<PAGE>

                                  UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              _____________________

                                   FORM 10-K
                              _____________________

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the fiscal year ended  DECEMBER 31, 1996
                               ---------------------
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the transition period from ____________ to _____________

                          COMMISSION FILE NUMBER 0-26790

                              INNOVUS CORPORATION
            (exact name of registrant as specified in its charter)

         DELAWARE                                      87-0461856
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

2060 E. 2100 SOUTH
SALT LAKE CITY, UTAH                                                  84109
(Address of principal executive offices)                            (Zip Code)

             Registrant's telephone number, including area code:
                                (801) 463-8200

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

Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK,
$0.001 PAR VALUE

     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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                    Yes    X   .        No        .
                         ------             ------
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     As of March 18, 1997, 5,744,079 of the Registrant's Common Shares were
outstanding.  As of March 18, 1997, the aggregate market value of voting stock
held by non-affiliates of the Registrant was approximately $17,747,204 based on
the closing prices for the Registrant's Common Shares on the Nasdaq Small Cap
market.

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                   DOCUMENTS INCORPORATED BY REFERENCE
     None

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                                  PART I

ITEM 1.  BUSINESS

     Innovus Corporation (the "Company") provides a powerful, yet easy to use
software tool, INNOVUS MULTIMEDIA, for creating interactive business multimedia
applications and presentations.  The Company's product can seamlessly interact
with the user's existing business applications due to its Microsoft-standards
compliant design. While the nature of projects which can be created with INNOVUS
MULTIMEDIA is limited primarily by the user's imagination, typical examples
include computer based training (CBT) applications; high impact multimedia
presentations; employee orientation and other human resources systems;
electronic catalogs; product information systems; and other sales and marketing
applications, all of which integrate desktop applications with corporate
databases in an enhanced, media rich format.  Projects can be created in INNOVUS
MULTIMEDIA by intermediate-level computer users in a "point and click" fashion;
programmers and developers also find the product useful and scalable since the
underlying engine, accessible to those who wish to use it, is compliant with
Microsoft Visual Basic for Applications standards. INNOVUS MULTIMEDIA is the
first multimedia tool to offer the ease of use of presentation software combined
with the media management of authoring programs and the power of application
development tools.  INNOVUS MULTIMEDIA allows the desktop PC user to fill the
gap between settling for standard solutions provided by shrinkwrap applications
and creating customized programs using traditional complex development and
authoring tools.

     In addition to the software tool, Innovus Corporation has begun to release
a series of application templates that further simplify the use of the tool by
providing an outline to automate several common business activities.  The
Company intends to expand the family of application templates.  The Company has
also introduced CD volumes of business oriented media objects, such as video,
sounds, animations, backgrounds, interactive buttons and images, to facilitate
development of multimedia projects using INNOVUS MULTIMEDIA or other media
applications.

INDUSTRY OVERVIEW

     Increasingly, business information system resources are incorporating
multimedia to enhance efficiency and productivity.  The communications power of
multimedia, when combined with other business computing capabilities, such as
databases, networks, and integration of other business applications, allows
users to create innovative solutions to recurring business activities.  In an
industry report dated April 1996, the Gartner Group, a leading industry analyst,
estimated that the impact of multimedia on business will be as far-reaching as
the introduction of PCs and LANs in the early 1980s.  According to the Gartner
Group, over 70 percent of all multimedia applications will have to be created
and maintained at or below the corporate department level, rather than by the
information services (IS) department.

     The acceleration of multimedia in the business environment is evidenced by
several significant emerging industry standards, including Intel's MMX standard
for improved business multimedia PC performance and Microsoft's DirectX enhanced
multimedia software development specification.  Several factors influencing this
growing trend include:

     INCREASED POWER OF DESKTOP COMPUTERS.  As the cost of hardware has
     continually dropped and the requirements of business software has
     increased, the capabilities of typical corporate desktop PCs has increased.
     An ever-increasing percentage of desktop PCs are 

                                     2
<PAGE>

     capable of using 32 bit operating systems such as Windows 95 or Windows NT.
     These PCs have the large hard drives, color monitors, and RAM memory
     required for multimedia.

     RAPID EXPANSION OF THE INTRANET AND INTERNET.  The rapid expansion of
     Intranets and the Internet is driving demand for tools to manipulate and
     manage enhanced digital graphic and multimedia content for use in World
     Wide Web sites, and electronic transaction and business information
     environments.

     INCREASED USER KNOWLEDGE AND EXPECTATIONS.  As users experience more
     software utilizing graphical or multimedia user interfaces, they demand
     similar intuitive presentation and point and click functionality from all
     business applications.

     PROLIFERATION OF MULTIMEDIA CAPABLE BUSINESS NETWORKS. Network technology
     has continued to evolve to allow for higher bandwidth and lower cost
     network communication.  Such enabling technology allows for the deployment
     of multimedia applications across corporate networks.

     INCREASED EASE OF USE AND RE-USE OF MEDIA CONTENT.  Multimedia tools and
     applications can readily use and store media in standard industry formats
     without complicated conversion.  Multimedia developers can therefore
     readily obtain media content from a variety of sources, including the
     Internet and commercial clip-art packages, as well as create their own
     media through the use of scanners, sound cards, digitized cameras and
     drawing tools.

     INCREASED MULTIMEDIA PRODUCTIVITY AND EFFICIENCY.  Demand for more
     efficient computer information systems has created a demand for
     applications which automate, organize and monitor typical business
     functions such as employee training, customer support and sales force
     automation.  Communication rich multimedia applications increase the
     productivity and efficiency of automated systems.

COMPANY STRATEGY

     The Company's objective is to rapidly penetrate and capture the business
multimedia applications market for users from the corporate department level to
the small to medium enterprise (SME) market.  Key elements of the Company's
product market strategy are:

     PRODUCT POSITIONING.  The Company is positioning its products as the
     business multimedia tool for the individual user in a business environment.
     By combining the ease of use of presentation software with full OLE and
     Open Database Connectivity (ODBC) access to business applications, the
     Company believes INNOVUS MULTIMEDIA presents a unique opportunity for power
     users to create applications without the learning curve of traditional
     development tools.

     RAPID MARKET PENETRATION.  Beginning in the fourth quarter of 1996, the
     Company has begun to aggressively market its products through substantially
     lowered price points, exciting visual advertising, and direct mail
     campaigns.  The targeted market includes a broad range of customer
     profiles, including power users, developers, and current authoring product
     users, with an emphasis on the user searching for a way to add the power of
     multimedia to his other business without the authoring tool learning curve.

                                     3
<PAGE>

     INDUSTRY RELATIONSHIPS.  The Company is currently discussing potential
     joint marketing efforts and other strategic relationships with key industry
     participants.

     FLEXIBLE SOFTWARE DESIGN.  Recognizing that software standards are
     constantly in a state of flux, INNOVUS MULTIMEDIA was designed to be
     inherently flexible and readily modifiable to accommodate new standards for
     media and data exchange.  Since many features are enabled through external
     wizards or OLE automation, revision of the software to accommodate new
     standards is simplified, potentially allowing for shorter development
     cycles.

     COMPLETE SOLUTIONS.  The Company is positioning itself to be a leader in
     business multimedia applications development by providing a complete family
     of products for business users.  The Company provides a fully integrated
     technology solution that allows customers to standardize on a single
     methodology for deploying media-based business applications, on the
     desktop, through the server, and over the web. Additionally, the Company
     offers custom application development services through a third party
     organization to augment the resources of the users and the VAR channel.

     BROAD BASED DISTRIBUTION CHANNELS.  The Company has established partners
     with respect to the following channels of distribution: direct sales,
     retail, catalog marketers, value added resellers ("VARs") and corporate
     resellers.  The Company plans to leverage these existing relationships for
     penetration of its target markets.  Additionally, the Company believes it
     is well positioned to serve as a channel partner in that its products add
     value and usability to other software companies' existing applications and
     embedded technologies.

     DESIGN PRODUCT LINE FOR REPEAT SALES.  The Company's current and planned
     product line consists of the core software tool, application templates for
     specific uses and multimedia content.  The Company believes that each sale
     of the tool creates a potential customer for application templates and
     media content; each purchaser of content is a potential customer for the
     tool or templates; and each purchaser of a template is a potential customer
     for other templates and media content.  By enabling power users to readily
     become developers, the Company believes INNOVUS MULTIMEDIA will be creating
     a repeat customer base in addition to the typical upgrade market.

     EXPLOIT INTERNET OPPORTUNITIES.  The Company believes that the emergence of
     the world-wide web/internet will significantly increase the market for open
     environment multimedia development tools. This emergence is driving demand
     for development tools to manipulate and manage enhanced digital graphics
     and multimedia content for use in the world wide web sites, and electronic
     transaction of business information. The Company's products allow business
     managers to develop and deploy fully transactional applications using the
     Internet to continuously update and/or exchange data with remote users.

THE INNOVUS SOLUTION

     The Company's core software tool allows business managers and users to
automate recurring activities through a multimedia development tool designed
specifically for building easily modifiable business information systems.  For
example, the Company's software can create computer applications that automate
the training and orientation functions which otherwise would require significant
manpower and other corporate resources.   It is the first multimedia tool to
offer 

                                     4
<PAGE>

the ease of use of presentation software combined with the media management of 
authoring programs and the power of application development tools. Managers, 
trainers, and developers can now build dynamic, easily modifiable business 
applications that interface with commonly used databases without the support 
of the IS professional.  Unlike multimedia tools that require the user to 
convert multimedia text and database files to proprietary formats, the 
Company's products give managers OLE integration and ODBC so managers can 
access files in their original formats.  The Company's software allows 
corporate users to distribute applications over a LAN and to interact with 
existing data files. Furthermore, once these applications have been developed, 
segments or portions can be reused in new  applications, substantially adding 
to the cost-efficiency benefits of implementing technology in the context of 
such business activities.

     The INNOVUS products' user-friendly interface allows a manager or staff
member to build full multimedia applications using the same basic computer
skills required to operate presentation software.  Dynamic links allow
applications deployed on a network to be changed by simply updating the central
database. Applications can also incorporate active portions of other common
business software, including spreadsheets, e-mail, and word processors.
Additionally, the Company's products offer complete solutions.  Using INNOVUS
MULTIMEDIA, users will be able to accelerate their business process automation
by using various INNOVUS application templates.  The Company has released, and
will continue to expand, a growing family of application templates which
provide both the logic and content for various common business activities in the
training, human resources, sales force automation, customer support, and product
marketing areas. The Company is also releasing a series of media kits containing
video, audio, images, animations, backgrounds, graphical buttons, and hot spots
- essential components of multimedia applications.

THE INNOVUS PRODUCT LINE

     The following software products are being offered by the Company as of
April, 1997:

          INNOVUS MULTIMEDIA v.2.21 Authoring
          INNOVUS MULTIMEDIA v.2.21 Presentations
          Web_Candy Vol 1 for PC
          Web_Candy Vol 1 for Mac
          Web_Candy 3D for PC
          Web_Candy 3D for Mac
          NotesMaster CBT
          Company Bulletin Board Application Template
          Electronic Catalog Application Template
          Employee/Visitor Sign in/out Application Template
          Pay & Benefits Application Template
          Safety & Security Application Template
          Conduct & Responsibility Application Template
          Our Company Application Template
          Customer Service Application Template

     The Company's software products allow managers to design friendly
multimedia user interfaces that automate time-consuming, paper-intensive
activities and turn them into controlled, 

                                     5
<PAGE>

modifiable systems.  Using the Company's products, anyone with basic Microsoft 
Windows skills can:

     - Design the flow, layout, and timing of information.
     - Connect the project to existing databases or create new data sources,
       combine video, sound, graphics, and text, add quiz and survey questions,
       and incorporate other applications.
     - Deploy the project across a network or package it for a single
       workstation.
     - Measure how and by whom the applications are being used.
     - Maintain the system and update changing information.

     The Company's software is compatible with the latest and most advanced PC
and multimedia technology.  The Company's software is Windows 95 and Windows NT
compatible, indicating that it can take advantage of advanced features such as
OLE and ODBC support, and is compatible with Windows 3.1.  These features allow
INNOVUS Multimedia to operate as a full "front end" to other OLE compliant
applications, allowing the design of training programs which teach the user how
to use other application software, and which can continue to be available as a
refresher tool as the user attempts to utilize the application in the course of
the business day.  INNOVUS Multimedia scripts use a QuickScript-TM- Visual Basic
compatible scripting language.

MARKETING AND SALES

     The Company's products are positioned for worldwide distribution through a
combination of direct sales, retail, catalog marketers, VAR channels, corporate
resellers, and strategic relationships.  The Company will leverage VARs and
corporate resellers to sell products directly to corporate department managers
and will use direct, catalog marketer, and retail sales to reach individual
desktop developers and power users.  The Company's distribution channels are as
follows:

     VALUE ADDED RESELLERS (VARS).  Long term market development and support
     requires the establishment of an international VAR network.  The Company
     plans to continue building its VAR network by recognizing VARs from
     existing application-specific areas, such as Lotus Notes VARs.  The Company
     has established a VAR network with over 65 VARs having already been through
     product training.  These are active solutions developers who can use
     INNOVUS  Multimedia to accelerate the speed and quality of media
     applications development for their existing customer base and extend their
     services to new customers with this added capability.

     STRATEGIC RELATIONSHIPS.  The Company is working to secure relationships
     that can provide OEM and software bundling opportunities which will help to
     rapidly proliferate the user base for its INNOVUS Multimedia product.  The
     Company is currently negotiating partnerships with service providers, VARs,
     hardware companies, and other software vendors for this purpose.

     DIRECT SALES ACTIVITIES.  The Company is actively promoting Internet based
     sales and marketing through its web site (www.innovusmm.com).  The web site
     has fully implemented electronic commerce including direct download as well
     as on-line ordering with conventional delivery.

                                     6
<PAGE>

     CORPORATE RESELLERS.  The Company has distribution agreements with well
     established corporate sales organizations, including Software Spectrum,
     Software House International, Stream, ASAP Software Express, PC Connection,
     Programmer's Paradise, Tiger Direct, MicroWarehouse, and Software.Net, an
     internet based reseller.

     SOFTWARE RETAILERS.  The INNOVUS products are stocked by leading national
     retailers such as Egghead Software and CompUSA, as well as by important
     regional retailers such as Elek Tek and J&R Computer World.  The Company's
     products are carried in approximately twelve retail organizations in total,
     and the Company intends to expand this area throughout 1997.

CUSTOMERS AND END USERS

     The Company markets its products to small and medium sized businesses as
well as corporate departments operating on local area networks or the Internet.
Buyers of the products include individual users, department managers, managers
of specific business activities and corporate IS departments.  The Company is
positioning INNOVUS Multimedia as a powerful new business productivity tool that
enhances the capabilities of other common business software and improves the
efficiency and skills of a company's employees by automating many common,
redundant business and management processes.  The Company's customers may be
subdivided into various vertical markets.  The Company serves these vertical
markets in order to address the unique needs experienced in each of the vertical
markets as described below.

     The Company's current product line has been designed to allow its sales and
marketing personnel as well as the sales and marketing personnel of its channel
partners to focus on several vertical market opportunities inside the corporate
computing environment.  Products designed for other departments in the
corporation will allow the Company to expand to other market segments in the
future. Current application template products provide the Company access to
these vertical market segments: corporate training, human resource departments,
and sales and marketing departments.  The following are examples of how some of
the Company's products are being used by current vertical market customers.

