however, that in order to ensure that the Investor’s beneficial ownership did

not

exceed

9.99%

of the outstanding shares of Common Stock, the Investor elected to exercise its right to purchase

200,637

prefunded warrants (“Series C Warrants”) in lieu of Shares as part of the Units, which Series C Warrants have a nominal exercise price of

$0.105

per share. In addition, the Company issued Series B Warrants to purchase

32,362

 shares of common stock, an amount equal to

7.5%

of the aggregate number of Shares, including Series C Warrants, sold in the Private Placement, at an exercise price of

$9.19

per share to the designees of H.C. Wainwright & Co., LLC, the Company’s sole placement agent, as compensation for its services in connection with the Private Placement.

Other Stock Issuances and Related Stock-Based Compensation

In connection with the

March 2019

Notes Payable, we issued

18,000

restricted shares of common stock in

March 2019

and

5,600

restricted shares of common stock in

March 2019

to a

third

-party consultant.  The fair value of the restricted share of common stock issued of

$118,000

was recorded as a debt discount to the carrying value of the notes payable in

March 2019 (

see Note

6

).  

2013

Equity Incentive Plan

We have issued common stock, restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the

2013

Equity Incentive Plan (

“2013

Plan”), which was approved by our Board of Directors in

February

of

2013.

 The

2013

Plan allows for the issuance of up to

95,268

shares of our common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. As of

March 31, 2019,

there were

no

shares available under the

2013

Plan.

2014

Equity Incentive Plan

We have issued common stock, restricted stock units and stock options to employees, non-executive directors and outside consultants under the

2014

Equity Incentive Plan (

“2014

Plan”), which was approved by our Board of Directors in

November 2014. 

The

2014

Plan allows for the issuance of up to

190,477

shares of our common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. As of

March 31, 2019,

there were

no

shares available under the

2014

Plan.

2016

Equity Incentive Plan

On

March 21, 2016,

our Board of Directors approved the adoption of the

2016

Equity Incentive Plan and on

October 20, 2016

adopted the Amended and Restated

2016

Equity Incentive Plan (

“2016

Plan”). The

2016

Plan was then approved by our stockholders in

November 2016.

The

2016

Plan allows for the issuance of up to

190,477

shares of our common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. The

2016

Plan includes an evergreen provision in which the number of shares of common stock authorized for issuance and available for future grants under the

2016

Plan will be increased each

January 1

after the effective date of the

2016

Plan by a number of shares of common stock equal to the lesser of: (a)

4%

of the number of shares of common stock issued and outstanding on a fully-diluted basis as of the close of business on the immediately preceding

December 31,

or (b) a number of shares of common stock set by our Board of Directors. As of

March 31, 2019,

131,532

shares were available under the

2016

Plan. In

April 2019,

our Board of Directors approved an increase of

84,051

shares of common stock to the shares authorized under the

2016

Plan in accordance with the evergreen provision in the

2016

Plan and therefore as of

May 14, 2019

there were

215,583

shares available under the

2016

Plan.

Stock Options

For the

three

months ended

March 31, 2019 

and

2018,

the following weighted average assumptions were utilized for the calculation of the fair value of the stock options granted during the period using Black-Scholes:

	2019			2018
Expected life (in years)		7.3			7.9
Expected volatility		198.7	%		217.9	%
Average risk-free interest rate		2.82	%		2.28	%
Dividend yield		0	%		0	%
Grant date fair value	$	12.48		$	24.15

The dividend yield of

zero

is based on the fact that we have never paid cash dividends and have

no

present intention to pay cash dividends. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the stock options. Expected life in years is based on the “simplified” method as permitted by ASC Topic

718.

 We believe that all stock options issued under its stock option plans meet the criteria of “plain vanilla” stock options. We use a term equal to the term of the stock options for all non-employee stock options. The risk-free interest rate is based on average rates for treasury notes as published by the Federal Reserve in which the term of the rate corresponds to the expected term of the stock options.

The following table summarizes the number of stock options outstanding and the weighted average exercise price:

	Options			Weighted average exercise price			Weighted remaining contractual life (years)		Aggregate intrinsic value
Outstanding at December 31, 2018		4,498		$	14.63			9.2	$	190
Granted		87			5.12			-		-
Exercised		-			-			-		-
Cancelled		(384	)		(16.42	)		-		-
Forfeited		-			-			-		-
Outstanding at March 31, 2019		4,201		$	14.27			9.0	$	86
Vested and Expected to Vest at March 31, 2019		4,201		$	14.27			9.0	$	86

The aggregate intrinsic value is calculated as the difference between the exercise price of all outstanding stock options and the quoted price of our common stock at

March 31, 2019.  

During the

three

months ended

March 31, 2019 

and

2018,

we recognized stock-based compensation from stock options of

$3,000

and

$1,000,

respectively. As of

March 31, 2019,

compensation expense related to unvested options

not

yet recognized in the condensed consolidated statement of operations was approximately

$32,000

and will be recognized over a remaining weighted-average term of

2.8

years.

Restricted Stock Units

The following table summarizes the restricted stock unit activity for the

three

months ended

March 31, 2019:

	Restricted Stock Units
Outstanding at December 31, 2018		175,765
Granted		8,603
Exchanged		-
Cancelled		-
Outstanding at March 31, 2019		184,368
Vested at March 31, 2019		119,180

The vested restricted stock units at

March 31, 2019

have

not

settled and are

not

showing as issued and outstanding shares of the Company but are considered outstanding for earnings per share calculations. Settlement of these vested restricted stock units will occur on the earliest of (i) the date of termination of service of the employee or consultant, (ii) change of control of us, or (iii)

10

years from date of issuance. Settlement of vested restricted stock units

may

be made in the form of (i) cash, (ii) shares, or (iii) any combination of both, as determined by the board of directors and is subject to certain criteria having been fulfilled by the recipient.

We calculate the fair value of the restricted stock units based upon the quoted market value of the common stock at the date of grant. The grant date fair value of restricted stock units issued during the

three

months ended

March 31, 2019

was

$60,000.

For the

three

months ended

March 31, 2019 

and

2018,

we recognized

$135,000

and 

$93,000,

respectively, of stock-based compensation expense for the vested units. As of

March 31, 2019,

compensation expense related to unvested shares

not

yet recognized in the condensed consolidated statement of operations was approximately

$748,000

and will be recognized over a remaining weighted-average term of

2.0

years.

Warrants

In

January 2015,

we issued

2,381

warrants with an exercise price of

$31.50

per share to a former executive in connection with the

January 2015

debenture. The warrants expire on

January 21, 2020.

The warrants contain anti-dilution protection, including protection upon dilutive issuances. In connection with the convertible debentures issued in

2015,

the exercise price of these warrants was reduced to

$9.45

per share and an additional

5,588

warrants were issued per the anti-dilution protection afforded in the warrant agreement during the year ended

December 31, 2015.

