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

                                  FORM 10-KSB/A
                                 Amendment No. 1
                              ---------------------

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

         For the fiscal year ended  December 31, 1997

[ ]      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
           (Name of small business issuer as specified in its charter)

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

                                4600 Campus Drive
                             Newport Beach, CA 92660
                    (Address of principal executive offices)
         Issuer's telephone number, including area code: (801) 474-9200



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

         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days. Yes X No

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will 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-KSB
or any amendment to this Form 10-KSB. |_|

         The issuer's  revenues for the fiscal year ended December 31, 1997 were
$317,653.

         As of April 13,  1998,  7,633,135 of the  issuer's  common  shares were
issued  and  outstanding,   approximately   6,668,685  of  which  were  held  by
non-affiliates.  As of April 13, 1998, the aggregate market value of shares held
by non-affiliates  was  approximately  $2,300,696 based upon the closing bid and
asked quotation on the OTC Bulletin Board.


                       DOCUMENTS INCORPORATED BY REFERENCE

<PAGE>



         Certain  portions of the documents of the issuer listed below have been
incorporated by reference into the indicated parts of the Form 10-KSB: None.

          Transitional Small Business Disclosure Format: Yes_____ No X

                                      - 2 -
<PAGE>

                                     PART I

 ITEM 1.          BUSINESS

         Innovus  Corporation  (the  "Company")  has been engaged in the sale of
multimedia authoring and presentation software, INNOVUS Multimedia, with related
templates and media packages.

         Sales of Innovus  Multimedia  and  related  products  during  1997 were
minimal,  despite  the  Company's  efforts to  re-focus  the  target  market and
re-price the  software.  Due to lack of  resources,  the Company  ceased  active
marketing of the software to the retail  market  channel at the end of the third
quarter,  and ceased  substantially all other active marketing during the fourth
quarter. The Company does not currently have the financial resources to actively
market its software or to develop new software.

         Following  the end of the fiscal year,  the Company  signed a letter of
intent with Intermark Corporation ("Intermark"), a company engaged in electronic
software distribution. If the terms of a definitive agreement can be negotiated,
the letter of intent  contemplates  that the Company would acquire Intermark and
Intermark's  former  shareholders  and  management  would assume  control of the
Company.  There is no  assurance  that  Intermark  will  distribute  the INNOVUS
Multimedia  software along with its other third party software  products or that
the proposed transaction with Intermark will occur.

SUBSEQUENT EVENTS

         Subsequent  to the filing of the original Form 10-KSB,  Tech Data,  the
Company's  principal  software  distributor,  notified  the Company  that it was
returning all software  inventory on hand to the Company.  Substantially  all of
the inventory represented returns of unsold merchandise from retail stores. Tech
Data had previously  agreed to sell the software  inventory at a discount and to
apply the proceeds  towards  amounts the Company owed to Tech Data.  The Company
believes  that  Tech  Data's  return  of the  inventory  indicates  Tech  Data's
assessment that the current version of the software is not readily marketable in
today's market. As a result of this and other factors, the Company determined to
fully amortize  capitalized  software  development  costs. Even if the Intermark
transaction  is  consummated,  it is  unlikely  that  the  Company  will  expend
substantial resources to market the INNOVUS Multimedia software.

         As indicated below,  during 1997 the Company  discussed the sale of the
software source code to other software  vendors and to consulting  companies for
in-house use. All of such discussions have terminated  without any agreement for
the sale of the source code.

         The following  discussion of the Company's business is qualified in its
entirety by these subsequent events.

Company Strategy

         In the fourth quarter of 1996 Innovus management, in an effort to boost
flat sales and to reposition the Innovus  products  outside of the  professional
authoring  software niche,  dramatically  lowered the unit price of the software
and  re-targeted  the  technology  to the  business  power  user  as well as the
developer.

         New  packaging,  a new corporate  image,  and an  advertising  campaign
designed  to explain the  benefits of  multimedia  authoring  technology  to the
business  professional  began  late  in  1996.  In  addition  to the  multimedia

                                      - 3 -
<PAGE>

developer,  sales  and  marketing  professionals  with  needs  for  high-powered
presentations,  and  departmental  users with the  requirement  of an affordable
computer-based training tool were addressed.

         Initial retail  placement was obtained in the first quarter of 1997 and
sell-through was encouraging,  with restocking  orders occurring  regularly into
early second quarter.  Broader penetration of the retail channel was slower than
planned due in part to contractual disputes with a manufacturer's rep firm hired
to accomplish this task.

         Continuing  reductions  in personnel  were made  throughout  the fourth
quarter  of 1996 and the first  quarter of 1997 as all  non-essential  functions
were  outsourced.  All  production,  fulfillment,  order entry,  and call center
operations were contracted to third party firms.

         In the second quarter of 1997 Innovus' largest retail customer returned
to the  distributor  all  inventory  due to Innovus'  inability  to fund ongoing
required advertising and merchandising programs.

         Concurrently,   Innovus   management   was   attempting  to  execute  a
two-pronged  development  strategy.  It was believed  that major  changes in the
fundamental   design  of  the  Innovus  technology  were  necessary  to  achieve
significant   success  in  the  rapidly  changing   authoring   marketplace.   A
comprehensive  and final version of its core  product,  Innovus  Authoring,  was
under development. This version would result in a modular technology which could
be  configured  into products in a variety of ways to suit a number of potential
target  markets.  A line of  multimedia  utility  software,  which  would  allow
customers of typical desktop business  applications to successfully augment such
applications  with very easy to use yet powerful  multimedia  capabilities,  was
envisioned and slated for initial  shipment in early fourth  quarter,  1997. The
ultimate goal was to replace the monolithic  authoring software with a series of
single purpose utility products priced in the $39 - $79 range. The second leg of
the  development  strategy was to localize the existing  authoring  products for
foreign  markets  such as Japan and  Germany.  Market  data  indicated  that the
low-end  multimedia  authoring  market  in  Europe  and  Asia was  growing  at a
significantly greater rate than that in the US.

         Localization contracts were secured, and a marketing program geared for
an early fourth quarter  re-launch of Innovus Authoring and  Presentations,  the
launch of the first of the multimedia  utility  products,  and the launch of the
Japanese and German versions of Innovus Authoring was under way.

         The low level of sales meant that this initiative could not be financed
from  operations.  Attempts to obtain the needed  financial  resources  for this
initiative were unsuccessful. In the third quarter the localization projects and
the  marketing  program were halted.  Further  cuts in personnel  and  operating
expenses were made resulting in the cessation of development activities.  All of
the key  software  engineers  had left the  Company as of the fourth  quarter of
1997. All Innovus  executives took  significant  cuts in salary at this time, or
stopped receiving any compensation.

         A potentially  significant  marketing  relationship  with IBM, based on
Innovus Authoring support of the IBM DB2 database product,  was nullified by the
inability  of Innovus to deliver  the  required  new  version 3.0 of the Innovus
Authoring product.

         Innovus management focused on the possibility of selling the technology
or  other  assets  of the  Company  to  other  software  vendors,  and had  such
discussions with several  interested  companies  without  conclusive  results in
1997.

                                      - 4 -
<PAGE>

The Innovus Product Line

         The following software products were 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

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

         o         Design the flow, layout, and timing of information.
         o         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.
         o         Deploy the  project  across a  network or  package it  for  a
                   single workstation.
         o         Measure how and by whom the applications are being used.
         o         Maintain the system and update changing information.


Marketing and Sales

         During 1997,  the Company  refocused its sales  activities to a channel
support  model.  In 1997 Innovus  sales  shifted to wholesale  distributors  and
retail   customers  who  purchased   from  those   distributors.   International
distribution  agreements  were  signed in  Korea,  Taiwan,  Australia  and Great
Britain.

         In early 1997 the  Company  utilized  magazine,  catalog  and  Internet
advertising,  as well as point of sale displays,  to market its software.  Other
than limited catalog exposure,  the Company is not currently  actively marketing
the software.

Customers and End Users

         Innovus sells primarily to wholesale distributors,  although revenue is
recognized only upon sell-through to end-user customers.  During 1997, Tech Data
was Innovus' largest customer, accounting for approximately 30% of sales, and no
other distributor accounted for more than 10% of sales.

                                      - 5 -
<PAGE>

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.  Most 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.  The  Company  has not  been  able to
successfully compete in these markets and there is no assurance that the Company
will be able to do so in the future.

         There are currently four categories of software  products which compete
with one or more significant aspects of the Company's software:

         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.  The  increasing  power of these tools,  and the
         increasingly  widespread  acceptance of web-based  architecture,  place
         them at a competitive advantage to the Company's software.

         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,  but through the use of
         readily   available   components   offer  an   alternative  to  Innovus
         technology.

         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.

         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.

         Management  believes that desktop- or  network-based  software in these
categories,  such  as the  Company's  software,  are at a  distinct  competitive
disadvantage to web-based  software designed for deployment over the Internet or
an  intranet.  Converting  the  Company's  software to a  web-based  model would
require   extensive   development   beyond  the  Company's   current   financial
capabilities.