     LOTUS NOTES UPGRADE TRAINING is an application that teaches end users how
     to migrate their Notes applications from the 3.x to the 4.0 version of that
     product. It includes complete instructions on the product upgrade
     functionality and a section designed to be modified by the Notes support
     team to customize the specific application of Notes as used by that company
     or corporate department. American Express Stored Value Group is using this
     product to facilitate the easy upgrade of thousands of Lotus Notes end
     users in their organization.  The customer is making the Company's training
     program available in their corporate training centers and also distributing
     it on their networks as an on line information system for ongoing support
     of the Lotus Notes user groups.

     SAFETY AND COMPLIANCE is a training application designed to educate and
     test employees on various government requirements associated with their job
     responsibilities. This template can be modified to include sections on
     personal safety, toxic waste management, fire prevention, OSHA regulations,
     and Equal Opportunity Employment practices. A multi-national oil company is
     working with the Company to modify this template for refinery operations
     and will use the testing and database connectivity to capture employee
     results, to bolster compliance verification, and identify training areas
     which need expansion.

                                     7
<PAGE>

     NEW EMPLOYEE ORIENTATION is an application designed to be modified to fit
     each individual corporate culture. It includes sections on company
     structure and mission statements, employee benefit options, vacation
     schedules, training opportunities and available computing resources.
     Intermountain Health Care Corporation is using this product to accelerate
     the process of making new employees productive in their jobs. This will
     provide them a completely automated, cost saving orientation system
     connected to all their employee data bases that can be distributed across
     their local and wide area networks.

     ELECTRONIC POLICIES AND PROCEDURES is an application that provides an on
     line policy document that can be updated continuously to meet changes
     inside the company, new legislation, or in the business environment. This
     is an essential tool to the reengineering process currently under way in
     much of corporate America. Associated Foods Corporation is implementing
     this tool to help manage their corporate reengineering and to minimize
     legal accountability issues associated with proper employee notification
     requirements and verification of employee acceptance.

     ELECTRONIC PRODUCT INFORMATION SYSTEM is an application that allows
     companies to distribute new product information and data updates across
     company networks and over the Internet. This template can be modified to
     link visual product presentations together with inventory status, product
     ordering systems, and other on line departmental information that can
     assist their Placement Agents in closing a customer sale. This application
     recently won the "BEST OF SHOW" Award in the "Online Training and
     Documentation" Category of Softbank Institutes Interactive 96 Conference
     and Expo Trade Show in Atlanta. Egghead Software Corporation intended to
     implement a nationwide sales force automation system based on this template
     that allows that company to send updated product information from an Oracle
     database to its 700 field sales Placement Agents every day along with
     customized training on each new item and then return the results to each
     employee's performance records.

In addition to this vertical market focus, the Company is actively selling the
core development tool to individual users, business managers, corporate IS
departments and VARs who are creating numerous other applications to meet their
own customer's demands. Part of the Company's marketing strategy is to look for
opportunities to work with these developers to turn their solutions into
meaningful application templates for resale to the general business marketplace.
This will allow the Company to rapidly expand its product offerings without
dedicating its own resources and open up additional vertical market product and
channel opportunities.

COMPETITION

     The markets for the Company's products are highly competitive and are
characterized by pressures to reduce prices, incorporate new features and
accelerate the release of new product versions.  A number of companies currently
offer products that compete directly or indirectly with one or more aspects of
the Company's products.  Competitors could develop a product which competes with
all aspects of the Company's products.  Some current and potential competitors
are larger, better established, and have greater financial resources than the
Company.  Such competitors may have the ability to more aggressively market and
price their products than the Company.  There is no assurance that the Company
will be able to successfully compete in these markets.

                                     8

<PAGE>

     The Company has developed a family of multimedia application products which
combine the simplicity of a presentation program user interface and the media
richness of professional authoring software with all the power and business
functionality of corporate development tools.  The Company's core product allows
management to automate recurring activities through a multimedia development
tool designed specifically for building easily modifiable business information
systems.  It is the first multimedia tool to offer the ease of use of
presentation software combined with the media management of authoring programs
and the power of application development tools.  Managers, trainers, and
developers can now build dynamic, easily modifiable business applications that
interface with all popular databases without the support of the IS professional.
Unlike multimedia tools that require the user to convert multimedia text and
database files to proprietary formats, the Company's products give managers OLE
integration and ODBC so managers can access files in their original formats. 
The Company's software allows corporate users to distribute presentations over a
LAN and import existing data files.  Because of this, management feels the
Company is unique from a competitive standpoint, particularly in light of the
ability of its technology to be used in an open environment and implemented on a
cost effective basis.

     There are currently four categories of software products which attempt to
provide business multimedia application solutions to the corporate market. 

     VISUAL DEVELOPMENT ENVIRONMENTS such as Visual Basic, Delphi, and
     PowerBuilder are capable corporate tools which integrate well in network
     solutions. These are highly technical development tools generally requiring
     skilled programmers and protracted development schedules to create and
     maintain business applications. These products have limited native media
     support capability. 

     MULTIMEDIA AUTHORING TOOLS such as IconAuthor, AuthorWare, and MFactory can
     create and manage sophisticated media presentations and program logic. They
     demand a high level graphics artist or technical user and have limited
     business functionality or scalable network deployment capabilities. 

     WEB PAGE DESIGN TOOLS such as Microsoft Front Page and Netscape Gold are
     strong media and text document managers and work well in extended network
     environments, but are limited in their format support and transaction
     capabilities and lack back-office connectivity. These tools focus on web
     development and fall short in full business applications.

     COMPUTER BASED TRAINING TOOLS such as CBT Express, Toolbook and Quest are
     useful project development programs for training and testing activities
     which provide much of the presentation logic for instructional
     applications.  While some of these tools offer media support, they are
     generally lacking in scalable network capabilities, database support,
     extensibility, and business functionality.

     Few of these products can be operated effectively by the average manager or
desktop computer user. They offer no accelerated vertical solution templates.
They are generally cost prohibitive for wide distribution by managers to 
desktop users, and do not provide a single integrated multimedia application
solution that crosses all levels of the corporate network.

                                      9 
<PAGE>

     Management believes that only the INNOVUS product line offers this complete
solution approach to the business multimedia application market. Management
believes the companies that now have program development and presentation
products would incur significant expense and programming time in re-engineering
those products to be suitable for desktop business applications. In particular,
the Company is not aware of existing presentation products that could emulate
the ability of INNOVUS MULTIMEDIA to act as an interactive multimedia data base
front-end without fundamental changes to the architecture of such competitive
products.

SERVICE BUSINESS

     Following the initial introduction of INNOVUS MULTIMEDIA, the Company
utilized its experience to produce 'turn-key' multimedia applications for
customers.  Certain of these applications were modified to form the basis of
application templates.  In January, 1997 the Company determined that this labor
intensive low-margin service business did not fit into the Company's strategy. 
Accordingly, the service business was divested and now operates independently.

PROPRIETARY RIGHTS

     The Company regards certain features of its products as proprietary and
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect its proprietary
information.  The Company holds no patents applicable to its business and has no
patent applications pending.  The Company seeks to protect its products and
related documentation and other written materials under trade secret and
copyright laws (as described below) which afford only limited protection.  The
Company seeks to protect its product names under trademark and unfair
competition laws.  Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or obtain and use information that the Company regards as proprietary.

     The Company's software is protected by copyright laws, and each end-user is
granted a license to use either a single copy or an open network access to the
software.  The Company has received copyright protection on its various
development tools, application templates and run time programs. Copyrighted code
includes three DOS based product versions, five Windows 3.x version products, 
three Windows 95 version products and three Windows NT product versions.
Copyrights cover authoring and development products, report generators, media
drivers, peripheral drivers, various program executables, and configuration and
install programs. All of these copyrights relate to the Company's development
programs and vertical applications.  The Company may also attempt to obtain
limited patent protection for the architecture of its products, but has not yet
determined if its products contain any patentable inventions.  Innovus has filed
for trademark registration for certain of its product and feature names. 

EMPLOYEES 

     Innovus has 22 full time employees as of March 31, 1997.  Of the total
employees, 6 are engaged in management and administration, 3 in sales and
marketing, 12 in development, and 1 in customer support.  None of the Company's
employees are represented by a labor union.  The Company believes its
relationship with its employees to be good.

                                      10 
<PAGE>

COMPANY HISTORY

     The Company was incorporated in 1988 as a Delaware corporation.  Innovus
Multimedia, Inc., the predecessor to the Company's operating subsidiary, was
founded in 1987, and acted as a value added reseller of multimedia hardware and
software in the form of stand alone kiosks until 1993.  Subsequently, new
management joined the Company, and the Company de-emphasized its multimedia
kiosk business, and focussed on business oriented multimedia software
development.  As part of this transition, the Company hired new software
developers, marketing personnel, and others, and secured the equity financing
for research and development necessary to complete its first version of its
Windows software.

     In September of 1994, as part of Innovus' transition to a business oriented
multimedia software developer, and to enhance its capital raising ability,
Innovus was acquired by the Company in a reverse acquisition.

     The Company commercially released its core software product in March of
1996, and since that time has released several templates that complement that
software.

ITEM 2.  PROPERTIES.

     In 1995, the Company purchased the building it had previously been leasing
in Salt Lake City, Utah.  The building is approximately 11,760 square feet which
includes a complete software development lab, hardware integration and testing
facilities, computer graphics stations, digital media compression systems,
audio/video edit bay, project authoring systems, application design equipment,
and general offices.  The Company is considering selling the building and moving
to smaller leased offices.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operation".

ITEM 3.  LEGAL PROCEEDINGS.

     The Company is not a party to any legal proceedings which, in its belief,
could have a material adverse effect on the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the security holders during the
fourth quarter of the calendar year ending December 31, 1996.


                                    PART II

ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's Common Stock is currently listed on the Nasdaq SmallCap
market.  From August, 1994 to November, 1995 the Common Stock was traded over
the counter.  Prior to August, 1994 there had been only sporadic trading in the
Common Stock and no consistent source for quotes.  

                                      11 
<PAGE>

     On March 18, 1997, the closing price of the Common Stock on Nasdaq was
$4.00.  As of March 18, 1997, there were 195 holders of record of the Common
Stock.  The following table reflects the high and low closing bid quotations
reported by the OTC Bulletin Board through November 1995 and high and low last
sales prices reported by Nasdaq for subsequent periods.  Such prices represent
inter-dealer quotations, do not include markups, markdowns, or commissions and
may not reflect actual transactions.

                                                       HIGH      LOW   
                                                      ------    ------ 
 YEAR ENDING DECEMBER 31, 1995
 January 1 to March 31, 1995                          $10.00    $ 5.75 
 April 1 to June 30, 1995                             $10.75    $10.50 
 July 1 to September 30, 1995                         $10.50    $ 7.50 
 October 1 to December 31, 1995                       $10.00    $ 8.25 

 YEAR ENDING DECEMBER 31, 1996
 January 1 to March 31, 1996                          $10.75    $ 7.50 
 April 1 to June 30, 1996                             $13.75    $ 9.38 
 July 1 to September 30, 1996                         $11.50    $ 5.13 
 October 1 to December 31, 1996                       $ 6.25    $ 3.25 

     The Company has not paid any cash dividends since its inception.  The
Company's revolving loan agreements currently prohibit it from declaring any
dividends without the written permission of the lender.  The Company is
prohibited from paying dividends on its Common Stock while it has an outstanding
series of Preferred Stock.  The Company currently intends to retain future
earnings in the operation and expansion of its business and does not expect to
pay any cash dividends in the foreseeable future.

















                                      12 
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

     The following Selected Financial Data should be read in conjunction with
the financial statements and notes thereto bound elsewhere herein.

<TABLE>
                                                 YEAR ENDED DECEMBER 31                    
                        ----------------------------------------------------------------- 
 STATEMENT OF               1996            1995           1994        1993(1)     1992(1) 
 OPERATIONS DATA         -----------    -----------    -----------    --------    -------- 
<S>                      <C>            <C>            <C>            <C>         <C>      
Revenues                 $   597,567    $   189,380    $   193,848    $453,928    $291,885 
Costs of products 
 and services sold           302,571        123,701        234,234     325,044     125,131 
Amortization                 796,673        315,464              -           -           - 
Product development        1,185,525      1,340,415        444,855      37,173      69,054 
Selling and 
 marketing expense         3,988,987      1,417,396        425,403      30,687      32,826 
General and 
 administrative            1,279,542        719,862        537,860      75,079      90,102 
Net (loss)               $(7,791,146)   $(3,735,351)   $(1,554,213)   $(93,631)   $(83,983)
Net (loss) per share     $     (1.59)   $     (0.98)   $     (0.60)   $  (0.05)   $  (0.05)

                                                      AT DECEMBER 31                                
                         ------------------------------------------------------------------ 
BALANCE SHEET DATA          1996            1995           1994         1993         1992   
                         -----------    -----------    -----------    ---------   --------- 
Current assets           $ 1,161,735    $ 2,466,060    $   387,370    $ 149,708   $  87,455 
Software development 
 costs                       809,824        886,153        408,384      152,624           0 
Current liabilities        1,124,592        473,460      1,521,294      576,252     357,139 
Long term liabilities 
 (net)                       728,555        722,785        180,961      163,535     190,161 
Stockholders' equity 
 (deficit)               $ 1,490,029    $ 3,553,885    $  (658,474)   $(416,597)  $(322,966)
</TABLE>

(1)  Historical information regarding the Innovus predecessor company only.  The
separate operations and assets of the Company for the periods and on the dates
presented are not material.


                                      13 
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

GENERAL

     The following discussion should be read in conjunction with the financial
statements and notes thereto found elsewhere herein.  On September 6, 1994, the
Company and Innovus completed an Agreement and Plan of Reorganization whereby
Innovus became a wholly owned subsidiary of the Company.  Although the Company
survived as the parent corporation of Innovus, the transaction was accounted for
such that the financial statements for the Company following the transaction
will be the financial statements of Innovus with the additional shares held by
the Company's prior shareholders reflected as a recapitalization of Innovus. 
The assets and operating results of the Company separate from Innovus are not
material and separate financial statements of the Company prior to the
transaction are not presented.

RESULTS OF OPERATIONS

     The Innovus predecessor company operated its multimedia kiosk business
since 1987, and had developed its multimedia authoring software with a view
towards eventual commercial sale.  Commencing in July 1993, Innovus began hiring
additional staff and otherwise incurring additional expense to begin a full
scale revision of its software for the Windows operating environment.  Sales of
the software through VARs, began in the fourth quarter of 1995 and general
commercial sales began in March, 1996.  In November, 1996, the Company re-
positioned its software towards individual business users, significantly
lowering the price of the core software.  Results of operations for the current
year may not be directly comparable to prior periods when the software was being
developed.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     Initial sales of INNOVUS MULTIMEDIA to small value added resellers (VARs)
and corporate information services departments began in late March, 1996.  In
October, 1996 the Company announced an aggressive repricing and repositioning of
the software to appeal to the individual desktop PC user.  Following the re-
pricing, the software is being sold through retail outlets such as Egghead
Software and CompUSA.  The software is also being distributed by Tech Data, the
second largest distributor of computer software and hardware in the world, and
corporate resellers such as Software Spectrum, Software House International,
Stream and ASAP Software Express.  The Company's products are also offered
through mail order catalog companies such as Micro-Warehouse, PC Connection, and
Programmers Paradise.  The Company has also established a site on the World Wide
Web for direct sales of the software.  In addition the INNOVUS MULTIMEDIA
software tools, the Company currently offers eight application template packages
for specific applications, a computer based training application for Lotus Notes
users and two business oriented media packages.  Additional application
templates and packages are scheduled for release during the year.