Warrants to purchase

7,969

shares of common stock remain outstanding as of

March 31, 2019.

In connection with the convertible debentures in

2015,

we issued warrants with an exercise price of

$31.50

per share and expiration in

2020

to investors and placement agents. Warrants to purchase

7,379

shares of common stock remain outstanding as of

March 31, 2019.

In connection with the convertible debentures in

2016,

we issued warrants to the investors and placement agents with an exercise price of

$42.00

per share and expire in

2021.

Warrants to purchase

40,201

shares of common stock remain outstanding as of

March 31, 2019.

In connection with the public equity offering in

March 2017,

we issued Series A Warrants to purchase

244,455

shares of common stock at

$15.75

per share and Series B Warrants to purchase

244,455

 shares of common stock at

$15.75

per share. The Series A Warrants expire in

2022.

During

2018,

certain investors elected to exercise

180,247

Series B Warrants and

953

Series A Warrants and the remaining Series B Warrants expired in

March 2018. 

We also issued warrants to purchase

12,223

 shares of common stock to our placement agent with an exercise price of

$19.69

per share and expire in

2022,

as well as in

March 2018

we issued our placement agent warrants to purchase

8,219

shares of common stock with an exercise price of

$19.69

per share and expire in

2023

in connection with the Series B Warrants exercised. Warrants to purchase

263,944

shares of common stock remain outstanding as of

March 31, 2019.

In connection with the public equity offering in

January 2019,

we issued Series A Warrants to purchase

431,490

shares of common stock at

$7.35

 per share, Series B Warrants to purchase

431,490

shares of common stock at

$8.40

per share and Series C Warrants to purchase

200,637

shares of common stock at

$7.35

per share. The Series A and B Warrants expire in

2020

and

2024

respectively. The Series C Warrants were prefunded and have a nominal exercise price of

$0.105

per share. We also issued warrants to purchase

32,362

shares of common stock to our placement agent with an exercise price of

$9.19

per share and expire in

2024.

Warrants to purchase

1,095,979

shares of common stock are remain outstanding as of

March 31, 2019.

For the

three

months ended

March 31, 2019,

the following weighted average assumptions were utilized for the calculation of the fair value of the warrants issued during the period using Black-Scholes:

	2019
Expected life (in years)		5.0
Expected volatility		183.8	%
Average risk-free interest rate		2.69	%
Dividend yield		0	%

At

March 31, 2019,

there are

1,415,472

fully vested warrants outstanding. The weighted average exercise price of outstanding warrants at

March 31, 2019

is

$10.46

per share, the weighted average remaining contractual term is

3.5

years and the aggregate intrinsic value of the outstanding warrants is

$0.

Net Loss per Share

Restricted stock units that are vested but which the issuance and delivery of the shares are deferred until the employee or director resigns are included in the basic and diluted net loss per share calculations.

The weighted average shares of common stock outstanding used in the basic and diluted net loss per share calculation for the

three

months ended

March 31, 2019

and

2018

was

2,328,318

and

1,679,041,

respectively.

The weighted average restricted stock units vested but which issuance of the common stock is deferred until there is a change in control, a specified date in the agreement or the employee or director resigns which were used in the basic and diluted net loss per share calculation for the

three

months ended

March 31, 2019

and

2018

was

115,366

and

101,280,

respectively.

The total weighted average shares outstanding used in the basic and diluted net loss per share calculation for the

three

months ended

March 31, 2019

and

2018

was

2,445,471

 and

1,780,321,

respectively.

The following table shows the anti-dilutive shares excluded from the calculation of basic and diluted net loss per common share as of

March 31, 2019

and

2018:

 

	As of March 31,
	2019		2018
Gross number of shares excluded:
Restricted stock units – unvested		65,188		54,762
Stock options		4,201		2,062
Warrants		1,415,472		557,940
Total		1,484,861		614,764

The above table does

not

include the ANDA Consideration Shares related to the Novalere acquisition totaling

1,323

 at

March 31, 2019

and

2018

as they are considered contingently issuable (see Note

3

).

XML

Note 8 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE

8

– COMMITMENTS AND CONTINGENCIES

In

May 2017,

we entered into a commercial agreement with West-Ward Pharmaceuticals International Limited (“WWPIL”), a wholly-owned subsidiary of Hikma Pharmaceuticals PLC (“Hikma”) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY). Pursuant to the commercial agreement, WWPIL provided us with the rights to launch our branded, fluticasone propionate nasal spray USP,

50

mcg per spray (FlutiCare®), under WWPIL’s FDA approved ANDA

No.

207957

in the U.S. in mid-

November 2017.

The initial term of the commercial agreement is for

two

years, and upon expiration of the initial term, the agreement will automatically renew for subsequent

one

-year terms unless either party notifies the other party in writing of its desire

not

to renew at least

90

days prior to the end of the then current term. The agreement requires us to meet certain minimum product batch purchase requirements in order for the agreement to continue to be in effect. We have met the minimum product batch purchase requirements through

May 2019.

Leases

We lease approximately

172,000

square feet of office and warehouse facilities under a non-cancellable operating lease. Our lease has a remaining term of

4

years, which represents the non-cancellable periods of the lease. We exclude extension options that are

not

reasonably certain to be exercised from our lease terms. Our lease payment consists of fixed rental payments for the right to use the underlying assets over the lease term as well as payments for common-area-maintenance and administrative services. We have also received customary incentives from our landlord for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for the lease.

Operating lease right-of-use assets and liabilities on our condensed consolidated balance sheets represent the present value of our remaining lease payments over the remaining lease terms. We do

not

allocate lease payments to non-lease components; therefore, fixed payments for common-area-maintenance and administrative services are included in our operating lease right-of-use assets and liabilities. We use our incremental borrowing rate to calculate the present value of our lease payments, as the implicit rates in our lease is

not

readily determinable.

As of

March 31, 2019,

the maturities of our operating lease were as follows (in thousands):

	Remaining Lease Payments
2019	$	194
2020		267
2021		274
2022		282
Thereafter		94
Total remaining lease payments		1,111
Less: imputed interest		(288	)
Total operating lease liabilities		823
Less: current portion		(147	)
Long-term operating lease liabilities		676
Weighted-average remaining lease term	4 years
Weighted-average discount rate		15	%

The components of our lease costs included in our condensed consolidated statement of operations consist of operating lease costs of

$57,000.

Operating lease costs consist of the fixed lease payments included in our operating lease liability and are recorded on a straight-line basis over the lease term.

Litigation

James L. Yeager, Ph.D., and Midwest Research Laboratories, LLC v. lnnovus Pharmaceuticals, Inc.

