SEC Connect
 
Filed pursuant to Rule 424(b)(4)
Registration Statement No. 333-215851
 
 
PROSPECTUS
 
 
 
 
 
  25,617,592 Shares of Common Stock
 
  
This prospectus related to the offer and resale by the stockholder identified on page 62 of this prospectus (“Selling Stockholder”) of up to 25,617,592 shares of our common stock, issued in connection with the prior merger of Novalere FP, Inc., a Delaware corporation, with and into a wholly-owned subsidiary of the Company (the “Novalere Merger”).
 
We will not receive any of the proceeds from the sale or other disposition of the shares of common stock offered for resale by the Selling Stockholder.  Please refer to the section of this prospectus titled “Selling Stockholder” for a more detailed description of the Novalere Merger and for a list of and additional information regarding the Selling Stockholder.
 
The Selling Stockholder may, from time to time, sell, transfer or otherwise dispose of any or all of the shares of common stock offered for resale on any exchange, market or trading facility on which our common stock is traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at various prices determined at the time of sale or at negotiated prices. We will pay the expenses incurred in registering the shares of common stock on behalf of the Selling Stockholder, including legal and accounting fees. The Selling Stockholder will pay any commissions and selling expenses incurred in connection with the resale of their shares of common stock. See Plan of Distribution” for more information.
 
Our common stock is quoted on the OTCQB Marketplace under the symbol “INNV”. The approximate last reported bid price of our common stock on March 15, 2017 was $0.18 per share.
 
An investment in our common stock involves a high degree of risk. We urge you to read carefully the “Risk Factors” section beginning on page 6 where we describe specific risks associated with an investment in Innovus Pharmaceuticals, Inc. and our common stock before you make your investment decision. You should purchase our common stock only if you can afford a complete loss of your purchase.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
The date of this prospectus is March 15, 2017.
 
 
 
 
 
TABLE OF CONTENTS
 
 
PAGE
 
 
 2
 6
 18
 19
 20
 21
 21
 23
 25
 34
 44
 48
 54
 56
 58
 61
Selling Stockholder
 62
 63
 64
 64
 64
 65
 
 
We have not, and the placement agent has not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any prospectus supplement or free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable prospectus supplement or free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
 
For investors outside the United States: We have not, and the placement agent has not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States.
 
-i-
 
 
ABOUT THIS PROSPECTUS
 
You should rely only on the information contained in this prospectus or in any free writing prospectus we or the Selling Stockholder may authorize to be delivered or made available to you. Neither we, nor the Selling Stockholder have authorized anyone to provide you with different information. We and the Selling Stockholder are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, financial condition, operating results and prospects may have changed since that date.
 
Unless the context otherwise requires, the words “Innovus Pharmaceuticals, Inc.,” “Innovus Pharma,” “Innovus,” “we,” “the Company,” “us” and “our” refer to Innovus Pharmaceuticals, Inc., a Nevada corporation.
  
 
 
-1-
 
 
 
 
 
 
PROSPECTUS SUMMARY
 
The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision in our securities. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Our Company
 
We are an emerging over-the-counter ("OTC") consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine and consumer care products to improve men’s and women’s health and vitality and respiratory diseases.  We deliver innovative and uniquely presented and packaged health solutions through our (a) OTC medicines and consumer and health products, which we market directly, (b) commercial partners to primary care physicians, urologists, gynecologists and therapists, and (c) directly to consumers through our on-line channels, retailers and wholesalers. We are dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products. We are actively pursuing opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.
 
Our business model leverages our ability to (a) develop and build our current pipeline of products, and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through our existing supply chain, retail and on-line (including Amazon®-based business platform) channels to tap new markets and drive demand for such products and to establish physician relationships. We currently have 17 products marketed in the United States with six of those being marketed and sold in multiple countries around the world through some of our 14 commercial partners. We currently expect to launch an additional five products in the U.S. in 2017 and we currently have approvals to launch certain of our already marketed products in 31 additional countries.
 
Our Strategy
 
Our corporate strategy focuses on two primary objectives:
 
1.
Developing a diversified product portfolio of exclusive, unique and patented non-prescription OTC and branded ANDA drugs and consumer health products through: (a) the introduction of line extensions and reformulations of either our or third-party currently marketed products; and (b) the acquisition of products or obtaining exclusive licensing rights to market such products; and
 
2.
Building an innovative, U.S. and global sales and marketing model through direct to consumer approaches such as our proprietary Beyond Human® Sales and Marketing platform, the addition of new online platforms such as Amazon® and commercial partnerships with established international complimentary partners that: (a) generates revenue, and (b) requires a lower cost structure compared to traditional pharmaceutical companies thereby increasing our gross margins.
 
 
 
Our Products
 
We currently generate revenue from 17 products in the U.S. and six in international countries, as follows:
 
1.
Vesele® for promoting sexual and health (U.S. and U.K.);
2.
Zestra® for female arousal (U.S., U.K., Denmark, Canada, Morocco, the UAE and South Korea);
3.
Zestra Glide® (U.S, Canada and the MENA countries);
4.
EjectDelay® indicated for the treatment of premature ejaculation (U.S. and Canada);
5.
Sensum+® to alleviate reduced penile sensitivity (U.S., U.K. and Morocco);
6.
Beyond Human® Testosterone Booster;
7.
Beyond Human® Ketones;
8.
Beyond Human® Krill Oil;
9.
Beyond Human® Omega 3 Fish Oil;
10.
Beyond Human® Vision Formula;
11.
Beyond Human® Blood Sugar;
12.
Beyond Human® Colon Cleanse;
13.
Beyond Human® Green Coffee Extract;
14.
Beyond Human® Growth Agent;
15.
RecalMax for brain health;
16.
Androferti® (U.S. and Canada) for the support of overall male reproductive health and sperm quality; and
17.
UriVarx for overactive bladder and urinary incontinence.
 