     During the year ended December 31, 1996, the Company had revenues of
$597,567 compared to $189,380 for the prior year.  Approximately 38% of the 1996
revenues was generated by shrinkwrap software sales, approximately 53% was
generated by sales of customized programming or content production services and
the balance was generated by training and related sales.  Subsequent to the end
of the year, the Company determined not to continue 

                                      14 
<PAGE>

offering the customized programming or content production.  The sale of 
multimedia information kiosks, which had accounted for all revenue in 1995, 
did not materially contribute to 1996 revenue.

     The costs of products and services sold in the year ended December 31, 1996
were $302,571 or 51% of sales.  During 1995, such costs for the presentation and
kiosk business were $123,701 or 65% of sales. The gross margins for 1996 and
1995 may not be directly comparable due to the change in the nature of the
revenue stream.  The Company is now in the process of building its revenue model
from software and associated product sales, and has discontinued the kiosk
business.

     The Company's aggressive pricing of its software announced in October, 1996
is expected to increase software unit sales and total revenues.  During the
fourth quarter of 1996, net sales were $198,718, 43% of which resulted from the
sale of shrinkwrap software.  Net sales for the first nine months of 1996 were
$398,849, 35% of which resulted from the sale of shrinkwrap software.  Although
the Company expects that substantially all of its 1997 sales will come from
shrinkwrap software, the Company cannot predict whether sales will continue to
grow from fourth quarter 1996 levels.

     Selling and marketing expenses increased to $3,988,987 in the year ended
December 31, 1996 compared to $1,417,396 in 1995.  These increased expenditures
reflect the first quarter support of the VAR release of the software and the
subsequent marketing of the general release of the software.  Although marketing
expenses currently exceed revenue, the Company believes that continued
aggressive marketing efforts are necessary as the Company promotes its
positioning of INNOVUS MULTIMEDIA to the individual desktop PC user.  

     Following completion of the commercial version of the software, product
development expenditures continued for application templates to be used with the
software tool and preparations for future updates to the software tool.  For the
year ended December 31, 1996, product development costs were $1,185,525,
compared to the $1,340,415 of such expenditures for 1995 when the software tool
was under development.   During the fourth quarter of 1996, product development
expenses dropped to $108,358.  Such expenses may increase in the future in
connection with new versions of the software tool or increased development of
application templates.  In the year ended December 31, 1996, $796,673 of
capitalized software development costs were amortized, compared to $315,464 of
such expenses in 1995.  Development expenses include payments to independent
contractors working under contract with Innovus and license fees paid to third
parties for technology purchased from other developers.  The Company anticipates
continued development costs for future versions of INNOVUS MULTIMEDIA, as well
as the addition and completion of other application templates and applications
providing users with additional products enhancing INNOVUS MULTIMEDIA.

     General and administrative expenses were $1,279,542 for the year ended
December 31, 1996 compared to $719,862 in 1995.  The Company believes that the
resizing effected in the fourth quarter of 1996 and first quarter of 1997 will
allow general and administrative expenses to moderate or decline.  Included in
general and administrative expenses for 1996 is $258,926 representing a modified
Black-Scholes valuation of 50,000 warrants issued to consultants.  The exercise
price of the warrants was equal to the market price of the common stock at the
time of issuance.

                                      15 
<PAGE>

     The Company incurred losses from operations of $7,553,298 during the year
ended December 31, 1996 compared to losses from operations of $3,727,458 for
1995.

     The Company is deemed to have incurred $773,350 in interest expense during
1996 in connection with warrants issued as part of bridge financing from
affiliates and others.  The warrants are exercisable at the fair market value of
the underlying common stock at the date of issuance, but a value was assigned to
the warrants using a modified Black-Scholes method.  Exclusive of the deemed
expense from the warrants, the Company incurred net interest expense for the
year ended December 31, 1996 of $62,065.  Net interest expense for 1995 was
$7,893.

     The Company sustained a net loss of $7,791,146 for 1996 compared to a loss
of $3,735,351 for 1995.  The loss per common share was $1.59 and $0.98 for 1996
and 1995, respectively.  The weighted number of shares used in calculating the
loss per common share does not include the potential issuance of common shares
on conversion of outstanding preferred stock, as such conversions are considered
anti-dilutive.

     The losses incurred in 1996 cannot be sustained over an extended period. 
Following the appointment of Terry Haas as President and CEO during the third
quarter, the Company re-positioned its software in an attempt to increase sales
and began reducing personnel and other non-marketing expenses to levels more
closely aligned with sales levels.  In 1997, the Company further reduced
expenses by ceasing sales of low margin services.  While sales of shrinkwrap
software continue to increase, management cannot predict with certainty when, or
if, the Company can become profitable.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

     Net Sales for the year ended December 31, 1995, were $189,380, compared to
$193,848 for 1994.  All sales were generated by the kiosk and services business.
During 1995 and 1994, the Company directed its resources towards development of
the software rather than marketing of the kiosks and production services to new
customers.  Marketing in both years was directed towards maintaining
relationships with existing customers; these efforts did not result in
substantial new sales.  

     The cost of products and services sold in 1995 was $123,701 or 65% of
revenue compared to $234,234 or 121% of sales in 1994.  Cost of products and
services sold consists primarily of the computer and other hardware incorporated
into the kiosks, outside production costs for the presentations and internal
production, assembly, and support labor.  Management believes that those were a
number of reasons why the costs in 1994 exceeded revenue for that year,
including the continuation of the level of fixed costs from the prior year when
revenues had been higher ($453,928), and the provision of higher performance
hardware than was required by contract to increase customer satisfaction and
provide platforms on which the new software could be tested.  These excess costs
were reduced in 1995 as personnel and other resources were re-deployed and beta
test sites became available for the software.

     During 1995, the Company began amortizing its capitalized software
development costs.  Amortization during 1995 was $315,464.  Capitalized
development costs are amortized over a period of not more than three years.

                                      16 
<PAGE>

     As the Company built the infrastructure needed to operate as a software
company, the addition of substantial additional personnel and support resources
has significantly increased total costs and expenses.  Product development costs
increased to $1,340,415 in 1995 from $444,855 in 1994. This does not include
capitalized amounts for software development costs of $793,233 in 1995 and
$255,760 in 1994.  Selling and marketing expense in 1995 was $1,417,396 compared
to $425,403 in 1994.  The primary source of the increase in these expenses was
related to the software as the Company began planning to position the software
for launch.  General and administrative expense was $719,862 in 1995 compared to
$537,860 in 1994.  This primarily reflects the increase in staffing related to
the restructuring as a software company.  During 1995, the Company exercised its
option to purchase the building it had been leasing for its offices.  The
purchase reduced the Company's monthly expense for its offices. 

     During the first part of 1995, the Company incurred interest expense on the
debt it incurred in 1994 to fund operations.  Following an equity offering, the
debt and interest expense were reduced and the Company began earning interest
income on its unspent funds.  Interest income will decline as funds are expended
on operations.  During 1995, net interest expense was $7,893 compared to
$105,709 in 1994.
 
     The Company sustained a net loss of $3,735,351 in 1995 compared to a net
loss of $1,554,213 for 1994.    

LIQUIDITY AND CAPITAL RESOURCES

     Following the commercial release of the software, the Company has been
dedicating all available funds to INNOVUS MULTIMEDIA marketing and support. 
Marketing expenses have exceeded software revenue and the Company's liquid
resources have been depleted as a result. The Company has obtained funds to
support its operations from sales of its equity, including convertible preferred
stock.  At December 31, 1996, the Company had total current assets of $1,161,735
and working capital of $37,143.  If the reduction in current liabilities for the
unamortized value of the warrants issued in connection with the bridge financing
is ignored, the Company would have had a deficit in working capital (current
liabilities in excess of current assets) of $429,000.  During 1996, the Company
incurred a net loss of $7,791,146 and had negative cash flow from operations of
$5,261,703.  The Company anticipates that it will incur additional negative
operating cash flow until such time as software sales and service revenues
increase substantially.  The future rate of revenue generation cannot be
predicted with accuracy at this stage of the Company's growth. 

     The Company cannot sustain its current rate of negative cash flows from
operations and software development without additional sources of cash.  In the
long term, needed cash must be generated by operations in order for the Company
to sustain itself.  During 1996, the Company raised $4,201,468 (after deduction
of offering costs) primarily by issuing preferred stock to institutional and
accredited investors.  Subsequent to the end of 1996, the Company raised
approximately an additional $1,860,000 from the issuance of preferred stock. 
The preferred stock was issued in various series, the terms of each of which
vary.  All series of preferred stock are preferred to the common stock in the
event of liquidation of the Company.  Each series of preferred stock is entitled
to accrual of a dividend at the rate of 5% to 15% per annum, which is 

                                      17 
<PAGE>

generally payable in stock at the time of conversion.  Each series of preferred 
stock is convertible into common stock, either at a fixed price or a price tied 
to the market value of the common stock.

     As of May 2, 1996 the Company obtained a line of credit from a commercial
lending bank pursuant to a Loan and Security Agreement.  Provided that the terms
of the agreement are met, the Company was allowed to borrow a base amount of up
to $500,000 without regard to the value of specific assets.  Borrowing above
this base amount is allowed on a revolving basis only to the extent that the
loan balance is less than 75% of the Company's eligible accounts receivable. 
Advances under the line bear interest at 1.5% per annum above the Bank's prime
rate.  Advances under the line are due no later than May 2, 1997.  The line is
secured by substantially all of the Company's assets, including its inventory,
accounts receivable, and technology.  The Company is prohibited from certain
corporate transactions, such as the payment of dividends, while the line is
outstanding without the lender's approval.  At December 31, 1996, the Company
had $0 outstanding to the Bank under both the base borrowing amount and the
revolving line.

     During 1996, the Company borrowed $1,470,300 from affiliates and other
individuals.  The balance owing at December 31, 1996 was $445,000.  These
amounts are secured by a second priority interest in substantially all assets of
the Company.  The loans bear interest at 9.25% per annum and are due July 30,
1997.

     At December 31, 1996, the Company had long term liabilities of $728,555,
consisting primarily of the mortgage on the Company's building and notes payable
to related parties.  The Company is considering offering the building for sale
and relocating to leased premises.  Although the Company will require additional
funds to sustain operations, the Company did not have any other significant
capital commitments at December 31, 1996.  

     The Company is dedicating substantially all available funds, including
amounts it is able to borrow, to the software marketing and support.  The
Company has limited available resources.  The Company may require additional
funding to sustain operations until such time, if ever, as substantial revenues
are received from software sales. 

     The auditor's report on the Company's December 31, 1996 financial
statements notes that the Company's substantial operating losses raise
substantial doubt about the Company's ability to continue as a going concern. 
The Company anticipates that it will be able to obtain sufficient financing from
external sources, combined with results from operations, to sustain operations.
There can be no assurance that additional financing will be available to the
Company or that operating results will improve as management currently
anticipates.

FORWARD LOOKING STATEMENTS.

     This report contains both historical statements of fact and forward looking
statements.  Statements regarding the Company's expectations as to demand for
its products and future revenue and cash flow and certain other information
presented in this report constitute forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. When used in
this Form 10-K or other filings by the Company with the Securities and Exchange
Commission, in the Company's press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
officer of the Company's executive officers, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are 

                                      18 
<PAGE>

expected to," "will continue," "is anticipated," "estimate," "project," or 
similar expressions are intended to identify forward-looking statements.   
Although the Company believes that its expectations with respect thereto are 
based on reasonable assumptions within the bounds of its knowledge of its 
business and operations, there can be no assurance that actual results will 
not differ materially from its expectations.  In addition to matters 
affecting the economy and the Company's industry generally, factors which 
could cause actual results to differ from expectations include the following:

     Lack of market acceptance of INNOVUS MULTIMEDIA and other Company products
     Lower than expected gross profit margins due to competitive pricing
       pressures
     Product and technological obsolescence
     Competition
     Inability to adequately market the software due to financial restraints
       relative to competitors

     The Company does not undertake, and specifically disclaims any obligation,
to update any forward looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The financial statements and reports of independent certified public
accountants are filed as part of this report on pages F-1 through F-29.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL STATEMENT DISCLOSURE.

     Effective November 7, 1996, the Company dismissed Hansen, Barnett & Maxwell
("Hansen") as its certifying accountant.  Hansen's reports on the Company's
financial statements for the years ended December 31, 1995 and 1994 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified as
to uncertainty, audit scope, or accounting principles.

     The Company's board of directors unanimously approved dismissal of Hansen.

     During the Company's two most recent fiscal years ended December 31, 1996
and 1995, there were no disagreements, as defined in Regulation S-K Item 304,
with Hansen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements would
have caused Hansen to make a reference to the subject matter of the disagreement
in connection with its reports.

     On November 7, 1996, the Registrant engaged Grant Thornton LLP ("Grant") to
perform its audits and provide various accounting services thereafter.  The
Registrant did not consult with Grant prior to such date regarding any
reportable matter.

                                      19 
<PAGE>
                                      
                                  PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

EXECUTIVE OFFICERS AND DIRECTORS

     Set forth below is information regarding (i) the current directors of the
Company, who will serve until the next annual meeting of shareholders or until
their successors are elected or appointed and qualified, and (ii) the current
executive officers of the Company, who are elected to serve at the discretion of
the Board of Directors.

     The Company's executive officers and directors are as follows:

        Name              Age                      Position 
 David M. Mock            44    Chairman, Chief Financial Officer, Secretary, 
                                Treasurer and Director 
 Terry R. Haas            47    President, Chief Executive Officer and Director 
 Gary F. Wall             39    Vice President - Finance, Controller 
 Michael L. Debloois      56    Director 
 Kenneth M. Woolley       50    Director 
 Jay Misra                40    Director* 
 Brenda Lowe Cornell      38    Director 
 Richard M. Cott          34    Director 

     *    Mr. Misra has resigned from the Board effective April 11, 1997.

     DAVID M. MOCK.  Mr. Mock joined the Company in 1993 and assumed the 
position of Chief Executive Officer in 1995.  In addition to his 
responsibilities as Chief Executive Officer, Mr. Mock is responsible for 
facilitating the Company's financial and strategic planning and money 
management.  From 1993 to 1995 Mr. Mock was an executive officer and director 
of MicroQue Corporation, a closely held company that designed products for 
MacIntosh computers.  From 1985 until June 1993, Mr. Mock also served as an 
officer and director of Vystar Group, Inc., a publicly held corporation with 
investments in different high technology companies.  In June 1993, Vystar and 
its partially owned subsidiary, Megahertz Corporation, a manufacturer of 
PCMCIA modems for portable computers, of which Mr. Mock also served as a 
director, reorganized with Megahertz being the surviving entity.  He also 
serves as a consultant to other Utah based high technology companies.  Mr. 
Mock has his bachelors degree in accounting and has completed the 
requirements for a degree in finance at the University of Utah.

     TERRY R. HAAS.  Mr. Haas joined the Company on a part-time basis as 
Director of Sales in 1995, became Executive Vice President Sales & Marketing 
commencing June 1, 1996 and was appointed as President and Chief Executive 
Officer in August, 1996.  Mr. Haas is responsible for overseeing the 
development of the Company's product and marketing strategies as well as 
building the team to execute them within the parameters of the Company's 
business model.  Prior to joining Innovus, Mr. Haas was Vice President 
Channel Sales and Marketing at Novell, Inc. from 1994 until May, 1996.  From 
1986 to 1992 he also held a variety of other sales and marketing positions at 
Novell.  During 1992 and 1993 he worked for Digital Equipment Corp., Lotus, 
Xerox, and other high technology firms as a sales and marketing consultant.  
Mr. Haas has a bachelor of 

                                      20 
<PAGE>

science degree from Western Michigan University and an M.B.A. in finance from 
DePaul University.