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

                                      - 6 -
<PAGE>

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

         In addition to its Chairman  and CEO, who are  available on a part-time
basis only,  the Company had three full time  employees as of April 9, 1998.  Of
the total  employees,  2 are engaged in management and  administration  and 1 in
sales and marketing. The Company believes its relationship with its employees to
be good.

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.           DESCRIPTION OF PROPERTY

         In the fourth  quarter of 1997,  the Company sold the building in which
its  executive  offices  were  previously  located.  The sale netted the Company
enough to satisfy  the first  mortgage  on the  building  and a $150,000  second
mortgage placed on the building in 1997.

         At April 13,  1998,  the  Company's  executive  offices were located in
approximately  1800  square  feet of office  space  rented from a third party in
Draper,  Utah, a suburb of Salt Lake City,  Utah. The Company's rental agreement
expires  on April  30,  1998.  The  Company's  monthly  rent is  $2,400.  If the

                                      - 7 -
<PAGE>

Intermark  transaction is consummated,  the Company  anticipates  relocating its
executive offices to Intermark's facilities. If the Intermark transaction is not
consummated  and if the Company  remains in  business,  the Company  anticipates
renting its current office space or comparable  space on a month to month basis.
See  "Management's  Discussion and Analysis or Plan of  Operation".  The Company
subsequently  terminated the office space lease  agreement,  moved its remaining
business operation to Intermark's offices in Orange County, California and moved
its executive offices to 2060 East 2100 South, Salt Lake City, Utah. The Company
is renting, on a month to month basis, a single office in this building which it
previously owned.

ITEM 3.           LEGAL PROCEEDINGS.

         The Company is a defendant in a number of  collection  actions filed by
its creditors.  The following litigation involves claims,  exclusive of interest
and costs, exceeding 10% of the Company's current assets at December 31, 1997:

         On September 20, 1997 Multiling  International,  Inc. filed a complaint
against the Company in the Third  Judicial  District  Court of Salt Lake County,
Utah.  The complaint  alleges that the Company owes  Multiling  $30,432.77  plus
interest  and costs  for  services  rendered.  The  company  has filed an answer
denying that amounts were owed or that services had been performed.  The Company
intends to vigorously defend this action.

         On November 26, 1997  Programmer's  Paradise filed a complaint  against
Innovus in the Third  Judicial  District  Court of Salt Lake County,  Utah.  The
complaint  alleged that  Innovus  owed  Programmer's  Paradise  $15,887.80  plus
interest and costs. On January 21, 1998, a judgment  was entered against Innovus
in the amount of  $16,500.43.  The  plaintiff  has  informally  agreed to accept
product in full or partial satisfaction of the judgment, but no formal agreement
to this effect has been entered into.

         On  December  30, 1997  Tenneco  Packaging  filed a  complaint  against
Innovus in the Third  Judicial  District  Court of Salt Lake County,  Utah.  The
complaint alleges that Innovus owes Tenneco  $12,331.88 plus interest and costs.
The Company has had preliminary settlement  negotiations with the plaintiff.  If
no settlement can be reached, the Company will defend this action.

         On February 3, 1998 Blenheim Group USA, Inc. filed a Complaint  against
Innovus in the Municipal Court of the San Francisco Judicial District,  State of
California.  The  complaint  alleges that Innovus owes $19,800 for exhibit space
booked  but  not  used  in the  1997 PC Expo  exhibition.  The  Company  has had
preliminary settlement  negotiations with the plaintiff. If no settlement can be
reached, the Company will defend this action.


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, 1997.

                                      - 8 -
<PAGE>

                                     PART II

ITEM 5.           MARKET FOR COMMON SHARES AND RELATED SHAREHOLDER MATTERS

         From November,  1995 to November,  1997, the Company's Common Stock was
listed on the Nasdaq  SmallCap  market.  In  November,  1997,  the  Company  was
de-listed from Nasdaq.  The Common Stock is currently quoted on the OTC Bulletin
Board.

         On April 13, 1998, the closing bid and asked  quotations for the Common
Stock on the OTC Bulletin Board were $0.31 and $0.38, respectively.  As of April
13, 1998 there were 169  holders of record of the Common  Stock.  The  following
table  reflects  the high and low  closing  bid  quotations  reported by the OTC
Bulletin Board subsequent to November,  1997, as well as high and low last sales
prices reported by Nasdaq for prior 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, 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

Year Ending December 31, 1997
-----------------------------
January 1 to March 31, 1997                 $4.50           $2.25
April 1 to June 30, 1997                    $3.50           $2.13
July 1 to September 30, 1997                $2.69           $0.50
October 1 to December 31, 1997              $0.75           $0.16


         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.

         Sale of Unregistered Shares

         During the fourth  quarter of 1997,  the Company  issued the  following
shares without registration under the Securities Act of 1933:

         During the quarter,  the Company  issued  approximately  184,069 common
shares on conversion of previously  outstanding  Series C Preferred  Stock.  The
shares were issued to a single  accredited  investor in exchange for outstanding
securities  of the  Company.  The  Company  believes  such  issuance  was exempt
pursuant to Sections 3(a)(9), 4(2) and 4(6) of the Securities Act of 1933.

                                      - 9 -
<PAGE>

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


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

                                                                Year ended December 31
Statement of 
operations data                               1997                   1996                 1995                1994
---------------                               ----                   ----                 ----                ----
<S>                                       <C>                    <C>                  <C>                 <C>     
Revenues                                  $317,653               $597,567             $189,380            $193,848

Costs of products and
services sold                              254,227                302,571              123,701             234,234

Amortization                             1,918,407                796,673              315,464                  __

Product development                             --              1,185,525            1,340,415             444,855

Selling and marketing
expense                                  1,243,102              3,988,987            1,417,396             425,403

General and
administrative                             916,770              1,279,542              719,862             537,860

Net (loss)                             $(5,394,936)           $(7,791,146)         $(3,735,351)        $(1,554,213)

Net (loss) per share                        $(0.92)                $(1.59)              $(0.98)             $(0.60)

<CAPTION>

                                                                 At December 31


Balance sheet data                            1997               1996                1995               1994
------------------                            ----               ----                ----               ----
<S>                                       <C>              <C>                 <C>                  <C>     
Current assets                            $120,849         $1,161,735          $2,466,060           $387,370

Software development
costs (net)                                      0            809,824             886,153            408,384

Current liabilities                      1,184,494          1,124,592             473,460          1,521,294

Long term liabilities (net)                      0            728,555             722,785            180,961

Stockholders' equity
(deficit)                              $(1,006,455)        $1,490,029          $3,553,885          $(658,474)
</TABLE>


General

         The  following  discussion  should  be read  in  conjunction  with  the
financial  statements and notes thereto found  elsewhere  herein.  The financial
statements have been prepared on the basis of the Company being a going concern.
The  Company  has  had  continued  losses,   and  currently  has  a  substantial
accumulated  deficit and lack of financial  resources.  There may be substantial
doubt  regarding  the  Company's  ability to  continue as a going  concern.  The
financial  statements do not include any adjustments  that might result from the
outcome of such uncertainty.

                                     - 10 -
<PAGE>

         This  Form  10-KSB/A  contains  financial  statements  which  have been
revised from the unaudited financial  statements included in the original 10-KSB
filing.  The principal  revision is to reflect  managements'  determination that
software  development  costs  should  be fully  amortized.  As  explained  under
"Subsequent   Events"  in  Item  1  above,  the  Company's   principal  software
distributor  has returned all inventory to the Company and it is not likely that
any  additional  INNOVUS   Multimedia   software  could  be  sold  through  such
distributor  in  the  future,  Although  management  believes  the  software  is
potentially valuable,  the Company's lack of financial resources at December 31,
1997 made it unlikely that the Company would be able to realize such value.  The
amended financial  statements also reflect various other  reclassifications  and
adjustments made upon audit.

Results of Operations

         Commencing  in July 1993,  Innovus  began hiring  additional  staff and
otherwise incurring additional expense to begin full scale software development.
Sales of the first commercial  version 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.  Although
this resulted in increased  sales in the first quarter of 1997,  sales  declined
precipitously  though the year. In 1997 the Company issued  various  application
templates and media collections.  The Company also began development of the next
planned major  revision to its core  software.  Due to lagging sales and lack of
resources, the Company ceased development and marketing activities in late 1997.
Accordingly,  results of operations  for 1997 may not be directly  comparable to
prior periods when the software was being  developed,  and may not be indicative
of the results of future operations.

Year ended December 31, 1997 compared to year ended December 31, 1996

         Net sales for 1997 were  $317,653,  86% of which  occurred in the first
quarter.  Net sales for 1996 were  $597,567.  1996 sales  include  approximately
$316,032 of sales from customized  programming or content  production.  In 1997,
the Company  determined not to continue  offering the customized  programming or
content  production.  Although  some sales of  INNOVUS  Multimedia  and  related
products  continue  ($24,418 in the fourth quarter of 1997) the Company does not
expect significant sales unless the Company is able to aggressively  promote the
software.  Even if the  Company  were able to promote the  software,  the market
shift to web-based  software would likely  restrict sales of the software unless
large scale revisions were made. The large scale  distribution of  demonstration
versions of the software to users of IBM's DB2 database  software did not result
in  significant  sales of  software.  The Company did not have the  resources to
complete  development  of the  Version  3.0  software  which  would  more  fully
integrate with DB2. In addition, the Company's website was incorrectly listed in
the materials accompanying the demonstration software.