On

January 18, 2018,

Dr. Yeager and Midwest Research Laboratories (the "Plaintiffs") filed a complaint in the Illinois Northern District Court in Chicago, Illinois, which Plaintiffs amended on

February 26, 2018 (

"Amended Complaint''). The Amended Complaint alleges that the Company violated Dr. Yeager's right of publicity and made unauthorized use of his name, likeness an identity in advertising materials for its product Sensum+®. Plaintiffs seek actual and punitive damages, costs and attorney's fees, an injunction and corrective advertising. In

October 2018,

we filed a motion to dismiss the action. In

February 2019,

the Judge in the Illinois action issued a ruling invalidating some of Plaintiff’s causes of action, while accepting others and the case continues in that jurisdiction. The parties are currently engaged in discovery.

We believe that the Plaintiffs’ allegations and claims are wholly without merit, and we intend to defend the case vigorously and assert counterclaims against the Plaintiffs.  More specifically, we believe that we secured and paid for all of the rights claimed by Dr. Yeager from his company Centric Research Institute (“CRI”) pursuant to agreements with CRI (the “CRI Agreements”) and that CRI has indemnification obligations under the CRI Agreements for all expenses and losses associated with the claims made by the Plaintiffs.

On

January 23, 2019

we filed a complaint in the U.S. Federal District Court for the Southern District located in San Diego, California against Dr. Yeager, Servet Buyuktimken and Nadir Buyuktimkin (the

“021

Patent Claimed Inventors”), who are all the inventors names on the US issued patent number

9,821,021

entitled Sensitization Composition and Methods of Action (the

“021

Patent”), for copyright infringement relating to a clinical study table (the “Innovus Pharm Clinical Study Table”) included in the

021

Patent. We claim that the

021

Patent Claimed Inventors illegally stole and used the Innovus Pharm Clinical Study Table and the suit requests certain damages and injunctive relief described therein.

Marin County District Attorney

’

s Letter

.

On

August 24, 2018,

the Company received a letter from the Marin County District Attorney's Office requesting substantiation for certain advertising claims made for certain of the Company's products, DiabaSens®, and Apeaz® that were marketed and sold to customers in that County. The Marin County District Attorney's Office is part of a larger

ten

county Northern California Task Force of district attorneys to handle customer protection matters. In

November 2018,

the Company responded through its regulatory attorneys, Olshan, to the Marin County’s District Attorney’s letter. In

March 2019,

the Company has heard back from the Marin County District Attorney.  In

April 2019,

the Company responded to the letter.

In the ordinary course of business, we

may

face various claims brought by

third

parties and we

may,

from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. Management believes the outcomes of currently pending claims are

not

likely to have a material effect on our consolidated financial position and results of operations.

XML

Note 9 - Subsequent Events

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE

9

– SUBSEQUENT EVENTS

Promissory Notes

In

April 2019,

we entered into promissory note agreements and securities purchase agreements with

two

unrelated

third

-party investors in which the investors loaned us gross proceeds of

$850,000

in consideration for the issuance of

5%

promissory notes. The notes have an OID of

$90,000

and require payment of principal and interest of

$140,000

in

October 2019,

$704,000

in

January 2020,

and

$132,000

in

April 2020. 

As additional consideration for the purchase of the note, we issued

98,334

shares of restricted common stock to the investors.

In

April 2019,

we entered into promissory note conversion agreement with an unrelated

third

-party investor in which we converted

$175,000

of the balance of the

October 2018

5%

Notes Payable in exchange for

100,000

restricted shares of common stock.

In

May 2019,

we entered into a promissory note agreement and securities purchase agreement with an unrelated

third

-party investor in which the investors loaned us gross proceeds of

$400,000

in consideration for the issuance of

0%

promissory notes. The notes have an OID of

$100,000

and require payment of principal and interest of

$42,000

monthly through

April 2020. 

As additional consideration for the purchase of the note, we issued

34,000

 shares of restricted common stock to the investors. In connection with this financing, we issued

10,257

 restricted shares of common stock in

May 

2019

to a

third

-party consultant.

During

April

and

May 2019,

we issued

24,316

restricted shares of common stock in exchange for services rendered.

We have evaluated subsequent events through the filing date of this Form

10

-Q and determined that

no

additional subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosures in the notes thereto other than as disclosed in the accompanying notes to the condensed consolidated financial statements.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Nature of Operations, Policy [Policy Text Block

Organization

Innovus Pharmaceuticals, Inc., a Nevada incorporated and San Diego-based company, together with its subsidiaries as follows (collectively referred to as “Innovus” or the “Company”): Semprae Laboratories, Inc., a Delaware corporation (“Semprae”); FasTrack Pharmaceuticals, Inc., a Delaware corporation (“FasTrack”); Novalere, Inc., a Delaware corporation (“Novalere”); Supplement Hunt, Inc., a Nevada corporation (“Supplement Hunt”); and Prime Savings Club, Inc., a Nevada corporation (“Prime Savings Club”), is an emerging over-the-counter (“OTC”) consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine, consumer care products, supplements and certain related devices to improve men’s and women’s health and vitality, urology, brain health, pain, respiratory diseases, among others. The Company delivers innovative and uniquely presented and packaged health solutions through its (a) OTC medicines, devices, consumer and health products, and clinical supplements, which we market directly, (b) commercial retail and wholesale partners, and (c) directly to consumers through the Company’s proprietary Beyond Human® Sales & Marketing Platform including print media, on-line channels, websites, retailers and wholesalers. The Company is dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products, supplements and certain related devices. Innovus actively pursues opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.

The Company’s business model leverages its ability to (a) develop and build its current pipeline of proprietary products, and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through the Company’s existing supply chain, retail and on-line (including our Amazon®, eBay®, Wish.com, Walmart.com®, and Walgreens.com on-line stores and other e-commerce business platforms) channels to tap new markets and drive demand for such products and to establish physician relationships. The Company currently sells its products direct to consumer primarily in the United States and Canada and sells to international commercial partners in multiple countries around the world.

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation and Principles of Consolidation

The condensed consolidated balance sheet as of

December 31, 2018,

which has been derived from audited consolidated financial statements, and these unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and include all assets, liabilities, revenues and expenses of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in our Annual Report on Form

10

-K for the year ended

December 31, 2018.

Certain information required by U.S. GAAP has been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The results for the period ended

March 31, 2019 

are

not

necessarily indicative of the results to be expected for the entire fiscal year ending

December 31, 2019,

or for any future period. 

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such management estimates include the allowance for doubtful accounts, sales returns and chargebacks, realizability of inventories, valuation of deferred tax assets, goodwill and intangible assets, valuation of contingent acquisition consideration, recoverability of long-lived assets and goodwill and the valuation of equity-based instruments. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

Liquidity, Policy [Policy Text Block]

Liquidity

The Company’s operations have been financed primarily through proceeds from convertible debentures and notes payable, sales of its common stock and revenue generated from its products domestically and internationally through the Company’s marketing platform and by its partners. These funds have provided Innovus with the resources to operate its business, sell and support its products, attract and retain key personnel and add new products to the Company’s portfolio. The Company has experienced net losses and negative cash flows from operations each year since its inception. As of

March 

31,

2019,

the Company had an accumulated deficit of

$45.8

 million and a working capital deficit of

$1.5

 million.