     GARY F. WALL.  Mr. Wall joined the Company in August 1995.  Mr. Wall is 
responsible for all financial, budgeting and reporting activities for the 
Company.  He has extensive experience with SEC reporting requirements and 
other public filings.  His previous experience includes over 12 years in 
public accounting including Audit Manager at Hansen, Barnett & Maxwell in 
Salt Lake City, Utah from 1990 to August 1995.  Mr. Wall has a B.S. in 
Accounting from Brigham Young University.

     MICHAEL L. DEBLOOIS.  Mr. DeBloois was director of customer relations 
and sales for the Company's services business from 1996 to 1997.  Mr. 
DeBloois currently is a partner in Multimedia Group, which provides 
substantially the same services previously offered by the Company's services 
business.  From 1987 to 1992, Mr. DeBloois was President of MIKEN 
Corporation, a professional education consulting company with corporate 
clients throughout the United States.  He has been a professor of 
Instructional Design and Technology at both Florida State and Utah State 
Universities before establishing his own consulting company in 1989, which he 
operated until joining the Company.  Mr. DeBloois has been published in 
dozens of computer industry and education journals.  He has a B.A. from Utah 
State University, M.A. from the University of Utah and an Ed.D. from the 
University of Massachusetts, Amherst.

     KENNETH M. WOOLLEY.  Mr. Woolley has been a founder and director of 
several companies.  Mr. Woolley served on the Board of Directors of Megahertz 
Holding Corporation, the leading manufacturer of fax/modems for laptop and 
notebook computers until February 1995.  Prior to the merger of Megahertz and 
VyStar Group, Inc. in June 1993, Mr. Woolley had served as President of the 
parent company.  Since 1979, Mr. Woolley has been a principal in Extra Space 
Management, Inc. and Extra Space Storage, privately held companies engaged in 
the ownership and management of mini-storage facilities.  Since 1989, Mr. 
Woolley has been a partner in D.K.S. Associates, and since 1990 a director 
and executive officer of Realty Management, Inc., privately held companies 
engaged in the ownership and management of apartments, primarily in Las 
Vegas, Nevada.  Mr. Woolley is a director of Cirque Corporation. Mr. Woolley 
also serves as an associate professor of business management at Brigham Young 
University.  Mr. Woolley holds a B.A. in Physics from Brigham Young 
University, an M.B.A. and Ph.D. in Business Administration from the Stanford 
University Graduate School of Business.

     JAY MISRA.  Mr. Misra became a Director of the Company in July, 1996.  
From 1996 to the present, Mr. Misra has managed his private investments.  
From 1995 to 1996, Mr. Misra was a managing director with Soros Fund 
Management.  From 1991 to 1995, Mr. Misra was a vice president with Capital 
Group, a San Francisco based portfolio manager. From 1989 to 1991, Mr. Misra 
was acting director of marketing for 3Com Corporation.  He is currently a 
director of Nirwana Corporation and Ukiah Software Company.  Mr. Misra holds 
an M.B.A. from Harvard Business School and M.S. and B.S. degrees in 
engineering from the University of Pittsburgh.

     BRENDA LOWE CORNELL.  Ms. Cornell has been a director of the Company 
since its acquisition of Innovus and was Vice-President of Customer Support 
until leaving to pursue personal interests in January, 1997.  Ms. Cornell has 
seven six years of training experience with the multimedia products for the 
Company and its predecessors. Ms. Cornell was previously Media Director for 
International Connections, a video and laser disc production company, 
managing all computer-based media production and program design.

                                      21 
<PAGE>

     RICHARD M. COTT.  Mr. Cott became a director of the Company in 1997. 
Since October, 1992, Mr. Cott has held a number of finance related positions 
with The Free Methodist Foundation, a 501(c)3 foundation.  His current 
positions with The Free Methodist Foundation include Executive Vice 
President, Chief Financial Officer and Treasurer.  Mr. Cott has been an 
adjunct professor in management and organizational development in the 
graduate program of Spring Arbor College since 1994.  From May to October 
1992 Mr. Cott was a registered representative with The Prudential.  From 
October 1984 through May 1990 Mr. Cott was with the United States Air Force, 
culminating as a Captain and A-10 fighter pilot.  Mr. Cott holds a B.A. in 
business administration and political science from Hope College and an M.B.A. 
from Webster University.

SIGNIFICANT EMPLOYEES

     BILL KESSELRING.  Mr. Kesselring joined the Company in October 1996.  He 
is responsible for the Company's product development, customer support, and 
information systems.  Prior to joining the Company, Mr. Kesselring managed 
the consulting firm, Kesselring and Associates, working with such clients as 
Next Software, Novell Inc., and Microsoft.  He has worked for Novell Inc. and 
Dataquest Inc., and was a board member of Component Integration Laboratories.

     SHAWN P. CUNNINGHAM.  Mr. Cunningham joined the Company in March 1994.  
Mr. Cunningham oversees management and marketing for the Innovus product 
line.  Prior to joining the Company, Mr. Cunningham was Marketing Manager for 
the AppWare Division at Novell Inc.  He has worked with Silicon Graphics, 
Adobe, Inmac, Price Waterhouse, and numerous other technology companies as a 
marketing software consultant.

COMMITTEES OF THE BOARD OF DIRECTORS

     The Board of Directors of the Company has voted to establish two 
committees, the Compensation Committee, and the Audit Committee. Neither 
committee met during 1996 and all activities of the respective committees 
were undertaken by the Board as a whole.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     Section 16(a) of the Securities Exchange Act of 1934 requires the 
Company's officers and directors, and persons who own more than ten percent 
of a registered class of the Company's equity securities, to file reports of 
ownership and changes in ownership with the Securities and Exchange 
Commission and the National Association of Securities Dealers.  Officers, 
directors and greater than ten-percent shareholders are required by 
Securities and Exchange Commission regulations to furnish the Company with 
copies of all Section 16(a) forms they file.  Based solely on a review of the 
copies of such forms furnished to the Company between January 1, 1996 and 
December 31, 1996, on year-end reports furnished to the Company after 
December 31, 1996 and on representations that no other reports were required, 
the Company has determined that during the last fiscal year all applicable 
16(a) filing requirements were met except as follows:

     David Broadbent, a former officer and director of the Company, did not 
file a Form 4 reporting the sale of 23,200 shares in October and November, 
1996 by a family trust for which Mr. Broadbent is a trustee.  Such sales 
should have been reported on Forms 4 filed in November and December, 1996.  
The Forms were not timely filed.

                                      22 
<PAGE>

     David Mock and a family corporation controlled by him exercised options 
to acquire 153,332 shares in May, 1996.  These exercises should have been 
reported on a Form 5 filed by February 17, 1997.  The Form was not timely 
filed.

ITEM 11.  EXECUTIVE COMPENSATION.

     The following table sets forth the aggregate cash compensation paid by 
the Company for services rendered during the last three years to the 
Company's Chief Executive Officer as of December 31, 1996 and to each of the 
Company's other executive officers whose annual salary and bonus exceeded 
$100,000.  

                            SUMMARY COMPENSATION

                        Annual Compensation           Long Term Compensation   
                     
                      Year                         Other Annual
    Name and         Ended     Salary    Bonus     Compensation   Options/SARs 
Principal Position   12/31      ($)     ($)(1)         ($)             (#)     
------------------   -----    -------    ------    ------------   ------------ 
Terry R. Haas(1)      1996    $84,345 
President/CEO         1995    $     0 
                      1994    $     0 

David Mock(2)         1996    $60,862 
Chairman/CEO          1995    $70,300 
                      1994    $     0                               354,738 

     (1)  The Company has agreed to compensate Mr. Haas with a base salary of a 
$185,000 per year through March 31, 1999 with a one time cash bonus of $50,000 
in April, 1997 and such future incentives as may be determined by the Board.  
Upon a termination following a change in control, Mr. Haas would be entitled to
one year's base salary as severance pay.  The Company may acquire key man life 
insurance with respect to Mr. Haas on a so-called reverse split dollar basis 
with a death benefit of up to $1,000,000.  Under this arrangement, the Company 
leases an insurance policy owned by Mr. Haas. The premium paid by the Company 
may exceed the premium it would be required to pay for similar coverage directly
to an insurance company, and may exceed the premium actually being paid by Mr. 
Haas.  The terms of compensation have not been reduced to a written agreement.

     (2)  Effective January 1, 1995, Mr. Mock entered into an employment 
agreement with the Company.  Mr. Mock's current base salary is $72,000 per year.
In addition, Mr. Mock is entitled to receive such discretionary bonuses, not to 
exceed 100% of base salary, as may be granted by the Board of Directors.  The 
Company has agreed to acquire key man life insurance with respect to Mr. Mock on
a so-called reverse split dollar basis with a death benefit of $500,000.  Under 
this arrangement, the Company leases an insurance policy owned by Mr. Mock.  The
premium paid by the Company may exceed the premium it would be required to pay 
for similar coverage directly to an insurance company, and may exceed the 
premium actually being paid by Mr. Mock. As of the date of this report, such 
insurance has not been acquired.

                                      23 
<PAGE>

STOCK OPTIONS GRANTED IN LAST FISCAL YEAR

     Information concerning 1996 grants to named executive officers is reflected
in the table below.  The amounts shown for each of the named executive officers 
as potential realizable values are based on arbitrarily assumed annualized rates
of stock price appreciation of five percent and ten percent over the full terms 
of the options. These potential realizable values are based solely on 
arbitrarily assumed rates of price appreciation required by applicable SEC 
regulations.  Actual gains, if any, on option exercises and common stockholdings
are dependent on the future performance of the Company and overall stock market 
conditions.  There can be no assurance that the potential realizable values 
shown in this table will be achieved.

<TABLE>
=======================================================================================================
                            INDIVIDUAL GRANTS                                     POTENTIAL REALIZABLE 
                                                                                    VALUE AT ASSUMED   
                                                                                  ANNUAL RATES OF STOCK
                                                                                   PRICE APPRECIATION  
                                                                                     FOR OPTION TERM   
-------------------------------------------------------------------------------------------------------
                              % OF TOTAL   
                                OPTIONS    
                              GRANTED TO   
                 OPTIONS     EMPLOYEES IN                                            (5%)       (10%)  
    NAME       GRANTED (#)      1996       EXERCISE PRICE      EXPIRATION DATE      ($)         ($)  
-------------------------------------------------------------------------------------------------------
<S>            <C>           <C>             <C>                <C>                <C>        <C>      
Terry Haas       200,000        49.3%            $7.75              8/12/01        $276,282   $610,510 
-------------------------------------------------------------------------------------------------------
Terry Haas        75,000        18.5%            $7.50              3/14/01        $ 93,245   $206,047 
-------------------------------------------------------------------------------------------------------
David M. Mock     56,250        13.6%            $5.50              9/30/02        $105,217   $238,702 
-------------------------------------------------------------------------------------------------------
David M. Mock     56,250        13.6%            $2.50              9/30/02         $47,826   $108,501 
=======================================================================================================
</TABLE>

SECTION 401(k) PLAN

     The Company maintains a deferred compensation plan pursuant to Section 
401(k) of the Internal Revenue Code of 1986, as amended (the "Plan"). 
Participation in the Plan is available to all employees 21 years and older.  
The Company may, at its option, make contributions to the Plan equal to a 
percentage of voluntary contributions made by participants or it may make a 
contribution equal to a percentage of the salary of all participants.  The 
Company has not made contributions to the Plan.

STOCK OPTION PLAN

     The Company has adopted the Innovus Corporation Omnibus Stock Option 
Plan (the "Option Plan") to assist the Company in securing and retaining key 
employees and directors.  The Option Plan provides that options to purchase a 
maximum of 1,327,500 shares of Common Stock may be granted to (i) directors, 
and (ii) officers (whether or not a director) or key employees of the Company 
("Eligible Employees").  The Option Plan will terminate on September 6, 2004, 
unless sooner terminated by the Board of Directors.  

     The Option Plan is administered by a committee (the "Option Committee") 
currently consisting of the Board of Directors.  The total number of options 
granted in any year to Eligible Employees, the number and selection of 
Eligible Employees to receive options, the number of options granted to each 
and the other terms and provisions of such options are wholly within the 
discretion of the Option Committee, subject to the limitations set forth in 
the Option Plan. The option exercise price for options granted under the Plan 
may not be less than 100% of the fair 

                                      24 
<PAGE>

market value of the underlying common stock on the date the option is granted.
Options granted under the Option Plan expire upon the earlier of an
expiration date fixed by the Option Committee or five years from the date of
grant.

     As of March 29, 1997, options to purchase 1,327,500 shares of Common
Stock were granted under the Plan.

REPRICING OF OPTIONS

     The repricing of options and warrants reflected on the following table
were effectuated following the election of Terry Haas as CEO of the Company.
In all cases, the stock price at the time of repricing was significantly lower
than the exercise price and the price at the date of grant.  The decline in
stock price was based, in part, on business decisions made by the prior
leadership of the Company.  In order to provide incentives to the employees,
including Mr. Haas, to refocus the Company, the options and warrants were
repriced to reflect the current market price, in order to better reflect and
indicate the performance of the Company under the leadership of Mr. Haas.

<TABLE>
================================================================================================
                                                                                    LENGTH OF
                           NUMBER OF                                                 ORIGINAL
                          SECURITIES                                               OPTION TERM
                          UNDERLYING   MARKET PRICE OF  EXERCISE PRICE              REMAINING
                         OPTIONS/SARS   STOCK AT TIME     AT TIME OF      NEW       AT DATE OF
               DATE OF   REPRICED OR    OF REPRICING     REPRICING OR   EXERCISE   REPRICING OR
NAME          REPRICING    AMENDED      OR AMENDMENT      AMENDMENT      PRICE      AMENDMENT
------------------------------------------------------------------------------------------------
<S>           <C>        <C>           <C>              <C>             <C>        <C>
Terry Haas    12/27/96     25,000           $3.63           $7.50        $4.25     4 years
------------------------------------------------------------------------------------------------
Terry Haas    10/31/96     75,000           $4.50           $7.50        $4.50     4 years
                                                                                   4 1/2 months
                                                                                   (3/14/01)
------------------------------------------------------------------------------------------------
Terry Haas    09/26/96    200,000           $5.13           $7.75        $5.00     4 years
                                                                                   10 1/2 months
                                                                                   (8/12/01)
------------------------------------------------------------------------------------------------
David M. Mock  1/27/97     56,250           $2.38           $5.50        $2.50     5 years
                                                                                   8 months
                                                                                   (9/30/02)
================================================================================================
</TABLE>

COMPENSATION OF DIRECTORS

     The Company's non-employee Directors are not currently compensated for
attendance at Board of Director meetings.  Non-employee directors have been
granted, on an ad hoc basis, stock options upon being appointed to the Board.
The Company may adopt a formal director compensation plan in the future.  All
of the Directors are reimbursed for their expenses for each Board and
committee meeting attended.

                                     25
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.

     The following table sets forth information regarding Common Stock of the
Company beneficially owned as of March 18, 1997 by: (i) each person known by
the Company to beneficially own 5% or more of the outstanding Common Stock,
(ii) by each director and director nominee, and (iii) by all officers and
directors as a group.