         As described  under  "Liquidity and Capital  Resources"  below,  if the
Company  does not  implement a new business  plan to generate  revenues or raise
additional  capital,  the Company's viability as a going concern is in question.
Other than the proposed agreement with Intermark, the Company does not currently
have any plans which it believes are likely to generate significant revenue.

         The costs of products and services sold in the year ended  December 31,
1997 was $254,227 or 77% of sales, compared to $302,571 or 51% of sales in 1996.
The gross  margins for 1997 and 1996 may not be directly  comparable  due to the
change in the nature of the revenue  stream and the build-up of staffing in 1997
in anticipation of increased sales.

                                     - 11 -
<PAGE>

         Selling and  marketing  expenses for 1997 were  $1,243,102  compared to
$3,988,987 in 1996. The decrease reflects  exhaustion of the Company's resources
available  for  marketing  and the  Company's  decision in the third  quarter to
reduce marketing in unproductive channels. The Company is currently dependent on
"word of mouth" referrals and catalog sales for its current minimal sales.

         Product  development  costs were $0 in 1997  compared to  $1,185,525 in
1996.  Capitalized  software  development costs incurred were $1,108,583 in 1997
compared to $720,344 in 1996. In the light of the low level of product sales and
lack of financial  resources,  the Company stopped development on Version 3.0 of
the software during 1997.

         In the year ended December 31, 1997, $1,918,407 of capitalized software
development costs were amortized, compared to $796,673 of such expenses in 1996.
The Company  increased the  amortization  to reflect the lower  expected  future
value of the software.  Management believes that the software still has economic
value, but realizing such value will require substantial  marketing and possibly
additional development.  During the fourth quarter of 1997 and the first quarter
of 1998,  management believed that marketing and development  resources could be
provided by a sale of the software  source code which was then being  negotiated
or by a transaction such as the Intermark  transaction.  Due to the inability of
the  Company  to find a buyer for the source  code  despite  discussions  with a
number of potential buyers and uncertainties  regarding  Intermark's  ability to
immediately fund substantial marketing,  management subsequently determined that
fully amortizing the software as of December 31, 1997 was appropriate.

         General and  administrative  expenses  were $916,770 for the year ended
December 31, 1997 compared to $1,279,542 for 1996.

         The Company is deemed to have  incurred  $1,187,643 in 1997 in interest
expense in connection  with  warrants  issued as part of bridge  financing  from
affiliates and others and in connection  with the second  mortgage.  The Company
had incurred  $773,350 of similar expenses in 1996. 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.

         The Company  sustained a net loss of $5,394,936 in 1997.  Although this
is lower than the net loss of $7,791,146 for 1996, the Company does not have the
resources to sustain such a loss.  The loss per common share was $0.92 and $1.59
for  1997  and  1996,  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.

         As explained in "Liquidity and Capital  Resources"  below,  the Company
does not have the  ability to sustain  additional  losses,  even at the  reduced
levels of the fourth quarter of 1997. There can be no assurance that the Company
will be able to develop  or  implement  a  business  plan which will allow it to
continue as a going concern. If the Intermark transaction is consummated,  which
is less than  certain,  there is no assurance  that the combined  entity will be
profitable or able to attract new capital.  If the Intermark  transaction is not
consummated, the Company does have any firm plans to attract additional capital.
In order to prepare this filing, in 1998 the Company privately issued debentures
secured by substantially all of the assets of the Company. Without the Intermark
transaction or an alternative business plan, the Company will not be able to pay
the debentures when they come due.

                                     - 12 -
<PAGE>

Liquidity and Capital Resources

         At  December  31,  1997  the  Company  had  $91,690  of cash  and  cash
equivalents and a deficit in working capital  (current  liabilities in excess of
current  assets) of  $1,063,645.  The Company has been relying  upon  short-term
borrowings from affiliates and others,  as well as increases in accounts payable
owed to vendors and a second mortgage on the Company's building,  to provide the
means to maintain minimal operations.  Approximately $470,000 of such short-term
debt has been  converted to equity and the second  mortgage was repaid upon sale
of the building. Management's efforts to obtain additional equity financing have
been unsuccessful. The Company does not have any firm commitments for additional
equity  financing.  Management  believes  that the  market  overhang  caused  by
variable conversion features of certain series of the Company's preferred stock,
coupled with the risks inherent in restructuring  the Company's  business,  have
discouraged new investment. Management does not believe that the Company will be
able to obtain new financing unless the preferred stock structure is revised and
a new business acquired.

         The Company estimates that it is currently using approximately  $20,000
more cash  each  month  than is  generated  by  operations.  Without  additional
financing,  the Company  does not  foresee  operations  improving  significantly
enough to eliminate the negative cash flow.

         If the  Company  cannot  obtain  additional  capital,  management  will
continue to pursue other means to continue in business.  In such event, however,
it is  possible  that the Company  may have  little  alternative  but to sell or
liquidate its business operations or product line to satisfy its creditors.

         During 1997, the Company  borrowed  $405,000 from  affiliates and other
individuals pursuant to bridge financing. These amounts were secured by a second
priority interest in substantially all assets of the Company. In September, 1997
the holders of the bridge financing and the holders of an additional  $65,000 of
unsecured debt, agreed to convert the debt into common stock.

         There is doubt  whether the Company  can  continue as a going  concern.
There can be no assurance  that  additional  financing  will be available to the
Company  or  that  operating  results  will  improve  as  management   currently
anticipates.

         The  Company's  common  stock was  de-listed  from the NASDAQ  SmallCap
Market in November,  1997. The Company  believes that its status as a non-Nasdaq
company will further hamper the Company's ability to raise capital.

         The Company  does not  anticipate  material  expenditures  to bring its
accounting and financial  systems into  compliance with the "Year 2000" problem.
The Company  bases this  assessment  on the  relative age of its systems and the
small number of transactions it conducts. The Company has not conducted a formal
study  of its  systems  or  the  systems  of its  vendors  and  distributors  to
definitively  determine  whether the systems are fully Year 2000 compliant.  The
Company  believes its software is Year 2000  compliant  (assuming that it is not
used to process  non-compliant  data),  but the Company has not had the software
certified as compliant.

         The Company is conducting due diligence into the Intermark  transaction
and is in the process of  negotiating  a definitive  agreement.  There can be no
assurance that a definitive agreement will be negotiated or consummated.

                                     - 13 -
<PAGE>

Forward Looking Statements.

         This report  contains  both  historical  statements of fact and forward
looking statements. Statements regarding the Company's expectations as to future
sales of its products,  future revenue and cash flow, future developments of the
Intermark  transaction,  plans to continue as a going  concern 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-KSB 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 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:

         Inability  to complete the  Intermark  transaction  on favorable  terms
         Continued lack of market acceptance of other Company products 
         Inability to obtain additional capital 
         Inability to devise a viable business plan
         Product and technological obsolescence 
         Competition

         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 7.  FINANCIAL STATEMENTS

         Financial  statements  are  filed as part of this  report  on pages F-1
through F-21.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL STATEMENT DISCLOSURE.

         Information  required by this Item has been  "previously  reported" (as
defined in Rule 12b-2) in the Company's  Form 8-K dated June 1, 1998.  Such Form
8-K reported  change in  independent  auditors from Grant Thornton LLP to Hansen
Barnett & Maxwell.

                                     - 14 -
<PAGE>
                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

         Set forth  below is  information  regarding  (i) the  directors  of the
Company as of April 15,  1998,  who will serve until the next annual  meeting of
shareholders  or until their  successors are elected or appointed and qualified,
and (ii) the  executive  officers of the Company as of April 15,  1998,  who are
elected to serve at the  discretion of the Board of Directors.  If the Intermark
transaction  is  consummated,  all of the current  directors  and  officers  are
expected to resign and be replaced by nominees of Intermark.

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


            Name         Age                 Position

David M. Mock             45     Chairman, Chief Financial Officer, Secretary,
                                 Treasurer and Director

Terry R. Haas             48     President, Chief Executive Officer and Director

Bill Kesselring           32     Chief Operating Officer*

Michael L. Debloois       57     Director*

Brenda Lowe Cornell       39     Director

Richard M. Cott           31     Director


         *   Resigned subsequent to December 31, 1997.

         David  M.  Mock.  Mr.  Mock  joined  the  Company  in 1993 and held the
position  of  Chief  Executive  Officer  from  1995 to  1996.  Mr.  Mock is only
available to the Company on a part-time,  as needed basis. 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 currently only available to the Company on
a  part-time,  as needed  basis.  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,

                                     - 15 -
<PAGE>

Xerox, and other high technology firms as a sales and marketing consultant.  Mr.
Haas has a bachelor of science  degree from Western  Michigan  University and an
M.B.A. in finance from DePaul 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
resigned as a director in June,  1998.  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.