 
 
 
 
 
-1-
 
 
 
 
 
 
In addition, we currently expect to launch in the U.S. the following products in 2017, subject to the applicable regulatory approvals, if required:
 
1.    Xyralid™ for the relief of the pain and symptoms caused by hemorrhoids (first half of 2017);
2.    AllerVarx for allergic rhinitis symptoms (first half of 2017);
3.    AndroVit™ for prostate and sexual health (second half of 2017);
4.    Urocis™ XR for urinary tract infections in women (second half of 2017); and
5.    FlutiCare for allergic rhinitis subject to FDA ANDA approval (second half of 2017).
 
Sales and Marketing Strategy U.S. and Internationally
 
Our sales and marketing strategy is based on (a) the use of direct to consumer advertisements in print and online media through our proprietary Beyond Human® sales and marketing infrastructure acquired in March 2016; (b) working with direct commercial channel partners in the U.S. and also directly marketing the products ourselves to physicians, urologists, gynecologists and therapists and to other healthcare providers; and (c) working with exclusive commercial partners outside of the U.S. that would be responsible for sales and marketing in those territories. We have now fully integrated most of our existing line of products such as Vesele®, Sensum+®, UriVarx, Zestra®, and RecalMax into the Beyond Human® sales and marketing platform. We plan to integrate Xyralid™, AllerVarx, AndroVit™, Urocis™ XR; and FlutiCare, subject to regulatory approvals, upon their commercial launches in 2017. We also market and distribute our products in the U.S. through retailers, wholesalers and other online channels. Our strategy outside the U.S. is to partner with companies who can effectively market and sell our products in their countries through their direct marketing and sales teams. The strategy of using our partners to commercialize our products is designed to limit our expenses and fix our cost structure, enabling us to increase our reach while minimizing our incremental spending.
 
Our current OTC monograph, Rx-to-OTC ANDA switch drugs and consumer care products marketing strategy is to focus on four main U.S. markets which we believe each to be in excess of $1.0 billion: (1) Sexual health (female and male sexual dysfunction and health); (2) Urology (bladder and prostate health); (3) Respiratory disease; and (4) Brain health. We will focus our current efforts on these four markets and will seek to develop, acquire or license products that we can sell through our sales channels in these fields.
 
Acquisition and Licensing Strategy
 
Our acquisition and licensing strategy is to acquire or in-license products that fit our commercialization strategy that are branded, with growing market shares, that can be sold direct to consumers and through our on-line partnerships and that can then be sold internationally through our commercial partnerships.
 
The following represents products and product candidates we have successfully acquired:
 
1.
Zestra® and Zestra Glide® (acquired Semprae Laboratories, Inc. in 2013 - current Innovus subsidiary);
2.
Vesele® (from Trophikos, Inc. in 2014);
3.
Sensum+® (from Centric Research Institute in 2013);
4.
FlutiCare (acquired Novalere, Inc. in 2015, current Innovus Pharma subsidiary); and
5.
Beyond Human® Testosterone Booster; Beyond Human® Human Growth Agent; Beyond Human® Ketones; Beyond Human® Krill Oil; Beyond Human® Omega 3 Fish Oil; Beyond Human® Vision Formula; Beyond Human® Blood Sugar; and Beyond Human® Colon Cleanse (acquired Beyond Human assets in 2016).

The following represents the products we have in-licensed from third parties:
 
1.
Androferti® (from Q Pharma in 2015);
2.
AllerVarx (from NTC Pharma in 2016);
3.
AndroVit (from Q Pharma in 2015);
4.
Urocis XR (from Q Pharma in 2015); and
5.
  
 
 
In addition, we have developed and repurposed Xyralid for the relief of the pain and symptoms caused by hemorrhoids.
 
 
 
 
 
 
 
-2-
 
 
 
 
 
 
We currently have 14 partnerships that have the rights to sell certain of our current products in approximately 65 countries. Our international partners include the following companies:
 
1.
Orimed Pharma, the OTC subsidiary of Jamp Pharma (Canada);
2.
DanaLife ApS (Denmark and in alternative markets);
3.
Tramorgan (U.K);
4.
Sothema Laboratories (MENA);
5.
Ovation Pharma (Morocco);
6.
Tabuk Pharmaceuticals (MENA);
7.
BroadMed (Lebanon);
8.
Elis Pharmaceuticals (Turkey and Lebanon);
9.
BioTask (Malaysia);
10.
Oz Biogenics (Myanmar and Vietnam);
11.
Khandelwal Laboratories (India);
12.
PT Resources (Select Asian Countries);
13.
Q Pharma (US and Canada); and
14.
J&H Co. LTD (South Korea).
 