==================================================================
Name of Officers and Directors
and Names and Addresses             Amount of Common
of Principal Stockholders               Shares*        Percentage
------------------------------------------------------------------
David M. Mock(1)
2060 East 2100 South
Salt Lake City, Utah                    869,100            15.1%
------------------------------------------------------------------
Terry Haas(2)
2060 East 2100 South
Salt Lake City, Utah                    187,083             3.2%
------------------------------------------------------------------
Brenda Lowe Cornell
2060 East 2100 South
Salt Lake City, Utah                    294,870             5.1%
------------------------------------------------------------------
Gary F. Wall
2060 East 2100 South
Salt Lake City, Utah                     12,600             0.2%
------------------------------------------------------------------
Kenneth M. Woolley(3)
2060 East 2100 South
Salt Lake City, Utah                    123,125             2.1%
------------------------------------------------------------------
Michael DeBloois
2060 East 2100 South
Salt Lake City, Utah                      5,000             0.1%
------------------------------------------------------------------
Jay Misra
1150 North Buffalo Drive
Apt. 2010
Las Vegas, Nevada                        12,500             0.2%
------------------------------------------------------------------
Richard M. Cott(4)
3471 Henderson Road
Spring Arbor, MI 49283                        0             0.0%
------------------------------------------------------------------
David Broadbent(5)
2060 East 2100 South
Salt Lake City, Utah                    409,217             7.1%
------------------------------------------------------------------
Andy Stallman(6)
2800 Nielson Way, #1103
Santa Monica, CA 90405                  495,480             8.1%
------------------------------------------------------------------

                                     26
<PAGE>

==================================================================
Name of Officers and Directors
and Names and Addresses             Amount of Common
of Principal Stockholders               Shares*        Percentage
------------------------------------------------------------------
All Directors and Executive
Officers (8 persons)                  1,391,778            22.5%
==================================================================
_____________

 *   Assumes exercise of all exercisable options held by listed
     security holders which can be acquired within 60 days from March
     18, 1997.

(1)  Includes shares held by a family corporation and a charitable
     foundation over which Mr. Mock holds voting control.  Mr. Mock
     disclaims beneficial ownership of shares held by charitable
     foundation.  Includes options held by Mr. Mock or his affiliates
     which will entitle them to purchase 225,000 shares.

(2)  Includes options held by Mr. Haas which will entitle him to
     purchase 187,083 shares.

(3)  Includes options held by Mr. Woolley which will entitle him to
     purchase 12,500 shares.

(4)  Does not include 23,000 shares of Series F Preferred Stock
     (convertible into at least 575,000 shares of common stock) and
     warrants to purchase 115,000 shares of common stock held by
     accounts associated with The Free Methodist Foundation.  Mr. Cott
     disclaims beneficial ownership of such shares.

(5)  Includes shares over which Mr. Broadbent exercises voting control
     held for the benefit of Mr. Broadbent's minor children and family
     trusts.

(6)  Includes 400,000 shares of common stock which may be acquired by
     Mr. Stallman on exercise of outstanding warrants.

The stockholders listed have sole voting and investment power, except as
otherwise noted.

                                     27

<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The Company has agreed to lease key man life insurance policies from Mr. 
Broadbent and Mr. Mock on their respective lives on a so-called reverse split 
dollar basis.  The premium to be paid by the Company may exceed the premium 
it would be required to pay for similar coverage directly to an insurance 
company, and may exceed the premium actually being paid by Messrs. Broadbent 
and Mock.  

     Mr. Mock and a family corporation controlled by him have from time to 
time advanced funds to the Company.  Mr. Mock or the corporation have 
converted $120,750 of such debt into Common Stock at a price of $2.25 per 
share.  In 1994, the family corporation also converted $200,000 of debt into 
13,333 shares of Preferred Stock at $15.00 per share.  The prices for such 
conversions were equal to the prices being paid by third parties for 
restricted stock at or about the time of the conversions.  The balance of the 
debt bore interest at 9% per annum.  The outstanding debt to Mr. Mock in the 
amount of $715,600, was repaid in 1995.  

     In September, 1996 the Company entered into bridge financing 
arrangements with Mr. Mock and unrelated parties whereby the Company borrowed 
$625,000 at prime plus 1% per annum.  Borrowings under the bridge financing 
are secured by substantially all of the assets of the Company, subject to the 
senior security interest of the Bank. Warrants to purchase up to 312,500 
shares at $5.50 per share were issued to the lenders in connection with the 
bridge financing.  

     Mr. DeBloois is a partner in the Multimedia Group.  The Multimedia Group 
provides substantially the same services as were previously offered by the 
Company's services business.  The Multimedia Group has agreed to complete 
work which the services business had in process when it was discontinued in 
January, 1997 and to provide similar support to the Company's customers in 
the future.  The Multimedia Group is utilizing a portion of the Company's 
facilities and equipment, for which it has agreed to pay a fair rental value. 
The exact terms of the rental and the other arrangements between the Company 
and the Multimedia Group are being negotiated.

     In 1997 accounts associated with The Free Methodist Foundation purchased 
23,000 shares of Series F Preferred Stock (convertible into at least 575,000 
shares of common stock) and warrants to purchase 115,000 shares of common 
stock.  Mr. Cott is Chief Financial Officer of The Free Methodist Foundation. 
Such shares and warrants were purchased prior to Mr. Cott joining the 
Company's Board of Directors.










                                      28 
<PAGE>
                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)  INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
     
TITLE OF DOCUMENTS                                                PAGE NO.
------------------                                                --------

Reports of Independent Accountants                                F-2, F-3

Consolidated Balance Sheets at December 31, 1996 and 1995              F-4

Consolidated Statements of Operations for the Years 
     Ended December 31, 1996, 1995 and 1994                            F-6

Consolidated Statements of Stockholders' Equity for
     the Years Ended December 31, 1996, 1995 and 1994                  F-7

Consolidated Statements of Cash Flows for the Years 
     Ended December 31, 1996, 1995 and 1994                            F-8

Notes to Consolidated Financial Statements                             F-9

FINANCIAL STATEMENT SCHEDULES: 

All schedules are omitted because they are not applicable or the required 
information is shown in the financial statements or the notes thereto.

     (b)  REPORTS ON FORM 8-K

     The Company filed two Current Reports on Form 8-K during the fourth 
quarter of its fiscal year ended December 31, 1996.  The Form 8-K dated 
October 7, 1996 reported the issuance of the Company's Series C and D
Preferred Stock.  The Form 8-K dated November 7, 1996 reported the dismissal
of Hamsen, Barnett & Maxwell as the Company's certifying accountant and
the appointment of Grant Thornton LLP.  Neither Form 8-K included any
financial statements.

     (c)  EXHIBITS

     The following documents are included as exhibits to this report.

    EXHIBITS   EXHIBIT DESCRIPTION                           PAGE OR LOCATION 
    --------   -------------------                           ---------------- 
      3.1      Articles of Amendment                      *  
      3.2      By-laws                                    ** 
      3.3      Certificate of Designation - Series C 
               Preferred Stock 
      3.4      Certificate of Increase to the Certificate 
               of Designation - Series C Preferred Stock 
      3.5      Certificate of Designation - Series D 
               Preferred Stock 
      3.6      Certificate of Correction to Certificate 
               of Designation - Series D Preferred Stock 
      3.7      Certificate of Designation - Series E 
               Preferred Stock 
      3.8      Certificate of Designation - Series F 
               Preferred Stock 
      3.9      Certificate of Designation - Series G 
               Preferred Stock 

                                      29 
<PAGE>

     10.3      Employment Agreement - David Mock          * 
     11.1      Computation of Earnings per Share 
     21.1      Subsidiaries of the Registrant             * 
     24.1      Consent of Hansen Barnett & Maxwell 
     24.2      Consent of Grant Thornton LLP 

     *    Incorporated by reference to the Company's Form 10-K for the year 
          ended December 31, 1994
     
     **   Incorporated by reference to the Company's Registration Statement, 
          File No. 33-33136-D





























                                      30 
<PAGE>

                                   SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this report to be signed 
on its behalf by the undersigned thereunto duly authorized.

                                            INNOVUS CORPORATION

Dated: April 14, 1997                       By   /s/  TERRY R. HAAS           
                                              ------------------------------- 
                                              Terry R. Haas, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
Report has been signed by the following persons on behalf of the Registrant 
and in the capacities and on the dates indicated.

SIGNATURE                       TITLE                                DATE 
---------                       -----                                ---- 

/s/ Terry R. Haas               Chief Executive Officer         April 14, 1997
----------------------------    President and Director          
Terry R. Haas                      


/s/ David Mock                  Chairman and Director           April 14, 1997
----------------------------    Principal Financial Officer 
David Mock                              

/s/ Gary F. Wall                Vice President-Finance          April 14, 1997
----------------------------    Controller, Principal 
Gary F. Wall                    Accounting Officer

/s/ Brenda Lowe Cornell         Director                        April 14, 1997
----------------------------    
Brenda Lowe Cornell             

/s/ Kenneth M. Woolley          Director                        April 14, 1997
----------------------------    
Kenneth M. Woolley

/s/ Michael DeBloois            Director                        April 14, 1997
----------------------------    
Michael DeBloois

                                Director                        April __, 1997
----------------------------    
Jay Misra                       

                                Director                        April __, 1997
----------------------------    
Richard M. Cott


<PAGE>

                      Innovus Corporation and Subsidiary

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                           PAGE
                                                                           ----

Report of Grant Thornton LLP, independent certified public
  accountants on the December 31, 1996 and 1995 financial statements       F-2

Report of Hansen, Barnett & Maxwell, independent certified public
  accountants on the December 31, 1994 financial statements                F-3

Consolidated financial statements:

  Consolidated Balance Sheets as of December 31, 1996 and 1995             F-4

  Consolidated Statements of Operations for the years ended
    December 31, 1996, 1995 and 1994                                       F-6

  Consolidated Statements of Stockholders' Equity for the years
    ended December 31, 1996, 1995 and 1994                                 F-7

  Consolidated Statements of Cash Flows for the years ended December
    31, 1996, 1995 and 1994                                                F-8

  Notes to Consolidated Financial Statements                               F-9


All Financial Statement Schedules are omitted because they are not applicable or
because the required information is contained in the Consolidated Financial
Statements or the Notes thereto.







                                       F-1
<PAGE>
                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Innovus Corporation


We have audited the accompanying consolidated balance sheets of Innovus
Corporation and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Innovus
Corporation and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As shown in the financial statements,
the Company has incurred substantial operating losses during the past three
years.  In addition, cash flows from operations has been negative for the past
three years which has resulted in low levels of working capital.  These factors
raise substantial doubt about the Company's ability to continue as a going
concern.  Management's plans in regard to these matters are described in Note B.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

                                             GRANT THORNTON LLP

Salt Lake City, Utah
March 7, 1997


                                       F-2
<PAGE>


HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS

                                                         (801) 532-2200
    MEMBER OF AICPA DIVISION OF FIRMS                  Fax (801) 532-7944
            MEMBER OF SECPS                       345 East Broadway, Suite 200
MEMBER OF SUMMIT INTERNATIONAL ASSOCIATES        Salt Lake City, Utah 84111-2693



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders and the Board of Directors
  Innovus Corporation

We have audited the accompanying consolidated statement of operations,
stockholders' equity (deficit) and cash flows of Innovus Corporation and
Subsidiary for the year ended December 31, 1994. These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated statement of operations, stockholders' equity
(deficit) and cash flows referred to above present fairly, in all material
respects, the operations and cash flows of Innovus Corporation and Subsidiary
for the year ended December 31, 1994 in conformity with generally accepted
accounting principles.


                                          HANSEN BARNETT & MAXWELL

Salt Lake City, Utah
February 21, 1996



                                       F-3
<PAGE>

                        Innovus Corporation and Subsidiary

                            CONSOLIDATED BALANCE SHEETS

                                    December 31,

                                       ASSETS


                                                  1996           1995
                                                ----------    ----------
CURRENT ASSETS (Note E)
  Cash and cash equivalents                     $  886,122    $2,362,556
  Accounts receivable, net                         116,761        59,766
  Inventories                                       39,003             -
  Prepaid expenses                                 119,849        43,738
                                                ----------    ----------
    Total current assets                         1,161,735     2,466,060









PROPERTY AND EQUIPMENT, net                      1,341,175     1,363,101
  (Notes C and E)











OTHER ASSETS                              
  Software development costs, net 
    (Notes D and E)                                809,824       886,153
  Other                                             30,442        34,816
                                                ----------    ----------


                                                $3,343,176    $4,750,130
                                                ----------    ----------
                                                ----------    ----------






      The accompanying notes are an integral part of these statements.


                                       F-4
<PAGE>
                                      
                    Innovus Corporation and Subsidiary

                  CONSOLIDATED BALANCE SHEETS - CONTINUED

                                December 31,

                   LIABILITIES AND STOCKHOLDERS' EQUITY


                                                  1996           1995     
                                              ------------    ----------- 
CURRENT LIABILITIES
  Accounts payable                            $    716,068    $   167,846 
  Accrued compensation                             216,805        208,293 
  Accrued liabilities                              126,022         30,715 
  Current maturities of long-term debt 
    (Note E)                                        28,477         48,067 
  Current maturities of capital lease 
    obligations (Note E)                            37,220         18,539 
                                              ------------    ----------- 

      Total current liabilities                  1,124,592        473,460 

LONG-TERM DEBT,
  less current maturities (Note E)                 671,564        682,096 

CAPITAL LEASE OBLIGATIONS,
  less current maturities (Note E)                  56,991         40,689 
                                              ------------    ----------- 

      Total liabilities                          1,853,147      1,196,245 
                                              ------------    ----------- 

COMMITMENTS (Notes E, F, H, J, L and M)                  -              - 

STOCKHOLDERS' EQUITY (Notes H, I, J, K, L and M)     
  Preferred stock - $0.001 par value; 1,000,000
    shares authorized; 87,100 shares issued
    and outstanding in 1996                             87              - 
  Common stock - $0.001 par value; 15,000,000
    shares authorized; 5,052,811 shares and
    4,691,037 shares issued and outstanding,
    respectively                                     5,053          4,691 
  Additional paid-in capital                    14,996,682      9,255,355 
  Deferred compensation                            (14,486)             - 
  Accumulated deficit                          (13,497,307)    (5,706,161)
                                              ------------    ----------- 

      Total stockholders' equity                 1,490,029      3,553,885 
                                              ------------    ----------- 

                                              $  3,343,176    $ 4,750,130 
                                              ------------    ----------- 
                                              ------------    ----------- 






     The accompanying notes are an integral part of these statements.


                                      F-5 
<PAGE>

                     Innovus Corporation and Subsidiary

                    CONSOLIDATED STATEMENTS OF OPERATIONS

                           Year ended December 31,


                                       1996           1995            1994    
                                    -----------    -----------    ----------- 
Net sales                           $   597,567    $   189,380    $   193,848 
                                    -----------    -----------    ----------- 

Costs and operating expenses
  Costs of products and 
    services sold                       302,571        123,701        234,234 
  Amortization of software 
    development costs                   796,673        315,464              - 
  Product development                 1,185,525      1,340,415        444,855 
  Selling and marketing               3,988,987      1,417,396        425,403 
  General and administrative 
    (Note J)                          1,279,542        719,862        537,860 
                                    -----------    -----------    ----------- 

                                      7,553,298      3,916,838      1,642,352 
                                    -----------    -----------    ----------- 

     Operating loss                  (6,955,731)    (3,727,458)    (1,448,504)
                                    -----------    -----------    ----------- 

Other income (expense)
  Interest income                        35,195         86,349              - 
  Interest expense for warrants
    issued with debt (Note E)          (773,350)             -              - 
  Interest expense, other               (97,260)       (94,242)      (105,709)
                                    -----------    -----------    ----------- 

                                       (835,415)        (7,893)      (105,709)
                                    -----------    -----------    ----------- 
  
     NET LOSS                       $(7,791,146)   $(3,735,351)   $(1,554,213)
                                    -----------    -----------    ----------- 
                                    -----------    -----------    ----------- 

Loss per common share               $     (1.59)   $     (0.98)   $     (0.60)
                                    -----------    -----------    ----------- 
                                    -----------    -----------    ----------- 

Weighted number of shares of 
  common stock used in per share 
  calculation                         4,913,091      3,794,276      2,577,125 
                                    -----------    -----------    ----------- 
                                    -----------    -----------    ----------- 











        The accompanying notes are an integral part of these statements.