As of

March 31, 2019,

we had

$1.9

million

 in cash and

$0.6

million

 held by merchant processors reported in other current assets and as of

May

[*]

,

2019

we had

[0]

in cash and $

[0]

held by merchant processors. During the

three

months ended

March 31, 2019,

we had net cash used in operating activities of

$0.6

million. We expect that our existing capital resources, together with revenue from sales of our products and upcoming sales milestone payments from the commercial partners signed for our products, will be sufficient to allow us to continue our operations, commence the product development process and launch selected products through at least the next

12

months.

In addition, our CEO, who is also a significant shareholder, has deferred the remaining payment of his salary earned through

June 30, 2016,

with a current balance totaling

$1.1

million, and has agreed to refrain from receipt of any funds which

may

jeopardize the ability of the Company to operate. Our actual needs will depend on numerous factors, including timing of introducing our new products to the marketplace, our ability to attract additional international distributors for our products and our ability to in-license in non-partnered territories and/or develop new product candidates. Although

no

assurances can be given, we currently intend to raise additional capital through the sale of debt or equity securities to provide additional working capital, pay for further expansion and development of our business, and to meet current obligations. Such capital

may

not

be available to us when we need it or on terms acceptable to us, if at all.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurement

Our financial instruments are cash, accounts receivable, accounts payable, accrued liabilities, contingent consideration and debt. The recorded values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The fair value of the contingent acquisition consideration is based upon the present value of expected future payments under the terms of the agreements and is a Level

3

measurement.  Based on borrowing rates currently available to us, the carrying values of the notes payable and short-term loans payable approximate their respective fair values.  

We follow a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level

1

) and the lowest priority to measurements involving significant unobservable inputs (Level

3

). The

three

levels of the fair value hierarchy are as follows:

● Level 1 measurements are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

● Level 2 measurements are inputs other than quoted prices included in Level 1 that are observable either directly or indirectly.

● Level 3 measurements are unobservable inputs.

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

The Company generates revenue from product sales and the licensing of the rights to market and commercialize our products.

Revenue is measured based on consideration specified in a contract with a customer. A contract with a customer exists when the Company enters into an enforceable contract with a customer. The contract is based on either the acceptance of standard terms and conditions on the websites for e-commerce customers and via telephone with our

third

-party call center for our print media and direct mail customers, or the execution of terms and conditions contracts with retailers and wholesalers. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid prior to shipment via credit card or check when products are sold direct to consumers or approximately

30

days from the time control is transferred when sold to wholesalers, distributors and retailers. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer.

A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of over-the-counter drug and consumer care products to its customers. Performance obligations promised in a contract are identified based on the goods that will be transferred to the carrier who takes control of the product that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. 

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods to the customer. We issue refunds to e-commerce and print media customers, upon request, within 

30

-

90

days of delivery. We estimate the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. For retailers, distributors and wholesalers, we do

not

offer a right of return or refund and revenue is recognized at the time products are shipped to customers. In all cases, judgment is required in estimating these reserves. Actual claims for returns could be materially different from the estimates. The estimated reserve for sales returns and allowances, which is included in accounts payable and accrued expense, was approximately

$223,000

and

$194,000

 at

March 

31,

2019

and

December 31, 2018,

respectively.

The Company recognizes revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product is shipped. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of product sales.

The Company enters into exclusive distributor and license agreements that are within the scope of ASC Topic

606.

 The license agreements we enter into normally generate

three

separate components of revenue: (

1

) an initial nonrefundable payment due on signing or when certain specific conditions are met; (

2

) royalties that are earned on an ongoing basis as sales are made or a pre-agreed transfer price; and (

3

) sales-based milestone payments that are earned when cumulative sales reach certain levels. Revenue from the initial nonrefundable payments or licensing fee is recognized when all required conditions are met. If the consideration for the initial license fee is for the right to sell the licensed product in the respective territory with

no

other required conditions to be met, such type of nonrefundable license fee arrangement for the right to sell the licensed product in the territory is recognized ratably over the term of the license agreement. For arrangements with licenses that include sales-based royalties, including sales-based milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. The achievement of the sales-based milestone underlying the payment to be received predominantly relates to the licensee’s performance of future commercial activities.

Advertising Cost [Policy Text Block]

Advertising Expense

Advertising costs, which primarily includes print and online media advertisements, are expensed as incurred and are included in sales and marketing expense in the accompanying condensed consolidated statements of operations. Advertising costs were approximately

$2.0

 and

$2.5

million for the

three

months ended

March 31, 2019 

and

2018,

respectively.

Earnings Per Share, Policy [Policy Text Block]

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding and vested but deferred RSUs during the period presented. Diluted net loss per share is computed using the weighted average number of common shares outstanding and vested plus deferred RSUs during the periods plus the effect of dilutive securities outstanding during the periods. For the

three

months ended

March 31, 2019 

and

2018,

basic net loss per share is the same as diluted net loss per share as a result of our common stock equivalents being anti-dilutive.  See Note

7

for more details.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

. The update requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements. We adopted Topic

842

on its effective date in the

first

quarter of

2019

using a modified retrospective approach. We elected the available package of practical expedients upon adoption, which allowed us to carry forward our historical assessment of whether existing agreements contained a lease and the classification of our existing operating leases. We continue to report our financial position as of

December 30, 2018

under the former lease accounting standard (Topic

840

) in our condensed consolidated balance sheet. The adoption impact resulted in the recognition of an operating lease liability with a corresponding right-of-use asset based on the present value of our remaining minimum lease payments which offset the previously reported deferred rent balance.

The following table summarizes the impact of Topic

842

on our condensed consolidated balance sheet upon adoption on

December 31, 2018 (

in thousands):

	December 31, 2018
	(unaudited)
	Pre-adoption		Adoption Impact			Post-adoption
Assets
Operating lease right-of-use asset	$	-	$	675		$	675
Total assets	$	-	$	675		$	675
Liabilities and Stockholders' Equity
Accrued Liabilities	$	-	$	140		$	140
Deferred Rent		181	$	(181	)		-
Operating lease liabilities		-	$	716			716
Total liabilities and stockholders' equity	$	181	$	675		$	856

In

June 2018,

the FASB issued ASU

2018

-

07,

Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting

. The update aligns the accounting for share-based payment awards issued to nonemployees with those issued to employees. Under the new guidance, the nonemployee awards will be measured on the grant date and compensation costs will be recognized when achievement of the performance condition is probable. This new standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within that fiscal year. Early adoption is permitted. The adoption of the new guidance does

not

have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In

January 2017,

the FASB issued ASU

2017

-

04,

 

Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment

. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step

2

from the goodwill impairment test. Step

2

measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after

December 15, 2019,

and interim periods within that reporting period. While the Company is still in the process of completing our analysis on the impact this guidance will have on the consolidated financial statements and related disclosures, the Company does

not

expect the impact to be material.