Risks Related to our Business
 
Our ability to implement our business strategy is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others:
 
 
We have a short operating history and have not produced significant revenue from our operations;
 
 
We have a history of operating losses, including an accumulated deficit of approximately $29.1 million at December 31, 2016, which will likely continue in the future;
 
 
The success of our business currently depends on market acceptance of all 17 of our products, but also on our top five products: Vesele®, Sensum+®, Zestra®, Beyond Human® Testosterone Booster and RecalMax that accounted for approximately 92% of our annual net revenue during the year ended December 31, 2016. No customer accounted for more than 10% of total net revenue for the year ended December 31, 2016;
 
 
We have no commercial manufacturing capacity and rely on third-party contract manufacturers to produce commercial quantities of our products;
 
● 
We face significant competition and have limited resources compared to many of our competitors;
 
● 
We may never receive approval of our ANDA from the FDA for Fluticare, which we are relying upon to generate significant future revenue;
 
 
If we fail to protect our intellectual property rights, such as patents and trademarks, our ability to pursue the development of our technologies and products would be negatively affected;
 
 
We may not be able to raise the levels of financing required to market and sell many of our products;
 
 
We may not be able to grow effectively and retain or hire the necessary talent to increase our sales;
 
 
We may not be able to grow internationally as we would like due to regulatory, political, or economic changes in such countries;
 
 
We are currently very reliant on the experience, knowledge, skills and actions of our President and Chief Executive Officer, Dr. Bassam Damaj;
 
 
We may not be able to acquire or license the necessary products required for us to grow effectively and increase our product revenue;
 
 
We may face an uncertain U.S. regulatory, political and economic environment with the ascendancy of a new U.S. presidential administration; and
 
 
Our liquidity.
 
 
 
 
 
 
 
-3-
 
 
 
 
 
The Offering
 
 
 
 
 
 
Common stock offered by Selling Stockholder
25,617,592 shares as of the date of this prospectus.
 
 
 
 
 
 
Common stock outstanding
124,810,756 shares of common stock.
 
 
 
 
 
 
Use of proceeds
We will not receive any proceeds from the sale of the common stock by the Selling Stockholder.
 
 
 
 
 
 
Risk factors
You should read the “Risk Factors” section of this prospectus and the other information in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
 
 
 
 
 
 
OTCQB symbol
 
“INNV”
 
 
 
 
The number of shares of our common stock outstanding excludes the following:
 
 
 
 
 
 
253,500 shares of common stock issuable upon the exercise of stock options outstanding as of March 15, 2017, at a weighted average exercise price of $0.21 per share;
 
 
 
 
 
 
13,818,336 unallocated shares of common stock reserved for future issuance under our stock based compensation plans, consisting of no shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan ("2013 Plan"), 61,367 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan ("2014 Plan"), and 13,756,969 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan ("2016 Plan") (together, the “Incentive Plans”), and such additional shares that become available under our Incentive Plans pursuant to provisions thereof that automatically increase the share reserves under the Incentive Plans each year;
 
 
 
 
 
 
14,935,303 shares of common stock reserved for issuance of outstanding restricted stock units as of March 15, 2017;
 
 
 
 
 
 
5,082,504 shares of common stock issuable upon conversion of the 2016 convertible notes payable as of March 15, 2017 (“2016 Notes”);
 
 
  
 
 
 
5,967,054 shares of common stock issuable upon the exercise of warrants outstanding as of March 15, 2017, at a weighted average exercise price of $0.34 per share; and
 
 
  
 
 
 
51,333,338 shares of common stock issuable upon exercise of the Warrants to be issued in connection with this offering, and 1,283,333 shares of our common stock issuable upon the exercise of the warrants issuable to the placement agent.
 
 
  
 
 
 
Although the foregoing includes common stock issuable upon conversion of outstanding 2016 Notes, as a result of the offering, the holders (i) may elect to convert all principal and accrued interest into shares of common stock at a conversion price equal to $0.135, which represents a 10% discount to the public offering price of the shares of common stock in the offering, or (ii) shall receive a prepayment of 110% of outstanding principal and 110% of all accrued unpaid interest directly from the proceeds of the offering. As a result, in the event all holders of 2016 Notes elect to convert into common stock, an additional 4,329,540 shares of common stock will be issued and outstanding.
 
Except as otherwise indicated, all information in this prospectus assumes no exercise of the outstanding options and warrants or the conversion of convertible notes payable and restricted stock units into common shares described above.
 
 
  
 
 
  

 
-4-
 
 
 
 
 SUMMARY CONSOLIDATED FINANCIAL DATA
 
The summary consolidated statements of operations data presented below for the years ended December 31, 2015 and 2016 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2016 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial data should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in any future period. The summary financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.
 
 
 
 
Year Ended December 31,
 
 
 

 2015 
 2016 
 
 
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenue:
 
 
 
 
 
 
 
 
License revenue
 5,000 
 1,000 
 
 
Product sales, net
  730,717 
  4,817,603 
 
 
      Net Revenue
  735,717 
  4,818,603 
 
 
 
    
    
 
 
Operating expense:
    
    
 
 
Cost of product sales
  340,713 
  1,083,094 
 
 
Research and development
   
  77,804 
 
 
Sales and marketing
  82,079 
  3,621,045 
 
 
General and administrative
  3,828,113 
  5,870,572 
 
 
Impairment of goodwill
  759,428 
   
 
 
Total operating expense
  5,010,333 
  10,652,515 
 
 
Loss from operations
  (4,274,616)
  (5,833,912)
 
 
 
    
    
 
 
Other income (expense):
    
    
 
 
Interest expense
  (1,153,376)
  (6,661,694)
 
 
Change in fair value of derivative liabilities
  393,509 
  65,060 
 
 
Other income (expense), net
  (8,495)
  1,649 
 
 
Fair value adjustment for contingent consideration
  115,822 
  (1,269,857)
 
 
Loss on extinguishment of debt
  (32,500)
   
 
 
 
    
    
 
 
Total other expense, net
  (685,040)
  (7,864,842)
 
 
 
    
    
 
 
Loss before provision for (benefit from) income taxes
  (4,959,656)
  (13,698,754)
 
 
Provision for (benefit from) income taxes
  (757,028)
  2,400 
 
 
 
    
    
 
 
Net loss
 (4,202,628)
 (13,701,154)
 
 
Net loss per common share:(1)
    
    
 
 
Basic and diluted
 (0.08)
 (0.15)
 
 
 
    
    
 
 
Weighted-average number of shares outstanding:(1)
    
    
 
 
Basic
  52,517,530 
  94,106,382 
 
 
Diluted
  52,517,530 
  94,106,382 
 
 
             
 
 (1)
  See Note 1 to our audited consolidated financial statements for an explanation of the method used to calculate basic and diluted net loss per common share and the weighted-average number of shares used in the computation of the per share amounts.            
 