                                       F-6 
<PAGE>

                         Innovus Corporation and Subsidiary

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                     Year ended December 31, 1996, 1995 and 1994

<TABLE>
                                       Preferred Stock      Common Stock      Additional
                                      ----------------   ------------------     Paid-In                 Accumulated
                                       Shares   Amount    Shares     Amount     Capital       Other       Deficit         Total
                                      --------  ------   ---------   ------   -----------   ---------   ------------   -----------
<S>                                   <C>       <C>      <C>         <C>      <C>           <C>         <C>            <C>
Balance at January 1, 1994                   -   $   -   2,470,625   $2,471   $   111,601   $       -   $   (416,597)  $  (302,525)
Issuance of common stock for cash            -       -     164,250      164       301,336           -              -       301,500
Net effect of merger with Tri-Nem
  subsidiary                                 -       -     205,000      205        (7,908)          -              -        (7,703)
Issuance of preferred stock for
   a note                               11,334      11           -        -       169,989    (170,000)             -             -
Issuance of preferred stock for
  cash, net of offering costs
  of $64,525                            52,666      53           -        -       685,672      39,750              -       725,475
Conversion of debt and liabilities           -       -      79,097       79       178,913           -              -       178,992
Net loss for the year                        -       -           -        -             -           -     (1,554,213)   (1,554,213)
                                      --------   -----   ---------   ------   -----------   ---------   ------------   -----------
Balance at December 31, 1994            64,000      64   2,918,972    2,919     1,439,603    (130,250)    (1,970,810)     (658,474)
Issuance of preferred stock for
  cash, net of offering costs of
  $17,923 and finders fees of
  $108,147                              56,000      56           -        -     1,049,874           -              -     1,049,930
Issuance of common stock for cash            -       -     163,833      164       571,586           -              -       571,750
Conversion of debt and accrued
  interest into common stock                 -       -      78,932       79       191,148           -              -       191,227
Conversion of preferred stock
  into common stock                   (120,000)   (120)    720,000      720          (600)          -              -             -
Issuance of common stock for
  cash in initial public offering,
  net of offering costs of
  $100,804 and finders fees of
  $222,090                                   -       -     692,000      692     5,904,414           -              -     5,905,106
Common stock issued upon
  exercise of stock options                  -       -     192,300      192        49,255           -              -        49,447
Surrendering of shares                       -       -     (75,000)     (75)           75           -              -             -
Collection of receivable from
  stockholders                               -       -           -        -             -     130,250              -       130,250
Compensation related to grant
  of stock options                           -       -           -        -        50,000           -              -        50,000
Net loss for the year                        -       -           -        -             -           -     (3,735,351)   (3,735,351)
                                      --------   -----   ---------   ------   -----------   ---------   ------------   -----------
Balance at December 31, 1995                 -       -   4,691,037    4,691     9,255,355           -     (5,706,161)    3,553,885
Deferred compensation from
  grant of stock options                     -       -           -        -        23,437     (23,437)             -             -
Exercise of stock warrants and
  options, including conversion of
  $18,452 of debt, net of stock
  surrendered                                -       -     361,774      362        95,088           -              -        95,450
Issuance of preferred stock in
  private placement offerings, net
  of offering costs of $376,727         87,100      87           -        -     3,958,186           -              -     3,958,273
Amortization of deferred
  compensation                               -       -           -        -             -       8,951              -         8,951
Issuance of warrants for debt
  and consulting expenses                    -       -           -        -     1,664,616           -              -     1,664,616
Net loss for the year                        -       -           -        -             -           -     (7,791,146)   (7,791,146)
                                      --------   -----   ---------   ------   -----------   ---------   ------------   -----------
Balance at December 31, 1996            87,100   $  87   5,052,811   $5,053   $14,996,682   $ (14,486)  $(13,497,307)  $ 1,490,029
                                      --------   -----   ---------   ------   -----------   ---------   ------------   -----------
                                      --------   -----   ---------   ------   -----------   ---------   ------------   -----------
</TABLE>

       The accompanying notes are an integral part of these statements.

                                     F-7

<PAGE>
                     Innovus Corporation and Subsidiary

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       
                           Year ended December 31, 

                                       1996           1995            1994    
                                    -----------    -----------    ----------- 
Increase (decrease) in cash and 
 cash equivalents
  Cash flows from operating 
   activities
    Net loss                        $(7,791,146)   $(3,735,351)   $(1,554,213)
    Adjustments to reconcile net 
     loss to net cash used in 
     operating activities:
      Depreciation and 
       amortization                     972,310        433,487         63,765 
      Expenses for issued warrants    1,032,276              -              - 
      Changes in assets and 
       liabilities
         Accounts receivable            (56,995)       (51,944)        33,126 
         Inventories                    (39,003)        27,360         45,308 
         Accounts payable and 
          accrued expenses              652,041         75,993        131,038 
         Other                          (31,186)        10,495         (4,582)
                                    -----------    -----------    ----------- 
           Net cash used in 
            operating activities     (5,261,703)    (3,239,960)    (1,285,558)
                                    -----------    -----------    ----------- 
Cash flows from investing activities
  Acquisition of property and 
   equipment                            (90,725)      (506,654)      (165,915)
  Proceeds from purchase of Tri-Nem           -              -            952 
  Increase in software development 
   costs                               (720,344)      (793,233)      (255,760)
                                    -----------    -----------    ----------- 
          Net cash used in 
           investing activities        (811,069)    (1,299,887)      (420,723)
                                    -----------    -----------    ----------- 
Cash flows from financing activities      
  Proceeds from borrowings            1,470,300              -      1,039,100 
  Payments to reduce long-term debt       
   and capital lease obligations     (1,075,430)    (1,146,068)      (110,678)
  Net proceeds from issuance of 
   preferred and common stock         4,201,468      7,576,233      1,091,500 
  Collection of receivable 
   from stockholder                           -        130,250              - 
                                    -----------    -----------    ----------- 
          Net cash provided by 
           financing activities       4,596,338      6,560,415      2,019,922 
                                    -----------    -----------    ----------- 
Net increase (decrease) in cash 
 and cash equivalents                (1,476,434)     2,020,568        313,641 

Cash and cash equivalents at 
 beginning of year                    2,362,556        341,988         28,347 
                                    -----------    -----------    ----------- 
Cash and cash equivalents at
 end of year                        $   886,122    $ 2,362,556    $   341,988 
                                    -----------    -----------    ----------- 
                                    -----------    -----------    ----------- 

                Supplemental Cash Flow Information - Note K

      The accompanying notes are an integral part of these statements.

                                     F-8 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   A summary of the significant accounting policies consistently applied in the
   preparation of the accompanying financial statements follows.

   1.  ORGANIZATION AND CONSOLIDATION 

   Tri-Nem, Inc. (Tri-Nem), a Delaware corporation, was incorporated on
   December 21, 1988.  Utah Info Connection, a Utah corporation (Utah Info),
   was incorporated on May 13, 1987.  Utah Info changed its name to Innovus
   Multimedia, Inc. (Innovus) in January 1994. 

   On September 6, 1994, the shareholders of Tri-Nem and Innovus approved an
   agreement and plan of reorganization whereby a newly-formed, wholly-owned
   subsidiary of Tri-Nem was merged into Innovus and the Innovus shareholders
   exchanged each of their shares of Innovus common stock for 2.95 shares of
   the common stock of Tri-Nem.  Accordingly, Tri-Nem issued 2,514,875 shares
   of its common stock in exchange for all of the outstanding shares of Innovus
   common stock. There were 205,000 shares of Tri-Nem common stock outstanding
   prior to the reorganization, after restatement for a 1-for-10 reverse stock
   split. 

   The reorganization was accounted for as a recapitalization of Innovus and
   the issuance by Innovus of 205,000 shares of common stock for the assets and
   liabilities of Tri-Nem. Those limited assets and liabilities were recorded
   under the purchase method of accounting at their historical cost which
   approximated fair value. The accompanying financial statements include the
   operations of Innovus for all periods presented with the operations of Tri-
   Nem included from the date of the recapitalization. The operations of Tri-
   Nem were immaterial prior to the recapitalization; accordingly, pro forma
   results of operations assuming the recapitalization had occurred January 1,
   1994 are not presented. All intercompany accounts and transactions have been
   eliminated in consolidation. In connection with the recapitalization, Tri-
   Nem's name was changed to Innovus Corporation. 

   2.  BUSINESS ACTIVITY 

   Innovus Corporation and its wholly-owned subsidiary, Innovus Multimedia,
   Inc. are collectively referred to herein as the Company.  The Company is a
   provider of software development tools designed for building modifiable
   media-intensive business information management systems.  These tools
   provide links to company databases through open data base connectivity and
   object linking and embedding technology. Prior to 1996, a significant
   portion of all the Company's sales were for multimedia interactive kiosk
   systems (kiosk systems).  The systems were primarily sold to United States
   government agencies.  The Company no longer sells or supports kiosk systems.

                                     F-9 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    3.  CASH AND CASH EQUIVALENTS

   The Company considers all highly-liquid debt instruments purchased with an
   original maturity of three months or less when purchased to be cash
   equivalents.  The Company has entered into a sweep account arrangement
   whereby excess funds are invested in U.S. Government obligations on a daily
   basis.  Those investments are considered cash equivalents.  The Company
   maintains cash and cash equivalents at several financial institutions. 
   Amounts at each institution are insured by the FDIC up to $100,000. 
   Uninsured balances aggregate approximately $900,000 at December 31, 1996
   ($2,300,000 in 1995).

   4.   INVENTORIES
   
   Inventories consist of packaged software products and individual component
   units awaiting assembly as packaged software.  Inventory is valued at the
   lower of cost or market with cost being determined using the first-in,
   first-out method.

   5.   DEPRECIATION AND AMORTIZATION
   
   Property and equipment are reported at cost.  Depreciation and amortization
   are provided in amounts sufficient to relate the cost of depreciable assets
   to operations over their estimated service lives.  Leased property under
   capital leases are amortized over the shorter of the lives of the respective
   leases or over the service lives of the asset.  The straight-line method of
   depreciation is followed for financial reporting purposes and accelerated
   methods are used for income tax purposes.

   6.   SOFTWARE DEVELOPMENT COSTS
   
   Costs incurred in creating computer software products are charged to
   operations as research and development expense prior to the development of a
   detailed program design or a working model.  After the detailed program
   design or working model has been established, costs of producing product
   masters are capitalized as software development costs. 


                                     F-10 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

   6.  SOFTWARE DEVELOPMENT COSTS - CONTINUED

   Costs of maintenance and customer support are recognized as expense when the
   related revenue is recognized or when those costs are incurred, whichever
   occurs first. Amortization of capitalized costs relating to each software
   product begins when that product is released for sale to customers. 
   Amortization is computed using the greater of (a) the ratio that current
   revenues from the software bear to current and estimated future revenues
   from the software or (b) the straight-line method over the remaining
   estimated economic life of the software, which is presently estimated to be
   from one to two years. Unamortized costs are carried at the lower of cost or
   net realizable value.  In management's opinion, the net realizable value of
   future sales exceeds the carrying value of unamortized software development
   costs.

   7.  INCOME TAXES

   The Company utilizes the liability method of accounting for income taxes. 
   Under the liability method, deferred tax assets and liabilities are
   determined based on differences between financial reporting and tax bases of
   assets and liabilities and are measured using the enacted tax rates and laws
   that will be in effect when the differences are expected to reverse.  An
   allowance against deferred tax assets is recorded when it is more likely
   than not that such tax benefits will not be realized.

   8.  COMMON STOCK

   During March 1995, the Company completed a reverse split of its common stock
   on a 1-for-2 basis. The accompanying financial statements have been restated
   to reflect this stock split for all periods presented.

   9.  LOSS PER SHARE

   Loss per share is computed by dividing net loss by the weighted average
   number of shares of common stock outstanding during the year. Convertible
   debt, convertible preferred stock and outstanding common stock warrants and
   options were excluded from the weighted average number of shares of common
   stock as they would decrease loss per share.


                                     F-11 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

   10.  REVENUE RECOGNITION
   
   The Company recognizes revenues on the majority of its product sales and
   services at the time of product delivery or the rendering of services. 
   Occasionally, the Company enters into long-term contracts under which
   services are delivered over the term of the contract.  Revenue under long-
   term contracts is recognized on the percentage-of-completion method.

   11.  PRODUCT DEVELOPMENT EXPENSE
   
   Product development expense includes all expenses related to future releases
   and enhancements of products, including research, development, porting of
   software to new operating systems and platforms, documentation and
   development of training programs, less allowable capitalized software
   development costs. Research and development costs incurred under contracts
   with others are recognized as cost of products and services sold as
   incurred.

   12.  USE OF ESTIMATES
   
   The preparation of financial statements in conformity with generally
   accepted accounting principles requires management to make estimates and
   assumptions that affect reported amounts of assets, liabilities, revenues
   and expenses during the reporting period.  Estimates also affect the
   disclosure of contingent assets and liabilities at the date of the financial
   statements.  Actual results could differ from these estimates.  An estimate
   which is subject to significant accounting sensitivity and which is affected
   by expected future gross revenues is the realization of capitalized software
   development costs.  Management believes the estimates used in determining
   the carrying value of capitalized software development costs as of the
   respective balance sheet dates are reasonable.
   
   13.  FAIR VALUE OF FINANCIAL INSTRUMENTS
   
   The estimated fair value of financial instruments is not presented because,
   in management's opinion, there is no material difference between carrying
   amounts and estimated fair values of financial instruments as presented in
   the accompanying consolidated balance sheets.

   14.  RECLASSIFICATIONS - NOT MATERIAL

   Certain reclassifications have been made to the 1995 and 1994 financial
   statements to conform with the 1996 presentation.  The reclassifications are
   not material.

                                     F-12 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE B - REALIZATION OF ASSETS

   The accompanying financial statements have been prepared in conformity with
   generally accepted accounting principles, which contemplates continuation of
   the Company as a going concern.  However, the Company has sustained
   substantial operating losses during recent years, which has resulted in an
   accumulated deficit of $13,497,307 as of December 31, 1996. The Company has
   used the proceeds from issuance of stock and from debt financing to fund its
   recurring losses. Given the losses and the lack of operating working
   capital, it is not presently known whether the Company can continue to
   satisfy its obligations in the future. 

   In view of these matters, realization of a major portion of the assets in
   the accompanying balance sheet at December 31, 1996 is dependent upon
   continued operation of the Company and the Company's ability to meet its
   financial requirements.  The financial statements do not include any
   adjustments relating to the recoverability and classification of recorded
   asset amounts or amounts and classifications of liabilities that might be
   necessary should the Company be unable to continue.

   Management believes that the Company will be able to obtain the necessary
   financial resources to meet its financial obligations in the future through
   operations and through equity financing. 


NOTE C - PROPERTY AND EQUIPMENT

   Property and equipment and estimated useful lives consist of the following:

                                    Years        1996           1995    
                                    -----     ----------     ---------- 
   Building                            40     $  422,231     $  422,231 
   Computer and office equipment      5-7        907,499        791,113 
   Furniture and fixtures             5-7        115,859         92,460 
                                              ----------     ---------- 

                                               1,445,589      1,305,804 
   Less accumulated depreciation 
    and amortization                            (478,845)      (317,134)
                                              ----------     ---------- 

                                                 966,744        988,670 
   Land                                          374,431        374,431 
                                              ----------     ---------- 

                                              $1,341,175     $1,363,101 
                                              ----------     ---------- 
                                              ----------     ---------- 


                                     F-13 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE C - PROPERTY AND EQUIPMENT - CONTINUED

   Depreciation expense, including amortization expense related to equipment
   recorded under capital leases, was $166,686, $118,023 and $63,765 for the
   years ended December 31, 1996, 1995 and 1994, respectively. The gross amount
   of equipment recorded under capital leases at  December 31, 1996 and 1995
   was $119,083 and $62,747 respectively, with related accumulated amortization
   of $15,460 and $4,229 at December 31, 1996 and 1995, respectively.