In

August 2018,

the FASB issued ASU

2018

-

13,

Fair Value Measurement (Topic

820

): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement

. The update modifies the disclosure requirements for recurring and nonrecurring fair value measurements, primarily those surrounding Level

3

fair value measurements and transfers between Level

1

and Level

2.

The new standard is effective for fiscal years beginning after

December 15, 2019,

including interim periods within that reporting period. The Company is currently evaluating the new guidance and does

not

expect it to have a material impact on its consolidated financial statements.

In

August 2018,

the FASB issued ASU

2018

-

15,

 

Customer

’

s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This ASU becomes effective for the Company in the year ending

December 31, 2020

and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

In

November 2018,

the FASB issued ASU

2018

-

18,

 

Clarifying the Interaction Between Topic

808

and Topic

606

, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic

606.

 This ASU becomes effective for the Company in the year ending

December 31, 2020

and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

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Note 1 - Organization and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	December 31, 2018
	(unaudited)
	Pre-adoption		Adoption Impact			Post-adoption
Assets
Operating lease right-of-use asset	$	-	$	675		$	675
Total assets	$	-	$	675		$	675
Liabilities and Stockholders' Equity
Accrued Liabilities	$	-	$	140		$	140
Deferred Rent		181	$	(181	)		-
Operating lease liabilities, net of current portion		-	$	716			716
Total liabilities and stockholders' equity	$	181	$	675		$	856

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Note 2 - Revenue (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Revenue from External Customers by Geographic Areas [Table Text Block]

	For the Three Months Ended March 31,
	2019		2018
United States	$	4,509	$	4,184
Canada		676		358
All Other		4		-
Product sales, net	$	5,189	$	4,542

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Note 4 - Inventory (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31,		December 31,
	2019		2018
Raw materials and supplies	$	186	$	238
Work in process		95		96
Finished goods		1,849		2,036
Total	$	2,130	$	2,370

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Note 5 - Intangible Assets and Goodwill (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	March 31, 2019
	Amount		Accumulated Amortization			Net Amount		Useful Lives (years)
Patent & Trademarks	$	684	$	(195	)	$	489		7 – 15
Customer Contracts		625		(328	)		297		10
Sensum+® License (from CRI)		235		(137	)		98		10
Vesele® Trademark		25		(14	)		11		8
Beyond Human® Website and Trade Name		222		(121	)		101		5 – 10
Novalere Manufacturing Contract		4,681		(1,941	)		2,740		10
Other Beyond Human® Intangible Assets		5		(5	)		-		1 – 3
Total	$	6,477	$	(2,741	)	$	3,736

	December 31, 2018
	Amount		Accumulated Amortization			Net Amount		Useful Lives (years)
Patent & Trademarks	$	654	$	(161	)	$	493		7 – 15
Customer Contracts		625		(311	)		314		10
Sensum+® License (from CRI)		234		(131	)		103		10
Vesele® Trademark		25		(12	)		13		8
Beyond Human® Website and Trade Name		222		(112	)		110		5 – 10
Novalere Manufacturing Contract		4,681		(1,824	)		2,857		10
Other Beyond Human® Intangible Assets		5		(5	)		0		1 – 3
Total	$	6,446	$	(2,556	)	$	3,890

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Remainder of 2019	$	536
2020		714
2021		657
2022		614
2023		578
Thereafter		637
	$	3,736

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Note 6 - Notes Payable and Short-term Loans Payable (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	2019			2018
Notes payable:
January and March 2018 Notes Payable	$	-		$	112
February and March 2018 5% Notes Payable		117			250
July 2018 5% Notes Payable		-			550
August 2018 Notes Payable		500			800
September 2018 5% Notes Payable		250			390
October 2018 5% Notes Payable		550			550
November and December 2018 Notes Payable		1,049			1,429
March 2019 Note Payable		500			-
Total notes payable		2,966			4,081
Less: Debt discount		(736	)		(1,008	)
Carrying value		2,230			3,073
Less: Current portion		(2,230	)		(3,073	)
Notes payable, net of current portion	$	-		$	-

Schedule of Maturities of Long-term Debt [Table Text Block]

Remainder of 2019	$	2,466
2020		500
	$	2,966

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Note 7 - Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2019			2018
Expected life (in years)		7.3			7.9
Expected volatility		198.7	%		217.9	%
Average risk-free interest rate		2.82	%		2.28	%
Dividend yield		0	%		0	%
Grant date fair value	$	12.48		$	24.15

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	Options			Weighted average exercise price			Weighted remaining contractual life (years)		Aggregate intrinsic value
Outstanding at December 31, 2018		4,498		$	14.63			9.2	$	190
Granted		87			5.12			-		-
Exercised		-			-			-		-
Cancelled		(384	)		(16.42	)		-		-
Forfeited		-			-			-		-
Outstanding at March 31, 2019		4,201		$	14.27			9.0	$	86
Vested and Expected to Vest at March 31, 2019		4,201		$	14.27			9.0	$	86

Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

	Restricted Stock Units
Outstanding at December 31, 2018		175,765
Granted		8,603
Exchanged		-
Cancelled		-
Outstanding at March 31, 2019		184,368
Vested at March 31, 2019		119,180

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	As of March 31,
	2019		2018
Gross number of shares excluded:
Restricted stock units – unvested		65,188		54,762
Stock options		4,201		2,062
Warrants		1,415,472		557,940
Total		1,484,861		614,764

Warrant [Member]

Notes Tables

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

	2019
Expected life (in years)		5.0
Expected volatility		183.8	%
Average risk-free interest rate		2.69	%
Dividend yield		0	%

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Note 8 - Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

	Remaining Lease Payments
2019	$	194
2020		267
2021		274
2022		282
Thereafter		94
Total remaining lease payments		1,111
Less: imputed interest		(288	)
Total operating lease liabilities		823
Less: current portion		(147	)
Long-term operating lease liabilities		676
Weighted-average remaining lease term	4 years
Weighted-average discount rate		15	%