 
 
 
 
         
 
 
 
As of December 31, 2016
 
 
 
 Actual
 As Adjusted (1)
 
 
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
Cash
 $829,933
 4,137,508
 
 
Total assets
  8,227,378 
  11,534,953
 
 
Notes payable and non-convertible debenture, net of debt discount
  681,127 
   681,127
 
 
Convertible debentures, net of debt discount
  714,192 
  714,192
 
 
Contingent consideration
  1,685,917 
  1,685,917
 
 
Derivative liabilities – embedded conversion features
  319,674 
  319,674
 
 
Derivative liabilities – warrants
  164,070 
  164,070
 
 
Total stockholders’ equity
  1,093,973 
 4,401,548
 
 
 
    
  
 
 (1)
   The as adjusted balance sheet data gives effect to the sale of 25,666,669 shares of common stock by us in this offering based on the combined public offering of $0.15 per share of common stock and related warrants and after deducting the placement agent fees and estimated offering expenses payable by us.          
 
 
 
    
    
 
 
 
 
-5-
 
RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
 
Risks Associated with Our Financial Condition
 
We have a history of significant recurring losses and these losses may continue in the future, therefore negatively impacting our ability to achieve our business objectives.
 
As of December 31, 2016, we had an accumulated deficit of approximately $29.1 million. In addition, we incurred net losses of approximately $4.2 million and $13.7 million for the years ended December 31, 2015 and 2016, respectively. These losses may continue in the future. We expect to continue to incur significant sales and marketing, research and development, and general and administrative expense. As a result, we will need to generate significant revenue to achieve profitability, and we may never achieve profitability. Revenue and profit, if any, will depend upon various factors, including (1) growing the current sales of our products, (2) the successful acquisition of additional commercial products, (3) raising capital to implement our growth strategy, (4) obtaining any applicable regulatory approvals of our proposed product candidates, (5) the successful licensing and commercialization of our proposed product candidates, and (6) growth and development of our operations. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.
 
We may require additional financing to satisfy our current contractual obligations and execute our business plan.
 
We have not been profitable since inception. As of December 31, 2016, we had approximately $0.8 million in cash. We had a net loss of approximately $4.2 million and $13.7 million for the years ended December 31, 2015 and 2016, respectively. Additionally, sales of our existing products are significantly below the levels necessary to achieve positive cash flow. Although we expect that our existing capital resources, revenue from sales of our products will be sufficient to allow us to continue our operations, commence the product development process and launch selected products through at least January 1, 2018, no assurances can be given that we will not need to raise additional capital to fund our business plan. Although no assurances can be given, we currently plan to raise additional capital through the sale of equity or debt securities. If we are not able to raise sufficient capital, our continued operations may be in jeopardy and we may be forced to cease operations and sell or otherwise transfer all or substantially all of our remaining assets.
 
If we issue additional shares of common stock in the future, it will result in the dilution of our existing shareholders.
 
              Our Articles of Incorporation authorize the issuance of up to 292.5 million shares of common stock and up to 7.5 million shares of preferred stock. The issuance of any such shares of common stock may result in a decrease in value of your investment. If we do issue any such additional shares of common stock, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change of control of our corporation.
 
If we issue additional debt securities, our operations could be materially and negatively affected.
 
We have historically funded our operations partly through the issuance of debt securities. If we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our operations. In addition, we may be required to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to technologies or products that we would otherwise seek to develop or commercialize ourselves or license rights to technologies or products on terms that are less favorable to us than might otherwise be available.
 
 
-6-
 
Our ability to use our net operating loss carry-forwards and certain other tax attributes may be limited.
 
We have incurred substantial losses during our history. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carry-forwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
 
Risks Associated with Our Business Model
 
We have a short operating history and have not produced significant revenue over a period of time.  This makes it difficult to evaluate our future prospects and increases the risk that we will not be successful.
 
We have a short operating history with our current business model, which involves the commercialization, licensing and development of over-the-counter healthcare products.  While we have been in existence for years, we only began our current business model in 2013 and have only generated approximately $1.0 million in net revenue in 2014, approximately $736,000 in 2015 and approximately $4.8 million in net revenue for the year ended December 31, 2016, and our operations have not yet been profitable.  No assurances can be given that we will generate any significant revenue in the future. As a result, we have a very limited operating history for you to evaluate in assessing our future prospects.   Our operations have not produced significant revenue over a period of time, and may not produce significant revenue in the near term, which may harm our ability to obtain additional financing and may require us to reduce or discontinue our operations.  You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company.  We may not be able to successfully address these risks and difficulties, which could significantly harm our business, operating results and financial condition.
 
The success of our business currently depends on the successful continuous commercialization of our main products and these products may not be successfully grown beyond their current levels.
 
We currently have a limited number of products for sale. The success of our business currently depends on our ability, directly or through a commercial partner, to successfully market and sell those limited products outside the U.S. and to expand our retail and online channels in the U.S.
 
Although we have commercial products that we can currently market and sell, we will continue to seek to acquire or license other products and we may not be successful in doing so.
 