NOTE D - SOFTWARE DEVELOPMENT COSTS

                                                 1996            1995   
                                               ---------      --------- 
   Balance at beginning of year                $ 886,153      $ 408,384 
   Additions during year                         720,344        793,233 
   Amortization                                 (796,673)      (315,464)
                                               ---------      --------- 
   Balance at end of year                      $ 809,824      $ 886,153 
                                               ---------      --------- 
                                               ---------      --------- 

   Accumulated amortization totaled $1,112,137 and $315,465 at December 31,
   1996 and 1995, respectively.

NOTE E - LONG AND SHORT-TERM OBLIGATIONS

   1.  DEBT 

   Long-term debt is summarized as follows: 

                                                 1996            1995   
                                               --------       --------- 
   Note payable under a seller financed 
    mortgage collateralized by building 
    and land; payable in monthly payments
    of $5,658 which includes interest at 
    8.5% through June 2000, at which time
    interest becomes variable, due June 
    30, 2005 with a balloon payment of 
    $558,190                                   $682,934        $692,543 

   Notes payable under bridge financing 
    agreements, net(A)                          (21,143)              - 
     
   Promissory note payable to a finance 
    company(B)                                   38,250          37,620 
                                               --------       --------- 

                                                700,041         730,163 

   Less current maturities, net                  28,477          48,067 
                                               --------       --------- 

                                               $671,564        $682,096 
                                               --------       --------- 
                                               --------       --------- 

                                     F-14 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE E - LONG AND SHORT-TERM OBLIGATIONS - CONTINUED

   1.  DEBT - CONTINUED
   
   Aggregate gross maturities of debt are as follows:

          YEAR ENDING   
          DECEMBER 31,  
          ------------  
             1997 (before unamortized fair value of warrants)    $   494,620 
             1998                                                     11,463 
             1999                                                     12,476 
             2000                                                     13,579 
             2001                                                     14,779 
          Thereafter                                                 619,267 
                                                                  ---------- 
                                                                   1,166,184 

          Unamortized fair value of warrants                         466,143 
                                                                  ---------- 

                                                                  $  700,041 
                                                                  ---------- 
                                                                  ---------- 

   (A) In September 1996, the Company entered into bridge financing agreements,
   which authorized the Company to borrow up to $625,000, from certain
   unrelated and related parties and stockholders. The agreements bear interest
   at prime plus 1% in addition to the amortization of the warrants' fair value
   (Note J), resulting in an effective interest rate of 704% at December 31,
   1996.  The agreements are subordinate to the security interest of the bank,
   as explained below in Note E2, in substantially all of the assets of
   Company.  The payments are due July 1997. Under the terms of the agreements,
   if the Company repays any principal portion of the notes prior to March 31,
   1997, the Company is entitled to reborrow such repayment amounts. If the
   holders of the notes decline to loan the Company the amounts requested, the
   holders of the notes forfeit the right to exercise one half of the
   detachable warrants they hold as discussed in Note J.  The financing was
   accomplished by issuing detachable warrants for the purchase of 312,500
   shares of common stock with an exercise price of $5.50 per share. The
   estimated fair value of the warrants on the date of grant approximated
   $1,239,000.  This amount is being amortized as interest expense over the
   life of the agreements.  The unamortized portion at December 31, 1996
   approximates $466,000 and is included as an offset to the related debt in
   the 1996 balance sheet.  At December 31, 1996, the Company has drawn
   $445,000, when not including the $466,000 offset, under these financing
   agreements of which $345,000 was from unrelated lenders and $100,000 was
   from an officer and director of the Company.
   
   (B)  The Company purchases Directors and Officers insurance which is financed
   by the insurance company over a period of eight months beginning in each
   December.


                                     F-15 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE E - LONG AND SHORT-TERM OBLIGATIONS - CONTINUED

   2.  LINE OF CREDIT 

   In May 1996, the Company entered into a line of credit agreement with a bank
   with a revolving line of $500,000, with an additional $1,000,000 available
   subject to qualifying collateral. Interest is computed at prime plus 1.5%
   (9.75% at December 31, 1996), payable monthly, with maturity in May 1997 and
   is collateralized by substantially all of the Company's assets, including
   its inventory, accounts receivable and technology.  The Company issued
   warrants for the bank to purchase 4,688 shares of common stock in connection
   with the agreement.  The agreement contains certain restrictive covenants
   including, but not limited to, a requirement that the Company declare no
   dividends while the line is outstanding.  At December 31, 1996, the Company
   had no amounts outstanding on the line. 
   
   3.  CAPITAL LEASES

   The Company has equipment under capital lease obligations. The following is
   a schedule by years of future minimum lease payments under capital leases
   together with the present value of the net minimum lease payments:

          YEAR ENDING   
          DECEMBER 31,  
          ------------  
             1997                                            $ 48,546 
             1998                                              43,300 
             1999                                              18,990 
          Thereafter                                                - 
                                                             -------- 
             
          Total minimum lease payments                        110,836 
          Less amount representing interest                    16,625 
                                                             -------- 

          Present value of net minimum lease payments          94,211 
          Less current portion                                 37,220 
                                                             -------- 

                                                             $ 56,991 
                                                             -------- 
                                                             -------- 



                                     F-16 

<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE F - 401(K) PROFIT SHARING PLAN

   The Company maintains a compensation plan pursuant to Section 401(k) of the
   Internal Revenue Code (the Plan).  Participation in the Plan is available to
   all employees 21 years of age and older.  The Company may, at its option,
   make contributions to the Plan equal to a percentage of voluntary
   contributions made by participants or it may make a contribution equal to a
   percentage of the salary of all participants.  The Company made no
   contributions to the Plan during 1996, 1995 and 1994.

NOTE G - INCOME TAXES

   The major components of the net deferred tax asset as of December 31, 1996
   and 1995 were as follows:

                                              1996              1995    
                                           -----------      ----------- 
      Depreciation                         $   (56,679)     $   (36,670)
      Software development costs               719,857          512,744 
      Accrued expenses                          56,399           67,912 
      Deferred compensation                     19,501           19,501 
      Operating loss carry forwards          4,561,166        1,650,692 
      Valuation allowance                   (5,300,244)      (2,214,179)
                                           -----------      ----------- 
      Net deferred tax asset               $         -      $         - 
                                           -----------      ----------- 
                                           -----------      ----------- 

   The net change in the valuation allowance was $3,086,065, $1,436,355 and
   $600,518 for the years ended December 31, 1996, 1995 and 1994, respectively.
   The Company had operating loss carry forwards at December 31, 1996 of
   $11,695,298 which expire in the years 2005 through 2011 if unused.  Under
   federal tax law, certain potential changes in ownership of the Company,
   which may not be within the Company's control, may operate to restrict
   future utilization of these carry forwards.

   The components of the provision for income taxes were immaterial for all
   periods presented.  The following is a reconciliation of the income tax at
   the federal statutory tax rate of 34% with the provision for income taxes
   for the years ended December 31, 1996, 1995 and 1994:
 
                                             1996         1995          1994   
                                         -----------   -----------   ----------
   Income tax benefit at statutory rate  $(2,648,990)  $(1,270,019)  $(528,398)
   Current operating loss not recognized   2,466,255       830,554     490,114 
   Change in deferred tax asset 
    valuation allowance                      167,654       421,653      33,313 
   Nondeductible expenses                     15,081        17,812       4,971 
                                         -----------   -----------   ----------
   Provision for income taxes            $         -   $         -   $       - 
                                         -----------   -----------   ----------
                                         -----------   -----------   ----------


                                     F-17 

<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE H - PREFERRED STOCK
   
   There are 1,000,000 shares of preferred stock, par value $0.001 per share,
   authorized of which 120,000 shares have been designated Series A preferred
   stock with no shares outstanding.  In addition, 55,000 shares have been
   designated Series C preferred stock, 20,100 shares have been designated
   Series D preferred stock and 12,000 shares have been designated as Series E
   preferred stock.  The designated Series C, D and E shares are all
   outstanding.
   
   The Series C, D and E preferred stock have a stated value of $50 per share. 
   The holders of the Series C, D and E preferred stock are entitled to
   dividends computed at an annual rate of 5% of the stated value, or $2.50
   per share per annum.  The dividends are cumulative and are payable at the
   time of conversion or redemption (unless earlier declared and paid) in cash
   or shares of common stock.  The preferred stockholders have no voting rights
   and a liquidation preference equal to the stated value of the preferred
   stock plus accrued but unpaid dividends.
   
   In 1996, the Company issued in private placement offerings 55,000 shares of
   Series C convertible preferred stock for $2,750,000 and 12,000 shares of
   Series E convertible preferred stock for $600,000.  Total offering costs
   were $165,442 which resulted in net proceeds of $3,184,558.  Including the
   conversion of the 20,100 shares of Series D preferred stock, as discussed in
   Note I, the Company issued a total of 87,100 shares of preferred stock for
   net proceeds of $4,124,470 after offering costs of $210,530.
   
   The Series C preferred stock is convertible into shares of common stock at
   the option of the preferred stockholders commencing December 17, 1996.  The
   Company may call for conversion of the preferred stock into common stock
   after September 30, 1997 if a registration statement has been declared
   effective. The conversion ratio shall be the issue price of $50 divided by
   the lesser of $5.45 per share or 75% of the average per share market value
   of the common stock for five trading days immediately preceding the
   conversion date.

   The Series D preferred shares have a liquidation preference which is senior
   to the common stock but junior to the Series C preferred. The holders of the
   Series D preferred shares may convert into shares of common stock at the
   rate of one common share for each $4 originally invested, or approximately
   12.5 common shares per share of Series D preferred stock. The Company is
   entitled to require conversion of the Series D preferred stock after one
   year from the original issuance date. 

                                     F-18 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE H - PREFERRED STOCK - CONTINUED

   The Series E preferred stock is convertible into shares of common stock at
   the option of the preferred stockholders any time after March 31, 1997.  The
   Company may call for conversion of the preferred stock into common stock
   after March 31, 1998 if a registration statement has been declared
   effective.  The conversion ratio shall be $3.50 per share.  Subsequent to
   year end, the Series E preferred stock was converted into Series G preferred
   stock as explained in Note M.

NOTE I - COMMON STOCK

   During 1996, common stock purchase warrants and options were exercised
   resulting in the Company issuing 305,974 shares of common stock for cash
   proceeds of $95,450, plus the cancellation of debt owed to an option holder
   in the amount of $18,452 relating to the exercise of options of 72,644
   shares.  Included in these proceeds was the conversion of $18,452 of notes
   payable as payment upon the exercise of options for 72,644 shares.

   In June 1996, the Company issued 134,000 shares of common stock for $985,000
   less offering costs of $45,088 for net proceeds of $939,912.  In connection
   with the Series C preferred stock private placement offering discussed
   above, the holder of these 134,000 shares of common stock converted them
   into 20,100 shares of Series D convertible preferred stock.

   In October 1996, options for 107,500 shares of common stock were exercised
   for $27,305, which was paid by a principal shareholder surrendering 18,200
   shares of common stock valued at approximately $1.50 per share.  This
   shareholder also surrendered 33,500 shares of common stock for which the
   Company made no payment.

NOTE J - STOCK OPTIONS AND WARRANTS 

   In August 1994, the Company adopted the Omnibus Stock Option Plan (the
   Plan), which authorized incentive and non-qualified stock options to be
   granted to employees of the Company. Reserved for issuance under the Plan
   are 1,327,500 shares of common stock.  The Company may also grant other non-
   qualified options and warrants outside of the plan.  Incentive stock options
   must be granted with an exercise price at least equal to the market value of
   the common stock on the date of grant unless otherwise approved by the
   Company's Board of Directors.  The options generally become exercisable
   over a period of three years.  In the event of a dissolution or liquidation
   of the Company, any options outstanding under the Plan will terminate.

                                     F-19 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED

   1.  NON-QUALIFIED OPTIONS AND WARRANTS

   1994 GRANTS:  During 1994, the Company authorized and granted 591,334
   warrants and 505,113 stock options with rights to acquire a total of
   1,096,447 shares of common stock to key employees, officers and directors.
   Vesting of these warrants and options range from the date they were granted
   up to three years.  The exercise prices were greater than the market value
   of the common stock on each of the dates granted.
   
   Included in the 1,096,447 options and warrants above were warrants
   authorizing the holders to purchase 443,834 shares of common stock during
   1994 in connection with the issuance of $630,500 of notes payable to related
   parties.  These warrants were exercisable for a period of three years from
   the date of issuance and were exercisable at a price based on 60% of the
   price of a future public offering of the common stock.  However, warrants
   relating to the purchase of 428,119 shares of common stock (issued in
   connection with $580,500 of notes payable to related parties) were canceled
   when options to purchase 443,238 shares of common stock were granted. At
   December 31, 1994, warrants relating to the remaining $50,000 of promissory
   notes were outstanding and exercisable. In February 1995, the remaining
   warrants for 15,715 shares of common stock were exercised at $1.75 per
   share.  The exercise price was paid by the conversion of the associated debt
   and accrued interest into common stock.

   Also included in the 1,096,447 options and warrants above were warrants to
   purchase 147,500 shares of common stock in connection with a consulting
   agreement. The warrants are exercisable at $0.25 per share, which was
   greater than the market value of the common stock on the date granted.  Of
   these warrants, 73,750 were exercised in July 1995.

   1995 GRANTS:  During 1995, the Company authorized and granted 400,000
   warrants and 25,000 stock options for a total of 425,000 shares of common
   stock.  The warrants were granted in connection with a consulting agreement
   and were exercisable at $7 per share, which was greater than the market
   value of the common stock on the date granted.  The warrants became
   exercisable in February 1995 and expire on February 15, 1998 if not
   exercised.  In September 1996, the warrants were repriced to the quoted
   market value of the underlying stock of $5 per share. 





                                     F-20 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED

   1.  NON-QUALIFIED OPTIONS AND WARRANTS - CONTINUED
   
   The stock options for 25,000 shares were granted in connection with the
   signing of a letter of commitment for future employment by a prospective key
   employee.  In March 1996, additional options were granted for another 75,000
   shares in connection with the inception of the employment.  All 100,000
   options are exercisable at $7.50 per share. The options vest immediately for
   those granted in December 1995 with the options granted in March 1996
   vesting over three years. Compensation relating to these options was $50,000
   for the options granted in December 1995 and was recognized as an expense in
   1995. Compensation relating to the options granted in March 1996 was $23,437
   which has been deferred and is being recognized over the vesting period.
   
   1996 GRANTS:  During 1996, the Company authorized and granted 417,188
   warrants and 325,000 stock options (inclusive of the stock options for
   75,000 shares discussed above) for the right to acquire a total of 742,188
   shares of common stock.  Included were warrants for 312,500 shares of common
   stock which were issued in connection with the issuance of $625,000 of notes
   to related parties and other lenders. The warrants are exercisable at $5.50
   per share which was the market value of the common stock on the date the
   warrants were issued. The warrants are exercisable through September 2002;
   however, warrants for 156,250 shares are exercisable only if the lenders
   allow the Company to reborrow through March 31, 1997, any amounts that the
   Company prepays under the terms of the notes as explained in Note E.
   