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Note 1 - Organization and Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	May 13, 2019	Dec. 31, 2018	Dec. 31, 2017	Jun. 30, 2016
Retained Earnings (Accumulated Deficit), Ending Balance	$ (45,849,000)			$ (43,860,000)
Working Capital Deficit	1,500,000
Cash, Ending Balance	1,947,000	$ 4,924,000		1,248,000	$ 1,565,000
Cash Held by Merchant Processors	600,000
Cash and Cash Held by Merchant Processors	2,500,000
Net Cash Provided by (Used in) Operating Activities, Total	(602,000)	(663,000)
Deferred Compensation Arrangement with Individual, Recorded Liability						$ 1,100,000
Estimated Reserve for Sales Returns and Allowances	223,000			$ 194,000
Advertising Expense	$ 2,000,000	$ 2,500,000
Subsequent Event [Member]
Cash, Ending Balance			$ 2,200,000
Cash Held by Merchant Processors			$ 700,000

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Note 1 - Organization and Summary of Significant Accounting Policies - Balance Sheet Impact of Topic 842 (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Operating lease right-of-use asset	$ 649
Deferred Rent		181
Operating lease liability, net of current portion	$ 676
Accounting Standards Update 2016-02 [Member]
Operating lease right-of-use asset		675
Total assets		675
Accrued Liabilities		140
Deferred Rent
Operating lease liability, net of current portion		716
Total liabilities and stockholders' equity		856
Accounting Standards Update 2016-02 [Member] | Previously Reported [Member]
Operating lease right-of-use asset
Total assets
Accrued Liabilities
Deferred Rent		181
Operating lease liability, net of current portion
Total liabilities and stockholders' equity		181
Accounting Standards Update 2016-02 [Member] | Restatement Adjustment [Member]
Operating lease right-of-use asset		675
Total assets		675
Accrued Liabilities		140
Deferred Rent		(181)
Operating lease liability, net of current portion		716
Total liabilities and stockholders' equity		$ 675

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Note 2 - Revenue (Details Textual) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Contract with Customer, Asset, Net, Current, Total	$ 0
Contract with Customer, Liability, Current	282,000	$ 108,000
Deferred Revenue and Customer Deposits [Member] | Zestra and Zestra Glide [Member]
Contract with Customer, Liability, Current	$ 104,000

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Note 2 - Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Product sales, net	$ 5,363	$ 4,545
Product [Member]
Product sales, net	5,189	4,542
UNITED STATES | Product [Member]
Product sales, net	4,509	4,184
CANADA | Product [Member]
Product sales, net	676	358
Countries Other Than the United States and Canada [Member] | Product [Member]
Product sales, net	$ 4

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Note 3 - Business and Asset Acquisitions (Details Textual) - USD ($)			3 Months Ended		12 Months Ended
	Jan. 01, 2019	Feb. 05, 2015	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Mar. 31, 2017
Prime Consultants, LLC [Member] | Products Sold Through the Amazon Platform [Member]
Revenue from Contract with Customer, Including Assessed Tax					$ 2,400,000
Asset Purchase Agreement with Prime Consultants [Member]
Payments to Acquire Businesses, Gross	$ 343,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Inventory	313,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill, Total	$ 30,000
Acquisition of Novalere [Member]
Net Revenue for Which Earn-out Payments Will Be Made		$ 5,000,000
Earn-out Payment to Be Made to Stockholders for Specified Level of Net Revenue		500,000
Cumulative Maximum Earn-out Payments		$ 2,500,000
Number of Consideration Shares			1,323	1,323		1,323
Change in Estimated Fair Value of Future Earn-out Payments			$ (2,000)	$ 3,000
Estimated Fair Value of Future Earn-out Payments			1,100,000		$ 1,200,000
Acquisition of Novalere [Member] | Contingent Consideration [Member]
Value of Consideration Shares Not Yet Issuable			$ 6,000

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Note 4 - Inventory - Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Raw materials and supplies	$ 186	$ 238
Work in process	95	96
Finished goods	1,849	2,036
Total	$ 2,130	$ 2,370

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Note 5 - Intangible Assets and Goodwill (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Amortization of Intangible Assets, Total	$ 185,000	$ 158,000

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Note 5 - Intangible Assets and Goodwill - Amortizable Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Intangible Assets, Amount	$ 6,477	$ 6,446
Intangible Assets, Accumulated Amortization	(2,741)	(2,556)
Intangible Assets, Net Amount	3,736	3,890
Intangible Assets, Accumulated Amortization	2,741	2,556
Patents and Trademarks [Member]
Intangible Assets, Amount	684	654
Intangible Assets, Accumulated Amortization	(195)	(161)
Intangible Assets, Net Amount	489	493
Intangible Assets, Accumulated Amortization	$ 195	$ 161
Patents and Trademarks [Member] | Minimum [Member]
Intangible Assets, Useful Lives (Year)	7 years	7 years
Patents and Trademarks [Member] | Maximum [Member]
Intangible Assets, Useful Lives (Year)	15 years	15 years
Customer Contracts [Member]
Intangible Assets, Amount	$ 625	$ 625
Intangible Assets, Accumulated Amortization	(328)	(311)
Intangible Assets, Net Amount	$ 297	$ 314
Intangible Assets, Useful Lives (Year)	10 years	10 years
Intangible Assets, Accumulated Amortization	$ 328	$ 311
Sensum License [Member]
Intangible Assets, Amount	235	234
Intangible Assets, Accumulated Amortization	(137)	(131)
Intangible Assets, Net Amount	$ 98	$ 103
Intangible Assets, Useful Lives (Year)	10 years	10 years
Intangible Assets, Accumulated Amortization	$ 137	$ 131
Vesele [Member]
Intangible Assets, Amount	25	25
Intangible Assets, Accumulated Amortization	(14)	(12)
Intangible Assets, Net Amount	$ 11	$ 13
Intangible Assets, Useful Lives (Year)	8 years	8 years
Intangible Assets, Accumulated Amortization	$ 14	$ 12
Beyond Human Website and Trade Name [Member]
Intangible Assets, Amount	222	222
Intangible Assets, Accumulated Amortization	(121)	(112)
Intangible Assets, Net Amount	101	110
Intangible Assets, Accumulated Amortization	$ 121	$ 112
Beyond Human Website and Trade Name [Member] | Minimum [Member]
Intangible Assets, Useful Lives (Year)	5 years	5 years
Beyond Human Website and Trade Name [Member] | Maximum [Member]
Intangible Assets, Useful Lives (Year)	10 years	10 years
Novalere Mfg. Contract [Member]
Intangible Assets, Amount	$ 4,681	$ 4,681
Intangible Assets, Accumulated Amortization	(1,941)	1,824
Intangible Assets, Net Amount	$ 2,740	$ 2,857
Intangible Assets, Useful Lives (Year)	10 years	10 years
Intangible Assets, Accumulated Amortization	$ 1,941	$ (1,824)
Other Beyond Human Intangible Assets [Member]
Intangible Assets, Amount	5	5
Intangible Assets, Accumulated Amortization	(5)	(5)
Intangible Assets, Net Amount		0
Intangible Assets, Accumulated Amortization	$ 5	$ 5
Other Beyond Human Intangible Assets [Member] | Minimum [Member]
Intangible Assets, Useful Lives (Year)	1 year	1 year
Other Beyond Human Intangible Assets [Member] | Maximum [Member]
Intangible Assets, Useful Lives (Year)	3 years	3 years