We currently have a limited number of products. We may not be successful in marketing and commercializing these products to the extent necessary to sustain our operations. In addition, we will continue to seek to acquire or license non-prescription pharmaceutical and consumer health products. The successful consummation of these types of acquisitions and licensing arrangements is subject to the negotiation of complex agreements and contractual relationships and we may be unable to negotiate such agreements or relationships on a timely basis, if at all, or on terms acceptable to us.
 
 If we fail to successfully introduce new products, we may lose market position.
 
New products, product improvements, line extensions and new packaging will be an important factor in our sales growth. If we fail to identify emerging consumer trends, to maintain and improve the competitiveness of our existing products or to successfully introduce new products on a timely basis, we may lose market position. Continued product development and marketing efforts have all the risks inherent in the development of new products and line extensions, including development delays, the failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.
 
Our sales and marketing function is currently very limited and we currently rely on third parties to help us promote our products to physicians in the U.S. and rely on our partners outside the U.S. We will need to maintain the commercial partners we currently have and attract others or be in a position to afford qualified or experienced marketing and sales personnel for our products.
 
We have had only approximately $731,000 in net revenue of our products in 2015, and approximately $4.8 million during the year ended December 31, 2016. We will need to continue to develop strategies, partners and distribution channels to promote and sell our products.
  
 
-7-
 
We have no commercial manufacturing capacity and rely on third-party contract manufacturers to produce commercial quantities of our products.
 
We do not have the facilities, equipment or personnel to manufacture commercial quantities of our products and therefore must rely on qualified third-party contract manufactures with appropriate facilities and equipment to contract manufacture commercial quantities of products. These third-party contract manufacturers are also subject to current good manufacturing practice, or cGMP regulations, which impose extensive procedural and documentation requirements. Any performance failure on the part of our contract manufacturers could delay commercialization of any approved products, depriving us of potential product revenue.
 
Failure by our contract manufacturers to achieve and maintain high manufacturing standards could result in patient injury or death, product recalls or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could materially adversely affect our business. Contract manufacturers may encounter difficulties involving production yields, quality control and quality assurance. These manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign agencies to ensure strict compliance with cGMP and other applicable government regulations; however, beyond contractual remedies that may be available to us, we do not have control over third-party manufacturers’ compliance with these regulations and standards.
 
If for some reason our contract manufacturers cannot perform as agreed, we may be required to replace them. Although we believe there are a number of potential replacements, we may incur added costs and delays in identifying and qualifying any such replacements.
 
The inability of a manufacturer to ship orders of our products in a timely manner or to meet quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect as our revenue would decrease and we would incur net losses as a result of sales of the product, if any sales could be made.
 
We are also dependent on certain third parties for the supply of the raw materials necessary to develop and manufacture our products, including the active and inactive pharmaceutical ingredients used in our products. We are required to identify the supplier of all the raw materials for our products in any drug applications that we file with the FDA and all FDA-approved products that we acquire from others. If raw materials for a particular product become unavailable from an approved supplier specified in a drug application, we would be required to qualify a substitute supplier with the FDA, which would likely delay or interrupt manufacturing of the affected product. To the extent practicable, we attempt to identify more than one supplier in each drug application. However, some raw materials are available only from a single source and, in some of our drug applications, only one supplier of raw materials has been identified, even in instances where multiple sources exist.
 
In addition, we obtain some of our raw materials and products from foreign suppliers. Arrangements with international raw material suppliers are subject to, among other things, FDA regulation; various import duties, foreign currency risk and other government clearances. Acts of governments outside the U.S. may affect the price or availability of raw materials needed for the development or manufacture of our products. In addition, any changes in patent laws in jurisdictions outside the U.S. may make it increasingly difficult to obtain raw materials for research and development prior to the expiration of the applicable U.S. or foreign patents. 
 
Our U.S. business could be adversely affected by changes in the U.S. presidential administration.
 
A new U.S. presidential administration came to power in January 2017 and President Trump has publicly stated that he will take certain efforts to impose importation tariffs from certain countries such as China and Mexico which could affect the cost of certain of our product components. In addition, the Trump Administration has and will appoint and employ many new secretaries, directors and the like into positions of authority in the U.S. Federal government dealing with the pharmaceutical and healthcare industries that may potentially have a negative impact on the prices and the regulatory pathways for certain pharmaceuticals, nutritional supplements and health care products such as those developed, marketed and sold by the Company. Such changes in the regulatory pathways could adversely affect and or delay the ability of the Company to market and sell its products in the U.S.
 
 
-8-
 
The business that we conduct outside the United States may be adversely affected by international risk and uncertainties.
 
Although our operations are based in the United States, we conduct business outside the United States and expect to continue to do so in the future. In addition, we plan to seek approvals to sell our products in foreign countries. Any business that we conduct outside the United States will be subject to additional risks that may materially adversely affect our ability to conduct business in international markets, including:
 
potentially reduced protection for intellectual property rights;
 
unexpected changes in tariffs, trade barriers and regulatory requirements;
 
economic weakness, including inflation or political instability in particular foreign economies and markets;
 
workforce uncertainty in countries where labor unrest is more common than in the United States;
 
production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad;
 
business interruptions resulting from geo-political actions, including war and terrorism or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and
 
failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act, or FCPA.
 
These factors or any combination of these factors may adversely affect our revenue or our overall financial performance.  
 
Acquisitions involve risks that could result in a reduction of our operating results, cash flows and liquidity.
 