   Warrants for 100,000 shares of common stock were issued to individuals for
   consulting services.  The estimated fair value of the warrants on the dates
   of grant approximated $425,000.  Of this amount, approximately $167,000 was
   netted against the proceeds received on the issuance of preferred stock
   during 1996.  The remaining $258,000 was recorded as an general and
   administrative expense in the 1996 statement of operations.  The warrants
   are exercisable at prices ranging from $4.25 to $5.75 per share and are
   exercisable through November 2001.
   
   Warrants for 4,688 shares of common stock were issued in connection with the
   line of credit discussed in Note E.  The warrants are exercisable at $8 per
   share and were exercisable on date of grant and expire in May 2001.  

   Options for 250,000 shares of common stock were granted to the president and
   two outside directors. These options were repriced in September 1996 from $8
   per share to the quoted market value of $5 on the date repriced.


                                     F-21 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED

   1.  NON-QUALIFIED OPTIONS AND WARRANTS - CONTINUED

   The following is a summary of the activity relating to non-qualified
   warrants and options through December 31, 1996:

<TABLE>
                                                                          WEIGHTED 
                                                                          AVERAGE  
                                                  STOCK     EXERCISE      EXERCISE 
                                      WARRANTS   OPTIONS      PRICE        PRICE   
                                      --------   -------   ------------   -------- 
<S>                                   <C>        <C>       <C>            <C>      
    Outstanding at January 1, 1994           -         -   $          -    $   - 
       Granted                         591,334   505,113    0.25 - 3.50     0.31 
       Exercised                             -         -              -        - 
       Canceled or expired             428,119         -           0.25     0.25 
                                       -------   ------- 
    Outstanding at December 31, 1994   163,215   505,113    0.25 - 3.50     0.40 
       Granted                         400,000    25,000    7.00 - 7.50     7.03 
       Exercised                        89,465   116,156    0.25 - 1.75     0.29 
       Canceled or expired                   -         -              -        - 
                                       -------   ------- 
    Outstanding at December 31, 1995   473,750   413,957    0.25 - 7.50     3.57 
       Granted                         417,188   325,000    2.50 - 8.00     4.11 
       Exercised                             -   253,332           0.25     0.25 
       Canceled or expired                   -    73,750           0.25     0.25 
                                       -------   ------- 
                                       -------   ------- 
    Outstanding at December 31, 1996   890,938   411,875    0.25 - 8.00     4.28 
                                       -------   ------- 
                                       -------   ------- 
    Exercisable at December 31, 1996   528,438    62,500   $0.25 - 8.00    $4.28 
                                       -------   ------- 
                                       -------   ------- 
</TABLE>

   The following table summarizes information concerning non-qualified
   outstanding and exercisable stock options and warrants at December 31, 1996:

                  NON-QUALIFIED OPTIONS AND WARRANTS OUTSTANDING

                                       WEIGHTED-AVERAGE
                                           REMAINING       
      RANGE OF             NUMBER      CONTRACTUAL LIFE   WEIGHTED-AVERAGE 
   EXERCISE PRICES      OUTSTANDING         (YEARS)        EXERCISE PRICE  
   ---------------      -----------    ----------------   ---------------- 
   $0.25 - $0.68           110,625           1.33          $0.40
   $2.25 - $2.50           181,250           5.37           2.47
   $4.25 - $5.75         1,006,250           4.13           5.02
       $8.00                 4,688           4.33           8.00
                         --------- 
                         1,302,813 
                         --------- 
                         --------- 

                                     F-22 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED

   1.  NON-QUALIFIED OPTIONS AND WARRANTS - CONTINUED

                NON-QUALIFIED OPTIONS AND WARRANTS EXERCISABLE

      RANGE OF           NUMBER         WEIGHTED-AVERAGE 
   EXERCISE PRICES     EXERCISABLE       EXERCISE PRICE  
   ---------------     -----------      ---------------- 
   $0.25 - $0.68          73,750              $0.25 
   $2.25 - $2.50          12,500               2.25 
   $4.25 - $5.75         500,000               4.89 
       $8.00               4,688               8.00 
                         ------- 
                         590,938 
                         ------- 
                         ------- 

   2.  QUALIFIED OPTIONS

   During 1994, the Company granted options under the Plan which authorized the
   holders of the options to purchase 771,425 shares of common stock from $0.25
   to $0.51 per share which was greater than the market value of the common
   stock on the dates granted. The options are exercisable over three years
   through August 1997.

   During 1995, the Company granted options under the Plan to purchase 653,112
   shares of common stock with exercise prices equal to the market value of the
   common stock on the dates granted.

   During 1996, options for 198,500 shares were granted under the Plan which
   are exercisable through December 2001.





















                                     F-23 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED
   
   2.  QUALIFIED OPTIONS - CONTINUED
   
   The following is a summary of the activity relating to qualified options
   under the Plan, through December 31, 1996:
                                                                 WEIGHTED  
                                                                  AVERAGE  
                                        STOCK       EXERCISE     EXERCISE  
                                       OPTIONS       PRICE        PRICE    
                                       -------    ------------   --------  
    Outstanding at January 1, 1994           -    $          -    $   - 
       Granted                         771,425     0.25 - 0.51     0.36 
       Exercised                             -               -        - 
       Canceled or expired                   -               -        - 
                                     --------- 

       Outstanding at December 31, 
        1994                           771,425     0.25 - 0.51     0.36 
       Granted                         653,112     3.00 -10.25     4.56 
       Exercised                         2,385            0.51     0.51 
       Canceled or expired              52,156     0.51 - 3.00     1.85 
                                     --------- 

    Outstanding at December 31, 
     1995                            1,369,996     0.25 -10.25     2.31 
       Granted                         198,500     5.50 -13.00     6.23 
       Exercised                       160,142     0.25 - 3.00     0.37 
       Canceled or expired             614,063     0.25 -13.00     1.98 
                                     --------- 

    Outstanding at December 31, 
     1996                              794,291     0.51 - 4.25     2.67 
                                     --------- 
                                     --------- 
    Exercisable at December 31, 
     1996                              260,973    $0.51 - 4.25    $1.67 
                                     --------- 
                                     --------- 

   The following table summarizes information concerning qualified outstanding
   and exercisable stock options at December 31, 1996:

                            QUALIFIED OPTIONS OUTSTANDING

                                        WEIGHTED-AVERAGE 
                                            REMAINING   
         RANGE OF           NUMBER      CONTRACTUAL LIFE    WEIGHTED-AVERAGE 
     EXERCISE PRICES     OUTSTANDING         (YEARS)         EXERCISE PRICE  
     ---------------     -----------    -----------------   ---------------- 
          $0.51            224,641             1.92              $0.51 
      $3.00 - $4.25        569,650             3.64               3.52 
                           ------- 
                           794,291 
                           ------- 
                           ------- 


                                     F-24 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED
   
   2.  QUALIFIED OPTIONS - CONTINUED

                           QUALIFIED OPTIONS EXERCISABLE
                         ---------------------------------
         RANGE OF           NUMBER        WEIGHTED-AVERAGE 
      EXERCISE PRICES    EXERCISABLE       EXERCISE PRICE  
      ---------------    -----------     ----------------- 
          $0.51            149,761            $0.51
       $3.00 - $4.25       111,212             3.24
                           ------- 
                           260,973 
                           ------- 
                           ------- 

   3.  FAIR VALUE OF OPTIONS AND WARRANTS GRANTED AND PRO FORMA LOSS  

   The Company has adopted only the disclosure provisions of Financial
   Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
   123). Therefore, the Company accounts for stock based compensation under
   Accounting Principles Board Opinion No. 25.  Had compensation cost for the
   stock based compensation been determined based upon the fair value of the
   awards at the grant dates consistent with the methodology prescribed by FAS
   123, the Company's net loss and loss per share would have been increased to
   the following pro forma amounts:

                                                   1996            1995     
                                               ------------    ------------ 
     Net loss                  As reported     $(7,791,146)    $(3,735,351)
                               Pro forma        (8,824,279)     (5,227,807)

     Loss per share            As reported           (1.59)          (0.98)
                               Pro forma             (1.80)          (1.38)

   These pro forma amounts may not be representative of future disclosures
   because they do not take into effect pro forma compensation cost related to
   grants made before 1995. The fair value of these options and warrants were
   estimated at the date of grant using the modified Black-Scholes American
   option-pricing model with the following weighted-average assumptions for
   1996 and 1995: expected volatility of 67.17% and 65.89%, respectively; risk-
   free interest rate of 6.10%; and expected life of 4.2 years.  The weighted
   average fair value of options and warrants granted was $3.88 and $2.49 in
   1996 and 1995, respectively.






                                     F-25 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE J - STOCK OPTIONS AND WARRANTS - CONTINUED
   
   3.  FAIR VALUE OF OPTIONS AND WARRANTS GRANTED AND PRO FORMA LOSS - 
       CONTINUED

   Option pricing models require the input of highly subjective assumptions
   including the expected stock price volatility.  Also, the Company's employee
   stock options and warrants have characteristics significantly different from
   those of traded options and warrants, and changes in the subjective input
   assumptions can materially affect the fair value estimate.  Management
   believes the best input assumptions available were used to value the options
   and warrants and the resulting values are reasonable.


NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
   
   1.  NON-CASH STOCK AND PAYABLES ACTIVITIES
   
   In 1996, 72,644 shares of common stock were issued upon exercise of options
   for which the option holder canceled debt owed by the Company in the amount
   of $18,452.
   
   In 1995 and 1994, respectively, note holders voluntarily converted debt owed
   to them in the amount of $148,250 and $168,750 into 69,382 and 75,000 shares
   of common stock at an average of $2.14 and $2.25 per share.  The conversion
   ratio was based on the fair value of common stock on the date of the
   conversion.
   
   During 1995, $42,975 of notes payable to an unrelated party were converted
   into 9,550 shares of common stock at $4.50 per share.
   
   During 1994, 11,334 shares of preferred stock were issued for a note in the
   amount of $170,000 of which $39,750 was settled by receiving services
   related to the issuance of preferred stock.  Also during 1994, $10,242 of
   accrued expenses were converted into 4,097 shares of common stock at $2.50
   per share.
   
   In 1995 and 1994, $15,619 and $15,602, respectively of accrued and unpaid
   interest was added to the principal amount of notes payable.
   
   During 1994 and in conjunction with the recapitalization described in Note
   A, 30,000 shares of common stock were issued to an individual as a finder's
   fee.  The finder's fee was valued at $59,100 based on the fair value of the
   stock on the date issued of $2 per share, less $900 of cash paid by the
   finder.  
   
   
   
                                     F-26 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION - CONTINUED

   2.  PROPERTY AND EQUIPMENT AND PAYABLES ACTIVITIES

   In 1995, the Company purchased the building it had previously leased in the
   amount of $796,663.  $696,313 was financed by a note payable and the
   remaining $100,350 was paid in cash.  Also during 1995, the Company leased
   office equipment in the amount of $47,408 which was financed by a capital
   lease.  In addition, during 1995 the Company returned office equipment for
   payment of a $6,547 capital lease.

   In 1994, the Company acquired office equipment in the amount of $9,800, of
   which $8,820 was financed by a capital lease and the remaining $980 was paid
   in cash.

   During 1996, capital leases for computer and office equipment were executed
   for $56,336.

   3.  WARRANTS ISSUED WITH DEBT AND TO CONSULTANTS

   During 1996, the Company issued debt with detachable warrants.  The
   unamortized portion of the costs of warrants of approximately $466,000 is
   shown as a reduction of the related debt.

   Also during 1996, warrants were issued to consultants who assisted in
   raising capital through the issuance of preferred stock.  The estimated fair
   value of the warrants were offset against the proceeds received.

   4.  CASH PAID FOR INTEREST

   Cash flows from operating activities included interest paid of  $91,038,
   $147,039 and $62,044 for the years ended December 31, 1996, 1995 and 1994,
   respectively.

NOTE L - EMPLOYMENT AGREEMENT

   The Company has entered into an employment agreement expiring in 1999 with a
   key employee.  The agreement is renewed automatically for an additional one-
   year unless either party gives written notice of non-renewal not less than
   ninety days prior to the expiration.  The agreement provides for a base
   payment of $185,000 per year.  The agreement also provides that the employee
   will receive stock options to purchase up to 100,000 shares of common stock,
   as explained in Note J, and can earn bonuses based upon performance.


                                     F-27 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE M - SUBSEQUENT EVENTS

   1.  ISSUANCE OF PREFERRED STOCK

   In February 1997, the Company designated 70,000 shares of preferred stock as
   Series F and issued 40,000 of such shares for $2,000,000.

   The Series F preferred stock is convertible from time to time by the holders
   thereof based upon the original purchase price of $50 per share, plus
   accrued dividends thereon, divided by $2 per share of common stock. 
   Dividends on any Series F preferred stock converted during the first year
   following original issuance accrue at 10% per annum.  Dividends on any
   Series F preferred stock which is converted following the first year
   following original issuance accrue at 15% per annum for the first year and
   5% per annum thereafter.  All dividends on the Series F preferred stock are
   payable, in cash or common stock, only at the time of conversion.  If the
   market price for the common stock is not at least $3 per share on February
   15, 1998, the conversion rate for all Series F preferred stock then still
   outstanding will be adjusted so that each preferred share (including accrued
   dividends) will be convertible into common stock having a market value equal
   to 150% of the original purchase price of $50.

   Also in February 1997, the Company designated 12,000 shares of preferred
   stock as Series G.  This series will be issued only in exchange for shares
   for the Company's Series E preferred stock.

   The Series G preferred stock is convertible from time to time by the holders
   thereof based upon the original purchase price of $50 per share, plus
   accrued dividends thereon, divided by $2.25 per share of common stock. 
   Dividends on any Series G preferred stock converted during the first year
   following original issuance accrue at 10% per annum.  Dividends on any
   Series G preferred stock which is converted following the first year
   following original issuance accrue at 15% per annum for the first year and
   5% per annum thereafter.  All dividends on the Series G preferred stock are
   payable, in cash or common stock, only at the time of conversion.









                                     F-28 
<PAGE>
                      Innovus Corporation and Subsidiary     

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

                       December 31, 1996, 1995 and 1994      


NOTE M - SUBSEQUENT EVENTS - CONTINUED

   2.  DOWNSIZING

   During January 1997, the Company effected a downsizing of its full-time
   staff, to less than 25 employees.  In conjunction with this downsizing, the
   Company re-directed its focus to being a software developer and away from a
   service provider of custom programming.  The customer programming work-in-
   process and backlog at the time of the downsizing is being completed by the
   ex-employees of the Company who have established an unrelated entity for
   that purpose.

   As a result of this downsizing, 49,527 shares of common stock were issued
   upon exercise of stock options for $25,160, by terminated employees. 
   Additionally, 345,399 stock options held by terminated employees were
   forfeited.

   3.  CONVERSION OF PREFERRED STOCK

   Preferred stockholders converted 22,100 shares of Series C and 17,100 shares
   of Series D preferred stock into 835,049 shares of common stock in several
   transactions.

   4.  ISSUANCE OF OPTIONS

   During January 1997, the Company granted to an officer/director an option to
   purchase 200,000 common shares at $2.50 per share.  The option vests 50%
   immediately, an additional 25% at the end of year one and the final 25% at
   the end of year two.  The options expire in five years.  The exercise price
   of $2.50 was the fair market value of the underlying stock on the date
   granted.

   5.  REPRICING OF WARRANTS

   The Company repriced certain warrants issued in connection with the bridge
   financing in 1996 from $5.50 per share to the market value of the underlying
   stock on the date of the repricing of $2.50 per share.








                                     F-29