         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 was
previously Media Director for International  Connections, a video and laser disc
production  company,  managing all  computer-based  media production and program
design.

         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. In
1998, Mr. Kesselring left the Company to become an employee of Intermark.  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.

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

                                     - 16 -
<PAGE>

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, 1997 and  December  31,  1997,  on year-end
reports furnished to the Company after December 31, 1997 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 Mock and a family corporation  controlled by him sold shares at a
loss in December,  1997. These sales should have been reported on a Form 4 filed
by January 10, 1998.

ITEM 10.   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, 1997 and to each of the  Company's
other executive officers whose annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>

                                               SUMMARY COMPENSATION

                                   Annual Compensation                         Long Term Compensation

                             Year                                         Other Annual
    Name and                 Ended          Salary          Bonus         Compensation         Options/SARs
Principal Position           12/31            ($)          ($)(1)              ($)                 (#)
------------------           -----            ---          ------              ---                 ---
<S>                         <C>          <C>     
Terry R. Haas(1)             1997         $151,484
President/CEO                1996          $84,345
                             1995               $0
</TABLE>

         (1) The Company had 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 terms of compensation have not been
reduced to a written  agreement.  During the fourth  quarter of 1997,  Mr.  Haas
verbally  agreed to waive the change of control  severance  package  and ongoing
salary provided that he only devotes part-time to the Company.

Stock Options Granted in Last Fiscal Year

         Information  concerning  1997  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.

                                     - 17 -
<PAGE>
<TABLE>
<CAPTION>

====================================================================================================================================
                                    Individual Grants                                        Potential Realizable Value at Assumed
                                                                                             Annual Rates of Stock Price
                                                                                             Appreciation
                                                                                             for Option Term
------------------------------------------------------------------------------------------------------------------------------------
                                          % of Total
                          Options           Options      Exercise price    Expiration Date        (5%)                (10%)
        Name            Granted (#)       Granted to                                               ($)                 ($)
                                         Employees in
                                             1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>              <C>               <C>          <C>                    <C>     
     Terry Haas        200,000               100              $2.50             2002         $138,141               $305,255
====================================================================================================================================
</TABLE>

Section 401(k) Plan

         During  1997,  the  Company  maintained  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. The Plan was terminated in 1998.

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 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 December 31, 1997,  options to purchase  107,500 shares of Common
Stock were  outstanding  under the Plan.  Following  the  Company's  downsizing,
substantial  numbers of previously granted options were forfeited as a result of
employee terminations.

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.

                                     - 18 -
<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth  information  regarding  Common Stock of
the Company beneficially owned as of April 13, 1998 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 of                Amount of Common
Principal Stockholders                          Shares*          Percentage
-----------------------------------------------------------------------------
David M. Mock(1)                               1,136,600              13.9%
2060 East 2100 South
Salt Lake City, UT  84109
-----------------------------------------------------------------------------
Terry Haas(2)                                    321,094               4.0%
2060 East 2100 South
Salt Lake City, UT  84109
-----------------------------------------------------------------------------
Brenda Lowe Cornell                              294,870               3.9%
2060 East 2100 South
Salt Lake City, UT  84109
-----------------------------------------------------------------------------
Michael DeBloois                                   5,000               0.1%
2060 East 2100 South
Salt Lake City, UT  84109
-----------------------------------------------------------------------------
Richard M. Cott(3)                                50,000               0.7%
3471 Henderson Road
Spring Arbor, MI 49283
-----------------------------------------------------------------------------
All Directors and Executive                    1,857,564              21.5%
Officers (5 persons)
=============================================================================

----------------------------

 *       Assumes  exercise of all  exercisable  options held by listed  security
         holders which can be acquired within 60 days from April 13, 1998.

(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 567,500 shares.

(2)      Includes options held  by Mr. Haas which will  entitle him to  purchase
         321,094 shares.

(3)      Does not include 23,000 shares of Series F Preferred Stock (convertible
         into  approximately  1,717,500  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.

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

                                     - 19 -
<PAGE>

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In June,  1997 the Company entered into bridge  financing  arrangements
with Mr. Mock and unrelated  parties whereby the Company borrowed  $235,000 from
Mr. Mock and $170,000 from the third parties.  The bridge financing had a stated
interest rate of 10% per annum. In connection  with the financing,  Mr. Mock and
the other lenders were issued  warrants to purchase  405,000 shares at $3.00 per
share;  provided  that half of the  warrants  would  not vest if the loans  were
repaid within 45 days. The Company recognized approximately $526,500 of interest
expense representing the estimated fair value of the warrants.  Borrowings under
the bridge  financing  were  secured by  substantially  all of the assets of the
Company, subject to the senior security interest of the Bank. The balance of the
loans owing to Mr.  Mock in  November,  1997 was used to  purchase  stock in the
Company as described below. The terms of the bridge financing from Mr.
Mock and from the third parties were identical.

         In August and  September,  1997,  the Company  borrowed  an  additional
$65,000 from Mr. Mock on an unsecured basis.

         In  September,  1997 the Company made a private  placement of 1,220,000
shares of common stock and warrants to purchase  305,000 shares of common stock.
The Company  received  consideration  of $610,000  for issuance of the stock and
warrants.  The  exercise  price of the  warrants  was $0.75 per share.  Mr. Mock
applied the $470,000  balance of the bridge financing and unsecured loan owed to
him to the purchase of 940,000  shares and 235,000  warrants in such  placement.
The remaining $140,000 of the placement was sold to third parties.

         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

                                     - 20 -
<PAGE>

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.

                                     PART IV

ITEM 13.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)  INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES

                                                                        Page No.
Title of Documents

Report of Hansen, Barnett & Maxwell, Independent Certified Public
   Accountants, on the December 31, 1997 Financial Statements..............F-1

Report of Grant Thornton LLP, Independent Certified Public Accountants,
   on the December 31, 1996 and 1995 Financial Statements..................F-2

Consolidated Financial Statements:

     Consolidated Balance Sheets as of December 31, 1997 and 1996..........F-3

     Consolidated Statements of Operations for the Years Ended
       December 31, 1997, 1996 and 1995....................................F-4

     Consolidated Statements of Stockholders' Equity (Deficit) for the
       Years Ended December 31, 1995, 1996 and 1997........................F-5

     Consolidated Statements of Cash Flows for the Years Ended
       December 31, 1997, 1996 and 1995....................................F-7

Notes to Consolidated Financial Statements.................................F-8

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  did not file any  Current  Reports on Form 8-K during the fourth
   quarter of its fiscal year ended December 31, 1997.


   (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                                                      **


                                     - 21 -
<PAGE>


     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        ***
    10.3      Employment Agreement - David Mock                            *
    11.1      Computation of Earnings per Share
    21.1      Subsidiaries of the Registrant                               *
    27.1      Financial Data Schedule


       *  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

      *** Incorporated by  reference to the  Company's Form  10-K for  the  year
          ended December 31, 1996.

                                     - 22 -
<PAGE>


                              INNOVUS CORPORATION
                                 AND SUBSIDIARY






               REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                      AND
                       CONSOLIDATED FINANCIAL STATEMENTS





                           December 31, 1997 and 1996



                            HANSEN, BARNETT & MAXWELL
                           A Professional Corporation
                          CERTIFIED PUBLIC ACCOUNTANTS


<PAGE>

                       INNOVUS CORPORATION AND SUBSIDIARY



                                TABLE OF CONTENTS


                                                              PAGE

Reports of Independent Certified Public Accountants:

   Hansen, Barnett & Maxwell                                   F-1

   Grant Thornton LLP                                          F-2
                                                                      
Consolidated Financial Statements: 

   Consolidated Balance Sheets as of December 31, 
     1997 and 1996                                             F-3

   Consolidated Statements of Operations for the 
     Years Ended December 31, 1997, 1996 and 1995              F-4

   Consolidated Statements of Stockholders' Equity 
     (Deficit) for the Years Ended December 31, 1995, 
     1996 and 1997                                             F-5

   Consolidated Statements of Cash Flows for the 
     Years Ended December 31, 1997, 1996 and 1995              F-6

   Notes to Consolidated Financial Statements                  F-7


<PAGE>

[LETTERHEAD]


       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 300 South, Suite 200
  Member of Summit International Assoc                     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  balance  sheet  of  Innovus
Corporation and Subsidiary as of December 31, 1997 and the related  consolidated
statements of operations,  stockholders' equity (deficit) and cash flows for the
year 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 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  financial statements referred to above present
fairly, in all material respects,  the financial position of Innovus Corporation
and Subsidiary as of December 31, 1997, and the results of their  operations and
their cash flows for the year 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  and recurring  losses from operations and
negative  cash flows from  operations.  At  December  31,  197,  the Company has
negative  working  capital  and  a  capital  deficiency.   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 2 to the
accompanying  financial statements.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


                                      /s/ Hansen, Barnett & Maxwell
                                      HANSEN, BARNETT & MAXWELL 