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Note 5 - Intangible Assets and Goodwill - Expected Future Amortization Expense (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Remainder of 2019	$ 536
2020	714
2021	657
2022	614
2023	578
Thereafter	637
	$ 3,736	$ 3,890

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Note 6 - Notes Payable and Short-term Loans Payable (Details Textual) - USD ($)		1 Months Ended	3 Months Ended
	Mar. 27, 2019	Mar. 31, 2019	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Proceeds from Notes Payable, Total			$ 400,000	$ 1,873,000
Debt Instrument, Unamortized Discount, Total		$ 736,000	736,000		$ 1,008,000
Interest Expense, Debt, Total			17,000	12,000
Amortization of Debt Discount (Premium) to Interest Expense			229,000	$ 461,000
Unrelated Third Party Investor [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	18,000	18,000
Debt Instrument, Unamortized Discount, Total		$ 161,000	161,000
Third-party Consultant [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross		5,600
March 2019 Notes Payable [Member]
Proceeds from Notes Payable, Total	$ 400,000
Debt Instrument, Interest Rate, Stated Percentage	0.00%
Debt Instrument, Original Issue Discount	$ 100,000
Debt Instrument, Periodic Payment, Principal	$ 47,000
Debt Instrument, Unamortized Discount, Total		$ 118,000	$ 118,000
Stock Issued During Period, Value, Restricted Stock Award, Gross		$ 28,000
Debt Instrument, Frequency of Periodic Payment	per month
Debt Instrument, Maturity Date	Mar. 27, 2020
March 2019 Notes Payable [Member] | Third-party Consultant [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross		5,600

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Note 6 - Notes Payable and Short-term Loans Payable - Summary of Outstanding Notes Payable (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Notes payable	$ 2,966,000	$ 4,081,000
Less: Debt discount	(736,000)	(1,008,000)
Carrying value	2,230,000	3,073,000
Less: Current portion	(2,230,000)	(3,073,000)
Notes payable, net of current portion
January and March 2018 Notes Payable [Member]
Notes payable		112,000
February and March 2018 Notes Payable [Member]
Notes payable	117,000	250,000
July 2018 Notes Payable [Member]
Notes payable		550,000
August 2018 Notes Payable [Member]
Notes payable	500,000	800,000
September 2018 Notes Payable [Member]
Notes payable	250,000	390,000
October 2018 Notes Payable [Member]
Notes payable	550,000	550,000
November and December 2018 Notes Payable [Member]
Notes payable	1,049,000	1,429,000
March 2019 Notes Payable [Member]
Notes payable	500,000
Less: Debt discount	$ (118,000)

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Note 6 - Notes Payable and Short-term Loans Payable - Summary of Outstanding Notes Payable (Details) (Parentheticals)	Mar. 31, 2019	Dec. 31, 2018
February and March 2018 Notes Payable [Member]
Interest rate	5.00%	5.00%
July 2018 Notes Payable [Member]
Interest rate	5.00%	5.00%
September 2018 Notes Payable [Member]
Interest rate	5.00%	5.00%
October 2018 Notes Payable [Member]
Interest rate	5.00%	5.00%

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Note 6 - Notes Payable and Short-term Loans Payable - Future Minimum Payments for Notes Payable (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Remainder of 2019	$ 2,466
2020	500
	$ 2,966	$ 4,081

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Note 7 - Stockholders' Equity (Details Textual) - USD ($)			1 Months Ended			3 Months Ended		12 Months Ended
	Mar. 27, 2019	Jan. 03, 2019	Apr. 30, 2019	Mar. 31, 2019	Jan. 31, 2015	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2015	Jan. 31, 2019	Mar. 31, 2017	Mar. 21, 2016	Nov. 30, 2014	Feb. 28, 2013
Proceeds from Issuance or Sale of Equity, Total		$ 3,200,000				$ 2,714,000
Proceeds from Issuance or Sale of Equity, Net		$ 2,700,000
Number of Equity Units Issued During period		431,490
Unit Price, Per Share		$ 7.35
Number of Common Stock, Per Unit		1
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 10.46		$ 10.46
Beneficial Ownership, Percentage		9.99%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				1,095,979		1,095,979
Percentage of Aggregate Shares		7.50%
Debt Instrument, Unamortized Discount, Total				$ 736,000		$ 736,000		$ 1,008,000
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount				$ 32,000		$ 32,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition						2 years 292 days
Class of Warrant or Right, Outstanding				1,415,472		1,415,472
Warrants and Rights Outstanding, Term				3 years 182 days		3 years 182 days
Warrants and Rights Outstanding				$ 0		$ 0
Weighted Average Number of Shares Outstanding, Basic and Diluted						2,445,471	1,780,321
Acquisition of Novalere [Member]
Number of Consideration Shares				1,323		1,323	1,323				1,323
Maximum [Member]
Settlement of Vested Restricted Stock Units from Date of Issuance, Period						10 years
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate						0.00%	0.00%
Share-based Payment Arrangement, Expense						$ 3,000	$ 1,000
Weighted Average Number of Shares Outstanding, Basic and Diluted						2,328,318	1,679,041
Restricted Stock Units (RSUs) [Member]
Share-based Payment Arrangement, Expense						$ 135,000	$ 93,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition						2 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Granted, Fair Value						$ 60,000
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount				$ 748,000		$ 748,000
Weighted Average Number of Shares Outstanding, Basic and Diluted						115,366	101,280
The 2013 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized														95,268
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant				0		0
The 2014 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized													190,477
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant				0		0
The 2016 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized												190,477
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant												131,532
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized Increased, Percentage of number of shares of common stock issued and outstanding												4.00%
The 2016 Equity Incentive Plan [Member] | Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			215,583
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized			84,051
March 2019 Notes Payable [Member]
Debt Instrument, Unamortized Discount, Total				$ 118,000		$ 118,000
Unrelated Third Party Investor [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	18,000			18,000
Debt Instrument, Unamortized Discount, Total				$ 161,000		$ 161,000
Third-party Consultant [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross				5,600
Third-party Consultant [Member] | March 2019 Notes Payable [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross				5,600
Series A Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right		1
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 7.35
Series B Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right		1
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 8.40
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		32,362
Series C Warrants [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 9.19								$ 7.35
Class of Warrant or Right, Exercised During Period		200,637
Class of Warrant or Right, Nominal Exercise Price of Warrants or Rights		$ 0.105								$ 0.105
Class of Warrant or Right, Number of Securities Called by Warrants or Rights										200,637
Warrants in Connection with Debenture in 2015 [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 31.50		$ 31.50			$ 9.45
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				7,379		7,379
Class of Warrant or Right, Issued During Period									5,588
Class of Warrant or Right, Outstanding				7,969		7,969
Warrants in Connection with Debenture in 2015 [Member] | Former Executive [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights					$ 31.50
Class of Warrant or Right, Issued During Period					2,381
Warrants in Connection with Debenture in 2016 [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 42		$ 42
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				40,201		40,201
Series B Warrants in Connection with Public Equity Offering [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights							$ 19.69			$ 8.40	$ 15.75
Class of Warrant or Right, Exercised During Period								180,247
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				263,944		263,944	8,219			431,490	244,455
Series A Warrants in Connection with Public Equity Offering [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights										$ 7.35
Class of Warrant or Right, Exercised During Period								953
Class of Warrant or Right, Number of Securities Called by Warrants or Rights										431,490
Placement Agent Warrant [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights										$ 9.19	$ 19.69
Class of Warrant or Right, Number of Securities Called by Warrants or Rights										32,362	12,223