We have made and in the future may continue to make strategic acquisitions including licenses of third party products. However, we may not be able to identify suitable acquisition and licensing opportunities. We may pay for acquisitions and licenses with our common stock or with convertible securities, which may dilute your investment in our common stock, or we may decide to pursue acquisitions and licenses that investors may not agree with. In connection with one of our latest acquisitions, we have also agreed to substantial earn-out arrangements. To the extent we defer the payment of the purchase price for any acquisition or license through a cash earn-out arrangement, it will reduce our cash flows in subsequent periods. In addition, acquisitions or licenses may expose us to operational challenges and risks, including:
 
the ability to profitably manage acquired businesses or successfully integrate the acquired business’ operations and financial reporting and accounting control systems into our business;
 
increased indebtedness and contingent purchase price obligations associated with an acquisition;
 
the ability to fund cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions or unforeseen internal difficulties;
 
the availability of funding sufficient to meet increased capital needs;
 
diversion of management’s attention; and
 
the ability to retain or hire qualified personnel required for expanded operations.
 
Completing acquisitions may require significant management time and financial resources.  In addition, acquired companies may have liabilities that we failed, or were unable, to discover in the course of performing due diligence investigations. We cannot assure you that the indemnification granted to us by sellers of acquired companies will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with businesses or properties we assume upon consummation of an acquisition. We may learn additional information about our acquired businesses that materially adversely affect us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business.
 
 
-9-
 
Failure to successfully manage the operational challenges and risks associated with, or resulting from, acquisitions could adversely affect our results of operations, cash flows and liquidity. Borrowings or issuances of convertible securities associated with these acquisitions may also result in higher levels of indebtedness, which could impact our ability to service our debt within the scheduled repayment terms.
 
We will need to expand our operations and increase the size of the Company, and we may experience difficulties in managing growth.
 
As we increase the number of products we own or have the right to sell, we will need to increase our sales, marketing, product development and scientific and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we: 
 
successfully attract and recruit new employees with the expertise and experience we will require;
 
successfully grow our marketing, distribution and sales infrastructure; and
 
continue to improve our operational, manufacturing, financial and management controls, reporting systems and procedures.
 
If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected. 
 
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully operate our business.
 
Our success depends to a significant extent upon the continued services of Dr. Bassam Damaj, our President and Chief Executive Officer. Dr. Damaj has overseen our current business strategy since inception and provides leadership for our growth and operations strategy as well as being our sole employee with any significant scientific or pharmaceutical experience. Loss of the services of Dr. Damaj would have a material adverse effect on our growth, revenue and prospective business. The loss of any of our key personnel, or the inability to attract and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely affect our business, financial condition and results of operations.
 
Any employment agreement we enter into will not ensure the retention of the employee who is a party to the agreement. In addition, we have only limited ability to prevent former employees from competing with us. Furthermore, our future success will also depend in part on the continued service of our key scientific and management personnel and our ability to identify, hire and retain additional personnel. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our business. Moreover, competition for personnel with the scientific and technical skills that we seek is extremely high and is likely to remain high. Because of this competition, our compensation costs may increase significantly. We presently have no scientific employees.
 
We may not be able to continue to pay consultants, vendors and independent contractors through the issuance of equity instruments in order to conserve cash.
 
We have paid numerous consultants and vendor fees through the issuance of equity instruments in order to conserve our cash, however there can be no assurance that we, our vendors, consultants or independent contractors, current or future, will continue to agree to this arrangement. As a result, we may be asked to spent more cash for the same services, or we may not be able to retain the same consultants, vendors, etc.
 
We face significant competition and have limited resources compared to our competitors.
 
We are engaged in a highly competitive industry. We can expect competition from numerous companies, including large international enterprises and others entering the market for products similar to ours. Most of these companies have greater research and development, manufacturing, patent, legal, marketing, financial, technological, personnel and managerial resources. Acquisitions of competing companies by large pharmaceutical or healthcare companies could further enhance such competitors’ financial, marketing and other resources. Competitors may complete clinical trials, obtain regulatory approvals and commence commercial sales of their products before we could enjoy a significant competitive advantage. Products developed by our competitors may be more effective than our product candidates.
 
 
 
-10-
 
Competition and technological change may make our product candidates and technologies less attractive or obsolete. 
 
We compete with established pharmaceutical and biotechnology companies that are pursuing other products for the same markets we are pursuing and that have greater financial and other resources. Other companies may succeed in developing or acquiring products earlier than us, developing products that are more effective than our products or achieve greater market acceptance.  As these companies develop their products, they may develop competitive positions that may prevent, make futile, or limit our product commercialization efforts, which would result in a decrease in the revenue we would be able to derive from the sale of any products. 
 
Risks Relating to Intellectual Property
 
If we fail to protect our intellectual property rights, our ability to pursue the development of our technologies and products would be negatively affected.
 
Our success will depend in part on our ability to obtain patents and maintain adequate protection of our technologies and products. If we do not adequately protect our intellectual property, competitors may be able to use our technologies to produce and market products in direct competition with us and erode our competitive advantage. Some foreign countries lack rules and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. Many companies have had difficulty protecting their proprietary rights in these foreign countries. We may not be able to prevent misappropriation of our proprietary rights.
 
We have received, and are currently seeking, patent protection for numerous compounds and methods of use. However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending patents. These risks and uncertainties include the following: patents that may be issued or licensed may be challenged, invalidated or circumvented, or otherwise may not provide any competitive advantage; our competitors, many of which have substantially greater resources than us and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with or eliminate our ability to make, use and sell our potential products either in the United States or in international markets and countries other than the United States may have less restrictive patent laws than those upheld by United States courts, allowing foreign competitors the ability to exploit these laws to create, develop and market competing products.
 