Salt Lake City, Utah
June 30, 1998

                                       F-1
<PAGE>

                             REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors 
Innovus Corporation 

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Innovus
Corporation and Subsidiary as of December 31, 1996, and the related consolidated
statements  of  operations,  stockholders'  equity  and cash flows for the years
ended  December  31,  1996  and  1995.   These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financials 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 the consolidated results
of their  operations  and their  consolidated  cash  flows  for the years  ended
December 31, 1996 and 1995, 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 1996 and 1995. In
addition,  cash flows from operations have been negative for 1996 and 1995 which
have 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 2.  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>

                       INNOVUS CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

                                                        1997          1996
                                                    ---------    ----------
                                ASSETS

Current Assets
  Cash and cash equivalents                          $  91,690    $  886,122
  Accounts receivable, net                                  -        116,761
  Inventories                                               -         39,003
  Prepaid expenses                                      29,159       119,849
                                                    ----------    ---------- 

     Total Current Assets                              120,849     1,161,735
                                                    ----------    ----------
Property and Equipment, net                             57,190     1,341,175

Other Assets
  Software development costs, net                           -        809,824
  Other                                                     -         30,442
                                                   -----------    ---------- 
Total Assets                                       $   178,039    $3,343,176
                                                   ===========    ==========

            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
  Accounts payable                                 $   811,333    $  716,068
  Accrued compensation                                  21,598       216,805
  Accrued liabilities                                    3,025       126,022
  Current maturities of notes payable                   28,098        28,477
  Current maturities of capital lease obligations        1,912        37,220
  Preferred dividends payable                          318,528            -
                                                  ------------    ----------
     Total Current Liabilities                       1,184,494     1,124,592

Long-Term Notes Payable, Less current maturities            -        671,564

Capital Lease Obligations, less current
  maturities                                                -         56,991
                                                  ------------    ----------
     Total Liabilities                               1,184,494     1,853,147
                                                  ------------    ----------
Commitments

Stockholders' Equity
  Preferred stock - $0.001 par value; 1,000,000
    shares authorized; 77,358 shares and 87,100
    shares issued and outstanding, respectively;
    liquidation preference of $3,867,823 at
    December 31, 1997                                       77            87
  Common stock - $0.001 par value; 15,000,000
    shares authorized; 7,633,135 shares and
    5,052,811 shares issued and outstanding,
    respectively                                         7,633         5,053
  Additional paid-in capital                        18,245,808    14,996,682
  Deferred compensation                                     -        (14,486)
  Accumulated deficit                              (19,259,973)  (13,497,307)
                                                    ----------   -----------
     Total Stockholders' Equity (Deficit)           (1,006,455)    1,490,029
                                                   -----------   -----------
Total Liabilities and Stockholders' Equity
 (Deficit)                                         $   178,039   $ 3,343,176
                                                   ===========   ===========

   The accompanying notes are an integral part of these statements.

                                 F-3

<PAGE>
                       INNOVUS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                                            1997         1996         1995
                                       -----------  -----------  ----------- 

Net Sales                              $   317,653  $   597,567  $   189,380
                                       -----------  -----------  -----------
Costs and Operating Expenses
  Costs of products and services sold      245,227      302,571      123,701
  Amortization of software development
    costs                                1,918,407      796,673      315,464
  Product development                           -     1,185,525    1,340,415
  Selling and marketing                  1,243,102    3,988,987    1,417,396
  General and administrative               916,770    1,279,542      719,862
                                       -----------  -----------  -----------
    Total Costs and Operating 
      Expenses                           4,323,506    7,553,298    3,916,838
                                       -----------  -----------  -----------
Operating Loss                          (4,005,853)  (6,955,731)  (3,727,458)  
                                       -----------  -----------  -----------
Other Income (Expense)
  Loss on asset disposition               (151,228)          -            -
  Interest expense                      (1,275,855)    (870,610)     (94,242)  
  Other income                              38,000       35,195      86,349
                                       -----------  ------------ -----------
    Other Expense, Net                  (1,389,083)    (835,415)     (7,893)
                                       -----------  ------------ ----------- 
Net Loss                                (5,394,936)  (7,791,146) (3,735,351)

Preferred Dividends                        367,730            -           -
                                       -----------  ------------ ----------- 
Loss Applicable to Common Shares       $(5,762,666) $(7,791,146) $(3,735,351)
                                       ===========  ===========  ===========
Basic and Diluted Loss Per Common
  Share                                $     (0.92) $     (1.59) $     (0.98)
                                       ===========  ===========  ===========
Weighted number of shares of common
  stock used in per share calculation    6,272,769    4,913,091    3,794,276
                                       =========== ============  ===========

   The accompanying notes are an integral part of these statements.

                                 F-4

<PAGE>

                    INNOVUS CORPORATION AND SUBSIDIARY
         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
         FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997    
<TABLE>
<CAPTION>
                                                                                                                    Total
                                        Preferred Stock      Common Stock    Additional                           Stockholders'
                                        ---------------  ------------------   Paid-In                Accumulated     Equity
                                         Shares  Amount    Shares    Amount   Capital      Other       Deficit      (Deficit)
                                        -------  ------  ---------  ------- -----------  ---------  ------------  -----------
<S>                                     <C>      <C>     <C>        <C>     <C>          <C>         <C>           <C>
Balance - 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 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 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
Issuance upon exercise of sock 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 - 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 - December 31, 1996              87,100      87  5,052,811    5,053  14,996,682    (14,486)  (13,497,307)   1,490,029

Conversion of debt and accrued
 interest into common stock and
 warrants                                    -       -     940,000      940     478,994         -             -       479,934
Conversion of preferred stock and
 $49,202 of accrued dividends into
 common stock                           (49,742)    (50) 1,242,131    1,242      48,010         -             -        49,202
Issuance for cash and warrants               -       -     287,500      287     139,713         -             -       140,000
Issuance of preferred stock in private
 placement offerings, net of offering 
 costs of $39,636 and finders fee of 
 $140,000                                40,000      40         -        -    1,820,324         -             -     1,820,364
Exercise of warrants and options             -       -     110,693      111      40,585         -             -        40,696
Issuance of warrants for debt                -       -          -        -      721,500         -             -       721,500
Amortization of deferred compensation        -       -          -        -           -      14,486            -        14,486
Dividends on preferred shares                -       -          -        -           -          -       (367,730)    (367,730)
Net loss for the year                        -       -          -        -           -          -     (5,394,936)  (5,394,936)
                                        -------  ------  ---------  ------- -----------  ---------  ------------  -----------
Balance - December 31, 1997              77,358   $  77  7,633,135  $ 7,633 $18,245,808  $      -   $(19,259,973) $(1,006,455)
                                        =======  ======  =========  ======= ===========  =========  ============  ===========
</TABLE>
   The accompanying notes are an integral part of these statements.     

                                    F-5
<PAGE>

                       INNOVUS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                        1997         1996        1995
                                                   -----------  -----------  -----------
<S>                                                <C>          <C>          <C>
Cash Flows from Operating Activities
  Net loss                                         $(5,394,936) $(7,791,146) $(3,735,351)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
     Depreciation and amortization                   2,148,727      972,310      433,487
     Expenses for issued warrants                    1,187,643    1,032,276           - 
     Loss on asset disposition                         151,228           -            - 
     Changes in assets and liabilities:
       Accounts receivable                             116,761      (56,995)     (51,944)
       Inventories                                      39,003      (39,003)      27,360
       Accounts payable and accrued expenses          (213,005)     652,041       75,993
       Other                                           149,230      (31,186)      10,495
                                                   -----------  -----------  -----------
  Net Cash Used in Operating Activities             (1,815,349)  (5,261,703)  (3,239,960)
                                                   -----------  -----------  -----------
Cash Flows From Investing Activities
  Acquisition of property and equipment                (13,921)     (90,725)    (506,654)
  Proceeds from asset disposition                      867,782           -            - 
  Increase in software development costs            (1,108,583)    (720,344)    (793,233)
                                                   -----------  -----------  -----------
  Net Cash Used in Investing Activities               (254,722)    (811,069)  (1,299,887)
                                                   -----------  -----------  -----------
Cash Flows From Financing Activities
  Proceeds from borrowing                              620,000    1,470,300           - 
  Payments to reduce long-term debt and capital
    lease obligations                               (1,345,421)  (1,075,430)  (1,146,068)  
  Net proceeds from issuance of preferred and
    common stock                                     2,001,060    4,201,468    7,576,233
  Collection of receivable from stockholder                 -            -       130,250
                                                   -----------  -----------  -----------
   Net Cash Provided by Financing Activities         1,275,639    4,596,338    6,560,415
                                                   -----------  -----------  ----------- 
Net Increase (Decrease) in Cash and Cash 
  Equivalents                                         (794,432)  (1,476,434)   2,020,568

Cash and Cash Equivalents at Beginning of Year         886,122    2,362,556      341,988
                                                   -----------  -----------  -----------
Cash and Cash Equivalents at End of Year           $    91,690  $   886,122  $ 2,362,556
                                                   ===========  ===========  ===========

Supplemental Cash Flow Information - Note 11
</TABLE>
        The accompanying notes are an integral part of these statements.