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Note 7 - Stockholders' Equity - Stock Options, Valuation Assumptions (Details) - Stock Options [Member] - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Expected life (Year)	7 years 109 days	7 years 328 days
Expected volatility	198.70%	217.90%
Average risk-free interest rate	2.82%	2.28%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%
Grant date fair value (in dollars per share)	$ 12.48	$ 24.15

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Note 7 - Stockholders' Equity - Schedule of Stock Option Activity (Details) - Stock Options [Member] - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Outstanding, Options, beginning balance (in shares)	4,498
Outstanding, Weighted average exercise price, beginning balance (in dollars per share)	$ 14.63
Outstanding, Weighted remaining contractual life (Year)	9 years	9 years 73 days
Outstanding, Aggregate intrinsic value	$ 86	$ 190
Granted, Options (in shares)	87
Granted, Weighted average exercise price (in dollars per share)	$ 5.12
Exercised, Options (in shares)
Exercised, Weighted average exercise price (in dollars per share)
Cancelled, Options (in shares)	(384)
Cancelled, Weighted average exercise price (in dollars per share)	$ (16.42)
Forfeited, Options (in shares)
Forfeited, Weighted average exercise price (in dollars per share)
Outstanding, Options, ending balance (in shares)	4,201	4,498
Outstanding, Weighted average exercise price, ending balance (in dollars per share)	$ 14.27	$ 14.63
Vested and Expected to Vest, Options (in shares)	4,201
Vested and Expected to Vest, Weighted average exercise price (in dollars per share)	$ 14.27
Vested and Expected to Vest, Weighted remaining contractual life (Year)	9 years
Vested and Expected to Vest, Aggregate intrinsic value	$ 86

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Note 7 - Stockholders' Equity - Schedule of Restricted Stock Unit Activity (Details) - Restricted Stock Units (RSUs) [Member] shares in Thousands	3 Months Ended
	Mar. 31, 2019 shares
Outstanding (in shares)	175,765
Granted (in shares)	8,603
Exchanged (in shares)
Cancelled (in shares)
Outstanding (in shares)	184,368
Vested (in shares)	119,180

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Note 7 - Stockholders' Equity - Warrants Valuation Assumptions (Details)	Mar. 31, 2019 yr
Measurement Input, Expected Term [Member]
Black-Scholes measurement input for warrants (Year)	5
Measurement Input, Price Volatility [Member]
Black-Scholes measurement input for warrants (Year)	1.838
Measurement Input, Risk Free Interest Rate [Member]
Black-Scholes measurement input for warrants (Year)	0.0269
Measurement Input, Expected Dividend Rate [Member]
Black-Scholes measurement input for warrants (Year)	0

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Note 7 - Stockholders' Equity - Schedule of Antidilutive Securities (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Antidilutive Securities (in shares)	1,484,861	614,764
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities (in shares)	65,188	54,762
Stock Options [Member]
Antidilutive Securities (in shares)	4,201	2,062
Warrant [Member]
Antidilutive Securities (in shares)	1,415,472	557,940

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Note 8 - Commitments and Contingencies (Details Textual)	1 Months Ended	3 Months Ended
	May 31, 2017	Mar. 31, 2019 USD ($) ft²
Commercial Agreement, Initial Term	2 years
Commercial Agreement, Automatic Renewal Term	1 year
Area of Property Leased Under Non-cancellable Operating Lease | ft²		172,000
Operating Lease Remaining Term		4 years
Operating Lease, Expense | $		$ 57,000

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Note 8 - Commitments and Contingencies - Maturities of Operating Lease (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
2019	$ 194
2020	267
2021	274
2022	282
Thereafter	94
Total remaining lease payments	1,111
Less: imputed interest	(288)
Total operating lease liabilities	823
Less: current portion	(147)
Long-term operating lease liabilities	$ 676
Weighted-average remaining lease term (Year)	4 years
Weighted-average discount rate	15.00%

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Note 9 - Subsequent Events (Details Textual) - USD ($)			1 Months Ended
	May 13, 2019	Mar. 27, 2019	Apr. 30, 2020	Jan. 31, 2020	Oct. 31, 2019	May 13, 2019	Apr. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Debt Instrument, Unamortized Discount, Total								$ 736,000	$ 1,008,000
Unrelated Third Party Investor [Member]
Debt Instrument, Unamortized Discount, Total								$ 161,000
Stock Issued During Period, Shares, Restricted Stock Award, Gross		18,000						18,000
Third-party Consultant [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross								5,600
Subsequent Event [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Issued for Services						24,316
Subsequent Event [Member] | Conversion of October 2018 5% Notes Payable to Restricted Shares of Common Stock [Member]
Debt Conversion, Original Debt, Amount							$ 175,000
Debt Conversion, Converted Instrument, Shares Issued							100,000
Subsequent Event [Member] | Unrelated Third Party Investor [Member]
Stock Issued During Period, Shares, Debt							98,334
Subsequent Event [Member] | Unrelated Third Party Investor [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Debt	34,000
Subsequent Event [Member] | Third-party Consultant [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	10,257
Promissory Note [Member] | Subsequent Event [Member]
Proceeds from Issuance of Long-term Debt, Total							$ 850,000
Debt Instrument, Interest Rate, Stated Percentage	0.00%					0.00%	5.00%
Debt Instrument, Unamortized Discount, Total	$ 100,000					$ 100,000	$ 90,000
Debt Instrument, Periodic Payment, Total	42,000		$ 132,000	$ 704,000	$ 140,000
Proceeds from Issuance of Debt	$ 400,000
October 2018 Notes Payable [Member]
Debt Instrument, Interest Rate, Stated Percentage								5.00%	5.00%
October 2018 Notes Payable [Member] | Subsequent Event [Member]
Debt Instrument, Interest Rate, Stated Percentage							5.00%