Moreover, any patents issued to us may not provide us with meaningful protection or others may challenge, circumvent or narrow our patents. Third parties may also independently develop products similar to our products, duplicate our unpatented products or design around any patents on products we develop. Additionally, extensive time is required for development, testing and regulatory review of a potential product. While extensions of patent term due to regulatory delays may be available, it is possible that, before any of our products candidates can be commercialized, any related patent, even with an extension, may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent.
 
In addition, the United States Patent and Trademark Office (the "PTO") and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents may be substantially narrower than anticipated.
 
Our success depends on our patents, patent applications that may be licensed exclusively to us and other patents to which we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications or published literature that may affect our business either by blocking our ability to commercialize our products, by preventing the patentability of our products to us or our licensors or by covering the same or similar technologies that may invalidate our patents, limit the scope of our future patent claims or adversely affect our ability to market our products.
 
 
-11-
 
In addition to patents, we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions and security measures to protect our confidential and proprietary information. These measures may not adequately protect our trade secrets or other proprietary information. If they do not adequately protect our rights, third parties could use our technology and we could lose any competitive advantage we may have. In addition, others may independently develop similar proprietary information or techniques or otherwise gain access to our trade secrets, which could impair any competitive advantage we may have.
 
Patent protection and other intellectual property protection are crucial to the success of our business and prospects, and there is a substantial risk that such protections will prove inadequate.
 
We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.
 
The pharmaceutical industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies have employed intellectual property litigation to gain a competitive advantage. We may become subject to infringement claims or litigation arising out of patents and pending applications of our competitors or additional interference proceedings declared by the PTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, PTO proceedings and related legal and administrative proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to enforce our issued patents, to protect our trade secrets and know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities, require us to obtain licenses from third parties or restrict or prevent us from selling our products in certain markets. Although patent and intellectual property disputes might be settled through licensing or similar arrangements, the costs associated with such arrangements may be substantial and could include our paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory terms or at all.
 
Competitors may infringe our patents and we may file infringement claims to counter infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly.
 
Also, a third party may assert that our patents are invalid and/or unenforceable. There are no unresolved communications, allegations, complaints or threats of litigation related to the possibility that our patents are invalid or unenforceable. Any litigation or claims against us, whether merited or not, may result in substantial costs, place a significant strain on our financial resources, divert the attention of management and harm our reputation. An adverse decision in litigation could result in inadequate protection for our product candidates and/or reduce the value of any license agreements we have with third parties.
 
Interference proceedings brought before the PTO may be necessary to determine priority of invention with respect to our patents or patent applications. During an interference proceeding, it may be determined that we do not have priority of invention for one or more aspects in our patents or patent applications and could result in the invalidation in part or whole of a patent or could put a patent application at risk of not issuing. Even if successful, an interference proceeding may result in substantial costs and distraction to our management.
 
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or interference proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive these results to be negative, the price of our common stock could be adversely affected.
 
 
-12-
 
If we infringe the rights of third parties we could be prevented from selling products, forced to pay damages and defend against litigation.
 
If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an infringing product candidate; redesign our products or processes to avoid infringement; stop using the subject matter claimed in the patents held by others; pay damages; and/or defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
 
We may be subject to potential product liability and other claims, creating risks and expense.
 
We are also exposed to potential product liability risks inherent in the development, testing, manufacturing, marketing and sale of human therapeutic products. Product liability insurance for the pharmaceutical industry is extremely expensive, difficult to obtain and may not be available on acceptable terms, if at all. We have no guarantee that the coverage limits of such insurance policies will be adequate. A successful claim against us, which is in excess of our insurance coverage, could have a material adverse effect upon us and on our financial condition.
 
Changes in trends in the pharmaceutical and biotechnology industries, including difficult market conditions, could adversely affect our operating results.
 
The biotechnology, pharmaceutical and medical device industries generally, and drug discovery and development companies more specifically, are subject to increasingly rapid technological changes. Our competitors and others might develop technologies or products that are more effective or commercially attractive than our current or future technologies or products or that render our technologies or products less competitive or obsolete. If competitors introduce superior technologies or products and we cannot make enhancements to our technologies or products to remain competitive, our competitive position and, in turn, our business, revenue and financial condition, would be materially and adversely affected.
 
We may encounter new FDA rules, regulations and laws that could impede our ability to sell our OTC products.
 
The FDA regulates most of our OTC or non-prescription drugs using its OTC Monograph, which when final, is published in the Code of Federal Regulations at 21 CFR Parts 330-358. Such of our products that meet each of these conditions established in the OTC Monograph regulations, as well as all other regulations, may be marketed without prior approval by the FDA. If the FDA changes its OTC Monograph regulatory process, it may subject the Company to additional FDA rules, regulations and laws that may be more time consuming and costly to us and could negatively affect our business.
 
We may never receive ANDA approval for our product Fluticare, which we are relying upon to generate a significant amount of future revenue.
 
Because of the unpredictability of the FDA review process for generic drugs, the ANDA filed for our product Fluticare may never be approved by the FDA for a variety of reasons.  If such ANDA is not approved, we will not be able to realize revenue from the sale of this drug and our revenue will not grow as quickly as we anticipate.
 
If the Fluticare ANDA is approved, we have no assurances as to the additional costs associated with launching our new product, and may need to raise additional capital in the future to fund such efforts.
 
Since approval is dependent upon a complex FDA review and regulatory process, should we receive approval for our product Fluticare, it is unclear the extent of the additional work and costs associated with launching the new product. There can be no assurances to the time frame in which we could get approval, and so no assurances as to the timing and extent of the possible additional expenses. As a result, additional funding may be required to cover such expenses.
 