                                    F-6
<PAGE>

                       INNOVUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

ORGANIZATION  AND  CONSOLIDATION  -  The  accompanying   consolidated  financial
statements contain the accounts of Innovus Corporation,  a Delaware corporation,
and its wholly-owned subsidiary, Innovus Multimedia, Inc. (collectively referred
to herein as "the Company").  Intercompany  accounts and transactions  have been
eliminated in consolidation.

On May 8, 1998, the Company entered into an Agreement and Plan of Share Exchange
(the "Agreement") with Intermark Corporation  ("Intermark").  Under the terms of
the  Agreement,  the  shareholders  of  Intermark  are  to  exchange  all of the
outstanding  capital stock of Intermark for common stock of the Company equal to
75% of the  common  stock  of the  Company  outstanding  immediately  after  the
closing.  Completion  of  the  Agreement  is  conditioned  upon  certain  events
occurring including the holders of Intermark securities executing the Agreement.
If the  Agreement  is  consummated,  there  would be a change in  control of the
Company. In connection with the Agreement, the Board of Directors has approved a
1-for-10  reverse  stock  split  pending  shareholder  approval.  The  Company's
financial statements will be restated upon shareholder approval.

TERMINATION  OF BUSINESS  ACTIVITIES - The Company's  operations  have been as a
provider of software  development tools designed for building  modifiable media-
intensive business  information  management systems.  These tools provided links
for customers to databases through open data base  connectivity,  object linking
and embedding technology.  Prior to 1996, a significant portion of the Company's
sales were for multimedia  interactive kiosk systems. The systems were primarily
sold to United States  government  agencies.  Sales and support of kiosk systems
were terminated in 1996.  During 1997, the Company disposed of substantially all
of its inventory and property and equipment,  concluded its software development
activity  and  fully  amortized  the  remaining  cost  of  capitalized  software
products.  During 1998, the Company terminated its remaining sales and marketing
activities.  As a result,  the Company does not have any  significant  assets or
continuing  operations.  Management's recent activities have been to restructure
the Company in preparation for completing the agreement with Intermark.

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 was subject
to significant  accounting sensitivity and which was affected by expected future
gross revenues was 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
were reasonable.

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.

CASH AND CASH EQUIVALENTS - All  highly-liquid  debt instruments  purchased with
maturities of three months or less have been considered cash equivalents.

INVENTORIES - Inventories consisted of packaged software products and individual
component units awaiting assembly as  packaged software. Inventory was valued at

                                 F-7
<PAGE>

the  lower of cost or market  with cost  being  determined  using the  first-in,
first-out method. The cost of remaining inventories was recognized in operations
during the year ended December 31, 1997 due to uncertainty  regarding its market
value.

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  properties  under capital  leases were amortized over the shorter of the
lives of the  respective  leases or over the service  lives of the  assets.  The
straight-line  method  of  depreciation  is  followed  for  financial  reporting
purposes and  accelerated  methods are used for income tax  purposes.  Losses on
assets dispositions are included in results of operations.

SOFTWARE  DEVELOPMENT  COSTS - Costs  incurred  in  creating  computer  software
products were 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 was  established,  costs of producing
product masters were capitalized as software development costs.

Costs of maintenance  and customer  support were  recognized as expense when the
related  revenue was  recognized  or when those costs were  incurred,  whichever
occurred  first.  Amortization  of  capitalized  costs relating to each software
product began when that product was released for sale to customers. Amortization
was 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 was one to two years.  Unamortized  costs  were  carried at the
lower of cost or net realizable value. Due to uncertainty  regarding realization
of capitalized software costs, those costs were fully recognized as amortization
of software development costs during 1997.

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.

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.

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

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 were  recognized as cost of products and services sold as
incurred.

BASIC AND  DILUTED  LOSS PER COMMON  SHARE - In the  fourth  quarter  1997,  the
Company  adopted  Statement of Financial  Accounting  Standards  (SFAS) No. 128,
Earnings  Per  Share.  Under  SFAS 128,  loss per common  share is  computed  by
dividing  net loss  available  to common  stockholders  by the  weighted-average
number of common shares  outstanding  during the period.  Diluted loss per share

                                 F-8
<PAGE>

reflects  the  potential  dilution  which could occur if all  contracts to issue
common stock were  exercised  or converted  into common stock or resulted in the
issuance of common stock. In the Company's  present  position,  diluted loss per
share is the same as basic loss per share  because,  as more fully  discussed in
Notes 8 and 10, 2,646,563 common stock warrants and options and 77,358 shares of
preferred  stock were  outstanding at December 31, 1997 which would decrease the
loss per share and have been  excluded from the  calculation.  The effect of the
new standard on prior years was immaterial;  accordingly, prior periods have not
been restated.

NEW ACCOUNTING  STANDARDS - The Financial  Accounting Standard Board issued SFAS
No. 130,  Reporting  Comprehensive  Income and SFAS No. 131,  Disclosures  About
Segments of an Enterprise  and Related  Information in 1997.  These  statements,
which are effective for fiscal years beginning  after December 15, 1997,  expand
or modify  disclosures  and will have no  impact on the  Company's  consolidated
financial position, results of operations or cash flows.

The Company adopted SFAS No. 128 Earnings Per Share and SFAS No. 129 Disclosures
of Information About Capital Structure in 1997. In accordance with SFAS Nos. 128
and 129,  both  basic loss per share and  diluted  net loss per share as well as
rights  and  liquidation  preferences  of debt and equity  securities  have been
presented in the accompanying consolidated financial statements.

RECLASSIFICATIONS  -  Certain  reclassifications  have been made to the 1996 and
1995 consolidated financial statements to conform with the 1997 presentation.

NOTE 2-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  $19,259,973  as of  December  31,  1997.  The  Company  has used the
proceeds from issuance of equity  securities and from debt financing to fund its
recurring losses.  Given the losses, the  discontinuation of sales and marketing
of its software  products and the lack of operating  working capital,  it is not
presently  known whether the Company can continue to satisfy its  obligations in
the  future  and there is  substantial  doubt  about the  Company's  ability  to
continue as a going concern.

The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverablity   and   classification   of   recorded   assets  or  amounts   and
classifications  of  liabilities  that might be necessary  should the Company be
unable to continue.  On May 8, 1998, as discussed in Note 1, the Company entered
into an agreement with Intermark whereby Management plans to transfer control of
the  Company  to  management  and the  shareholders  of  Intermark.  There is no
assurance  the   reorganization   with   Intermark  will  result  in  profitable
operations, obtaining sufficient financing or the ability to continue as a going
concern.

NOTE 3-PROPERTY AND EQUIPMENT

Property and equipment and estimated  useful lives consisted of the following at
December 31:

                                           Years        1997         1996
                                           -----     ---------   ----------
     Building                                40      $      -    $  422,231
     Computer and office equipment         5 - 7        87,809      907,499
     Furniture and fixtures                5 - 7        25,227      115,859
                                                     ---------   ----------
     Total Building and Equipment                      113,036    1,445,589
     Less: Accumulated depreciation and 
      amortization                                     (55,846)    (478,845)
                                                     ---------   ----------
     Net Building and Equipment                         57,190      966,744
     Land                                    -              -       374,431  
                                                     ---------   ---------- 
     Property and Equipment, Net                     $  57,190   $1,341,175
                                                     =========   ==========

                                      F-9
<PAGE>



Depreciation  expense,  including  amortization  expense  related  to  equipment
recorded under capital leases, was $215,834, $166,686 and $118,023 for the years
ended  December  31,  1997,  1996 and 1995,  respectively.  The gross  amount of
equipment  recorded  under  capital  leases at  December  31,  1997 and 1996 was
$13,321 and $119,083,  respectively,  with related  accumulated  amortization of
$7,327 and $15,460 at December  31, 1997 and 1996,  respectively.  The loss from
disposal of a  significant  portion of property  and  equipment  was included in
other income (expense) during the year ended December 31, 1997.

NOTE 4-SOFTWARE DEVELOPMENT COSTS
                                                        1997        1996
                                                    ----------  ----------
     Balance at beginning of year                  $  809,824   $  886,153
     Additions during year                          1,108,583      720,344
     Amortization                                   (1,918,407)   (796,673)
                                                    ----------  ----------
     Balance at End of Year                         $       -   $  809,824
                                                    ==========  ==========

Accumulated  amortization totaled $3,030,544 and $1,112,137 at December 31, 1997
and 1996, respectively.

Through  March  31,  1998,  Management  was of the  opinion  that the  Company's
software  products would be accepted by the market in commercial  quantities but
the lack of  sufficient  resources to market the  software  products had delayed
determination  of their  acceptance  by the market.  However,  due to  customers
recently   returning  software  products  after  evaluation  and  due  to  other
rejections of the software,  Management has  determined to not pursue  marketing
the software products further.  Accordingly,  the carrying value of the software
has been  reduced to zero at December  31,  1997 by  recognizing  an  additional
$775,568 of amortization during the year ended December 31, 1997.

NOTE 5-LONG AND SHORT-TERM OBLIGATIONS

NOTES PAYABLE - Notes payable are summarized as follows:
   
                                                        1997         1996
                                                    ----------   ----------
  Note payable under a seller financed mortgage
    collateralized by building and land; paid upon
    sale of building and land in October 1997       $       -    $  682,934
  Notes payable under bridge financing agreements,
    net of unamortized discount                             -       (21,143)
  Promissory note payable to a finance company          28,098       38,250
                                                    ----------   ----------
  Total Notes Payable                                   28,098      700,041
  Less current maturities, net                          28,098       28,477
                                                    ----------   ----------
  Long-Term Notes Payable                           $       -    $  671,564
                                                    ==========   ==========

In June 1997,  the  Company  entered  into  bridge  financing  agreements  which
authorized the Company to borrow up to $500,000 from certain  individual lenders
which were related parties.  The lenders received,  for each $1.00 loaned to the
Company,  a  warrant  to  purchase  one  share of  common  stock of the  Company
exercisable at $3.00 per share.  The agreements were subordinate to the security
interest of a bank in  substantially  all of the assets of the Company.  In June
and July, the Company borrowed $405,000 under these bridge financing agreements,

                                 F-10
<PAGE>

and warrants to purchase  405,000  common shares  exercisable at $3.00 per share
were issued to the lenders.  The  warrants  were  exercisable  over a three-year
period.  The  estimated  fair  value  of  the  warrants  on  the  dates  awarded
approximated  $526,500 which was recognized as interest expense.  The agreements
bore interest at 10% in addition to the amortization of the warrants' fair value
resulting in an effective  interest  rate of 132%.  The loans were  converted to
common stock during 1997.

In 1997, the Company  borrowed $65,000 from an officer and director which amount
was  unsecured  and  was   surrendered  to  the  Company  in  payment  of  stock
subscriptions.  In August  1997,  the  Company  borrowed  $150,000  against  its
interest in its building and land,  in the form of a second  mortgage.  Interest
was paid by issuing  150,000  warrants  to  purchase  common  stock at $1.75 per
share. The warrants are exercisable for three years. The estimated fair value of
the warrants on the date of grant  approximated  $195,000.  This amount has been
amortized as interest expense over the life of the loan. This note was paid upon
the sale of the building and land in October 1997.

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 10), 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 5,
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 10. 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.

LINE-OF-CREDIT  - In May 1996,  the Company  entered  into a revolving  line-of-
credit loan agreement  with a bank with a maximum amount  available of $500,000,
with an  additional  $1,000,000  available  subject  to  qualifying  collateral.
Interest was computed at prime plus 1.5% (9.75% at December 31,  1996),  payable
monthly,  with maturity in May 1997 and  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-of credit is  outstanding.  During
1997, the bank would not allow the Company to draw on the  line-of-credit due to
the Company's  deteriorating  financial position. At December 31, 1997 and 1996,
the Company had no amounts outstanding on the line-of-credit.

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 as of  December  31,  1997  together  with the  present  value of the net
minimum lease payments:

   Year Ending December 31, 1998                          $    3,017
   Less amount representing interest                           1,105
                                                          ----------
   Present value of net minimum lease payments            $    1,912
                                                          ==========
                                      F-11
<PAGE>

NOTE 6-401(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
1997, 1996 and 1995.

NOTE 7-INCOME TAXES

The major  components  of the net deferred tax asset as of December 31, 1997 and
1996 were as follows:

                                                   1997            1996
                                           ------------     -----------
Depreciation                               $    (30,203)    $   (56,679)
Software development costs                      419,997         719,857
Accrued expenses                                      -          56,399
Deferred compensation                             9,186          19,501
Operating loss carry forwards                 6,907,405       4,561,166
Valuation allowance                          (7,306,385)     (5,300,244)
                                           ------------     ----------- 
Net Deferred  Tax Asset                    $         -      $        -
                                           ============     ===========

The  Company  had  operating  loss  carry  forwards  at  December  31,  1997  of
$18,565,150  which  expire in the years 2005  through  2012,  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, 1997, 1996 and 1995.

                                          1997          1996          1995
                                     -----------   -----------   -----------
  Income tax benefit at statutory
    rate                             $(1,834,278)  $(2,648,990)  $(1,270,019)
  Change in deferred tax asset
    valuation allowance                2,006,141     2,924,579     1,391,536
  Nondeductible expenses                   6,170        15,081        17,812
  State taxes, net of federal
    benefit                             (178,033)     (290,670)     (139,329)
                                     -----------   -----------   -----------
  Provision for Income Taxes         $        -    $        -    $        - 
                                     ===========   ===========   ===========

NOTE 8-PREFERRED STOCK 

There are  1,000,000  shares of  preferred  stock,  par value  $0.001 per share,
authorized of which  100,000 and 12,000 shares have been  designated as Series A
and Series E  preferred  stock,  respectively,  with no shares  outstanding.  In
addition,  55,000  shares have been  designated  Series C  preferred  stock with
23,858 shares outstanding, 20,100 shares have been designated Series D preferred
stock with 1,500  shares  outstanding,  40,000  shares have been  designated  as
Series F preferred stock, 40,000 of which are outstanding and 12,000 shares have
been designated as Series G Preferred stock all of which are outstanding.

                                 F-12
<PAGE>

The Series C, D, F and G preferred  stock have a stated  value of $50 per share.
The holders of the Series C and D  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  holders  of the  Series F and G  preferred  stock are  entitled  to
dividends  computed at an annual rate of 10% of the stated  value,  or $5.00 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.  annual  preferred  dividend  requirements as of December 31, 1997
were  $323,395.   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 1997,  the Company  issued 40,000  shares of Series F  convertible  preferred
stock  and  warrants  to  acquire  200,000  shares of  common  stock in  private
placement  offerings for $2,000,000.  The offering costs and finders fee totaled
$179,636  which  resulted in net proceeds of  $1,820,324.  In  addition,  12,000
shares of Series E convertible  preferred stock were exchanged for 12,000 shares
of Series G convertible preferred stock.

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.  As  discussed  in Note 9, 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.  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.

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.

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-13
<PAGE>

During the year ended December 31, 1997, preferred stockholders converted 31,142
shares of Series C and 18,600 shares of Series D preferred  stock into 1,208,880
shares of common stock in several  transactions at an average price of $2.06 per
share.  Also,  $49,202  in  dividends  associated  with  Series  C and  Series D
preferred stock were converted into 33,251 shares of common stock.

NOTE 9-COMMON STOCK

During 1997, common stock purchase warrants and options were exercised resulting
in the  Company  issuing  110,693  shares of common  stock for cash  proceeds of
$40,696.

During 1997, the Company  received  subscriptions  for the issuance of 1,220,000
shares of common stock and  warrants to purchase up to 305,000  shares of common
stock from an affiliate and others.  The  subscription  price was $2.00 for each
unit consisting of four shares of common stock and one warrant. The warrants are
exercisable at $0.75 per share.

The  Company  had  realized  $470,000  of  the  stock  subscriptions,  from  the
conversion of $405,000  outstanding  bridge loans and $65,000 the  conversion of
the unsecured  debt. The remaining  $140,000 of the  subscription  proceeds were
received by the Company in cash. An  additional  7,500 common shares were issued
for $9,934 of accrued interest relating to the converted debt.

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 10-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.

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, 2000 if not  exercised.  In September  1996, the
warrants were repriced to the quoted market value of the underlying  stock of $5
per share.

                                      F-14
<PAGE>

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 5.

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 a 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 5. 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.

1997 Grants:  During 1997, the Company authorized and granted 1,110,000 warrants
and 200,000 stock  options for the right to acquire a total of 1,310,000  shares
of common stock.  Warrants to acquire 200,000 shares of common stock were issued
in connection with the issuance of 40,000 shares of Series F preferred stock for
$2,000,000.

Warrants for 405,000  shares of common stock and  $405,000 of  convertible  debt
were issued for  $405,000.  The  warrants  are  exercisable  at $3.00 per share.
Warrants for 305,000 shares of common stock and 1,220,000 shares of common stock
were issued as a unit upon  conversion  of debt and for cash.  The  warrants are
exercisable at $0.75 per share. Warrants for 150,000 shares of common stock were
issued in payment of interest on $150,000  loaned to the  Company.  The warrants
are  exercisable at $1.75 per share.  The exercise prices of these warrants were
equal to or greater  than the market  value of the common stock on the dates the
warrants  were issued.  During 1997,  warrants  for 193,125  common  shares were
repriced from an exercise price of $5.50 per share to $2.50 per share.

                                 F-15
<PAGE>

Warrants  for  50,000  shares of common  stock were  granted  to an officer  and
director.  The warrants are exercisable at $2.50 per share which was equal to or
greater than the market value of the common stock on the date the warrants  were
issued.  During 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.

The following is a summary of the activity  relating to  non-qualified  warrants
and options through December 31, 1997:
                                                                        Weighted
                                                                         Average
                                                Stock      Exercise     Exercise
                                     Warrants  Options      Price        Price  
                                   ----------  -------   ------------  --------
Outstanding at January 1, 1995       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
Granted                            1,110,000   200,000    0.75 - 3.00      2.39
Exercised                            (61,166)       -            0.25      0.25
Canceled or expired                  (12,584)       -            0.25      0.25
                                   ---------   -------   ------------   --------
Outstanding at December 31, 1997   1,927,188   611,875   $0.25 - 8.00    $ 3.40
                                   =========   =======   ============   ========
                                
The following table summarizes information concerning non-qualified outstanding
and exercisable stock and options at December 31, 1997:
                                   
                                     Weighted-Average
                                        Remaining           
                                       Contractual                    
        Range of          Number           Life      Weighted-Average  
     Exercise Prices     Outstanding      (Years)      Exercise Price 
    -----------------   -------------    --------     ---------------- 
     $0.25  - $0.75           341,875      2.67            $0.74 
      1.75  -  2.50           581,250      3.81             2.30
      3.00  -  4.00           605,000      2.95             3.33
      4.25  -  5.51         1,006,250      3.14             4.96
          8.00                  4,688      3.39             8.00
                        -------------             
                            2,539,063
                       ==============

                                      F-16
<PAGE>

         Range of           Number           Weighted-Average
     Exercise Prices      Exercisable         Exercise Price  
   ------------------    ------------       ------------------
    $0.25  - $0.75            314,219            $0.75 
     1.75  -  2.50            481,250             2.25
     3.00  -  4.00            605,000             3.33
     4.25  -  5.51            856,250             4.98
     8.00                       4,688             8.00
                         ------------  
                            2,261,407
                         ============

SUBSEQUENT   EVENT  -  During  1998,   many  of  the  warrant   agreements  were
renegotiated. As a result 428,438 of the warrants were canceled.

During  1998,  1,248,750  warrants  were  repriced,  as follows:  817,500 of the
warrants  that were  initially  exercisable  at $0.75 to $5.50 were  repriced to
being  exercisable  at $0.15 per common share and 431,250 of the  warrants  that
were initially  exercisable at $0.75 to $5.50 were repriced to being exercisable
at $0.20 per warrant.

QUALIFIED  OPTIONS  -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. The following is a summary of the activity
relating to qualified options under the Plan through December 31, 1997:

                                                                   Weighted
                                                                    Average
                                     Stock           Exercise       Exercise
                                    Options            Price         Price  
                                 ------------     ---------------   --------
 Outstanding at January 1, 1995       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       3.00 -  4.25      2.67
 Granted                                    -                -         - 
 Exercised                            (49,527)              0.51      0.51
 Canceled or expired                 (637,264)       0.51 - 4.25      2.59
                                 ------------
                          
 Outstanding at December 31, 1997     107,500        3.00 - 4.25      4.13
                                 ============
                              
 Exercisable at December 31, 1997      50,834        3.00 - 4.25      4.13
                                  ===========
                              
                                      F-17
<PAGE>

The following table summarizes  information concerning qualified outstanding and
exercisable stock options at December 31, 1997:

                                       Weighted-Average
                                          Remaining
                          Number      Contractual Life     Weighted-Average
     Exercise Prices    Outstanding       (Years)           Exercise Price 
     ---------------   -------------  -----------------   -----------------
          $3.00              10,000        2.01                $ 3.00
           4.25              97,500        3.50                  4.25
                        -----------
                            107,500
                        -----------

                    
                                Number          Weighted-Average
       Exercise Prices        Exercisable       Exercise Price  
     -----------------       ------------     -----------------
            $3.00                 5,000             $ 3.00
             4.25                45,834               4.25 
                            -----------
                                 50,834
                            ===========

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" (SFAS 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 SFAS 123, the Company's net loss as well as basic and
diluted loss per share  would have been  increased  to the  following  pro forma
amounts:



                                         1997          1996          1995
                                   ------------  ------------   -----------
  Net Loss
     As reported                    $(5,394,936)  $(7,791,146)  $(3,735,351)
     Pro forma                       (5,863,243)   (8,824,279)   (5,227,807)

  Basic and Diluted Loss Per Share
     As reported                    $     (0.86)  $     (1.59)  $     (0.98)
     Pro forma                            (0.94)        (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  1997,  1996  and  1995:
expected  volatility  of  72.1%,  67.17%  and  65.89%,  respectively;  risk-free
interest rate of 6.20%, 6.10% and 6.10%, respectively; and expected life of 5.0,
4.2 and 4.2 years, respectively.  The weighted-average fair value of options and
warrants   granted  was  $1.61,   $3.88  and  $2.49  in  1997,  1996  and  1995,
respectively.

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.

                                      F-18
<PAGE>

NOTE 11--SUPPLEMENTAL CASH FLOWS INFORMATION

Non-Cash Stock and Payables  Activities - During 1997,  interest  expense in the
amount of $721,500 was recognized in connection  with warrants issued with debt,
$49,202  of  dividends  on Series C and Series D  preferred  stock was paid with
33,251 shares of common stock and $470,000 of bridge loans and $9,934 of accrued
interest were  converted into common stock.  During 1997,  $367,730 of dividends
were accrued on preferred shares.  Of this amount,  $49,202 was settled when the
preferred shares were converted to common shares.

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, note holders  voluntarily  converted debt owed to them in the amount of
$148,250  into 69,382  shares of common  stock at an average of $2.14 per share.
The conversion  ratio was based on the fair value of common stock on the date of
the conversion. In addition, $42,975 of notes payable to an unrelated party were
converted  into 9,550  shares of common  stock at $4.50 per share and $15,619 of
accrued and unpaid interest was added to the principal amount of notes payable.

Property and Equipment and Payables  Activities - During 1997,  the Company sold
its building and land. In connection  with the sale of the building,  the buyers
assumed capital leases for telephone equipment in the building totaling $63,062.
During 1996,  capital leases for computer and office equipment were executed for
$56,336.

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.

Notes Payable  Activities - During 1997, the Company financed life insurance for
officers by issuing a note payable in the amount of $28,098.

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.

Cash Paid For Interest - Cash flows from operating  activities included interest
paid of $92,799,  $91,038 and  $147,039  for the years ended  December 31, 1997,
1996 and 1995, respectively.

NOTE 12-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
period  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 and can earn
bonuses based upon performance.

                                      F-19
<PAGE>

NOTE 13 - COMMITMENTS AND CONTINGENCIES

The  Company  is a  defendant  in a number of  collection  actions  filed by its
creditors. The largest of which is with Multiling International who contends the
Company owes them $30,433 for interest and costs for services rendered.  Amounts
which Management deem are owed to such creditors, including amounts subsequently
paid  in  settlement  of the  claims  and  actions,  have  been  accrued  in the
accompanying consolidated financial statements at December 31, 1997.

NOTE  14-SUBSEQUENT EVENTS

In January 1998, the Company entered into agreements with two unrelated parties.
Under the terms of the agreements,  the Company granted to the unrelated parties
certain rights and licenses relating to the Company's  software products know as
"Licensed  Works." The unrelated  parties accepted a non-exclusive,  world-wide,
non-transferable,  perpetual,  irrevocable  license. For a period of three years
and five  years  from the  effective  date,  the  unrelated  parties  are to not
reproduce,  license,  rent,  lease, or otherwise  distribute  source code of the
Licensed Works or "Derivative  Works." They shall not  incorporate  the Licensed
Works or Derivative  Works into a third party product and shall not  sub-license
any of the rights  granted to them to third  parties.  In  consideration  of the
licenses granted to the unrelated parties,  the Company is to receive $35,000 of
licensing  fees and a 2% royalty on gross product  revenue of the Licensed Works
and  Derivative  Works from one of the  agreements and $20,000 of licensing fees
and a royalty equal to 75% of the gross sales of Licensed  Works and  Derivative
in conjunction with the other agreement.

During April 1998, in anticipation of seeking a company with which to merge, the
Company  offered to exchange common stock with the holders of Series C, D, F and
G Preferred Stock.  The terms of conversion  varied for each series of preferred
stock. As of the end of May, a substantial  portion of the preferred  shares had
been returned to the Company and exchanged for shares of common stock.

On May 6, 1998, the Company entered into a lease cancellation agreement relating
to office space. As part of the agreement of release from the lease, the Company
was obligated to pay to the landlord $12,076.

On May 8, 1998, the Company entered into an Agreement and Plan of Share Exchange
with Intermark  Corporation.  Under the terms of the  agreement,  the exchanging
security  holders are to deliver and  exchange  all of the  outstanding  capital
stock of Intermark for capital stock of the Company having voting power equal to
75% of the  capital  stock  outstanding.  The  stock  issued  to the  exchanging
security  holders  will be  comprised  of a  limited  number of  authorized  and
unissued shares of the Company's common stock and the remainder will be composed
of  authorized  and  unissued  shares of new  preferred  stock  called  Series H
Convertible preferred Stock which will be convertible into common stock and have
voting  rights  equivalent  to the number  shares of common stock which would be
issuable upon  conversion.  The Company's Board of Directors also authorized and
agreed to recommend the Company's  stockholders approve a 1-for-10 reverse stock
split of its common stock.

                                      F-20
<PAGE>

                                    SIGNATURE

   In  accordance  with  Section 13 or 15(d) of the  Exchange  Act,  the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                              INNOVUS CORPORATION

Dated: July 31, 1998                       By /s/ Terry R. Haas
                                             ---------------------------
                                              Terry R. Haas, President

                                       24