Risks Related to Ownership of our Common Stock
 
Sales of additional shares of our common stock could cause the price of our common stock to decline.
 
As of March 15, 2017, we had 124,810,756 shares of common stock outstanding. A substantial number of those shares are restricted securities and such shares may be sold under Rule 144 of the Securities Act of 1933, as amended ("Securities Act"), subject to any applicable holding period.  As such, sales of substantial amounts of our common stock in the public or private markets, or the availability of such shares for sale by us, including the issuance of common stock upon conversion and/or exercise of outstanding convertible securities, warrants and options, could adversely affect the price of our common stock. We may sell shares or securities convertible into shares of common stock, which could adversely affect the market price of shares of our common stock.  In addition, the sale of a substantial number of shares of our common stock, or anticipation of such sales, could make it more difficult for us to obtain future financing. To the extent the trading price of our common stock at the time of exercise of any of our outstanding options or warrants exceeds their exercise price, such exercise will have a dilutive effect on our stockholders.
 
 
-13-
 
The sale of certain shares held by the selling stockholder may have an adverse effect on the price of our stock, and such effect could be material.
 
This registration statement contains two forms of prospectus. One form of prospectus, which we refer to as the primary public offering prospectus, is to be used in connection with a public offering of 25,666,669 shares of our common stock, Series A Warrants and Series B Warrants (and the shares of common stock issuable upon exercise of the Warrants). The other form of prospectus, which we refer to as the resale prospectus, is to be used in connection with the potential resale by a selling stockholder of an aggregate of 25,617,592 shares of our common stock upon the effectiveness of the registration statement of which such prospectus forms a part. In the event of a sale of the shares of common stock offered by the selling stockholder, the price of our stock could decline, and such decline could be material.
 
If we default on our Convertible Notes, or if such Convertible Notes are voluntarily converted, it could result in a significant dilution of stockholders’ position.
 
As of March 15, 2017, we have issued and outstanding convertible promissory notes in the aggregate principal and interest amount of approximately $1.3 million (the “Convertible Notes”). Upon the occurrence of an Event of Default, as such term is defined in the Convertible Notes, a “Default Amount” equal to the sum of (i) the outstanding principal amount, together with accrued interest due thereon through the date of payment, and (ii) an additional amount equal to the outstanding principal amount is payable, either in cash or shares of common stock. Assuming the Convertible Notes are in default on their maturity date, we may be required to issue up to 8,738,654 shares of our common stock to the holders of the Convertible Notes.
 
The holders of our Convertible Notes also have the right to convert such Convertible Notes into common stock at $0.25 per share. In the event the holders of such Convertible Notes elect to convert their Convertible Notes into common stock, an additional 5.1 million shares of our common stock will be issued, resulting in substantial dilution to existing stockholders. In the event such holders elect to sell their common stock issued upon conversion of such Convertible Notes, the price of our common stock may be negatively and materially impacted.
 
The market price for our common stock may be volatile and your investment in our common stock could decline in value.
 
The stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology and specialty pharmaceutical companies, particularly companies like ours with limited product revenue, have been highly volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock: 
 
announcements of technological innovations or new products by us or our competitors;
 
announcement of FDA approval or disapproval of our product candidates or other product-related actions;
 
developments involving our discovery efforts and clinical trials;
 
developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation against us or our potential licensees;
 
developments involving our efforts to commercialize our products, including developments impacting the timing of commercialization;
 
announcements concerning our competitors or the biotechnology, pharmaceutical or drug delivery industry in general;
 
public concerns as to the safety or efficacy of our products or our competitors’ products;
 
changes in government regulation of the pharmaceutical or medical industry;
 
actual or anticipated fluctuations in our operating results;
 
changes in financial estimates or recommendations by securities analysts;
 
developments involving corporate collaborators, if any;
 
changes in accounting principles; and
 
the loss of any of our key management personnel.
 
 
-14-
 
In the past, securities class action litigation has often been brought against companies that experience volatility in the market price of their securities. Whether meritorious or not, litigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results and financial condition.
 
We do not anticipate paying dividends on our common stock and, accordingly, shareholders must rely on stock appreciation for any return on their investment.
 
We have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our board of directors and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our Company if you require dividend income from your investment in our Company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our common stock, which is uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value. 
 
Nevada law and provisions in our charter documents may delay or prevent a potential takeover bid that would be beneficial to common stockholders.
 
Our articles of incorporation and our bylaws contain provisions that may enable our board of directors to discourage, delay or prevent a change in our ownership or in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. These provisions include the following:
 
  our board of directors may increase the size of the board of directors up to nine directors and fill vacancies on the board of directors; and
 
  our board of directors is expressly authorized to make, alter or repeal our bylaws.
 
In addition, Chapter 78 of the Nevada Revised Statutes also contains provisions that may enable our board of directors to discourage, delay or prevent a change in our ownership or in our management. The combinations with interested stockholders provisions of the Nevada Revised Statutes, subject to certain exceptions, restrict the ability of our Company to engage in any combination with an interested stockholder for three years after the date a stockholder becomes an interested stockholder, unless, prior to the stockholder becoming an interested stockholder, our board of directors gave approval for the combination or the acquisition of shares which caused the stockholder to become an interested stockholder. If the combination or acquisition was not so approved prior to the stockholder becoming an interested stockholder, the interested stockholder may effect a combination after the three-year period only if either the stockholder receives approval from a majority of the outstanding voting shares, excluding shares beneficially owned by the interested stockholder or its affiliates or associates, or the consideration to be paid by the interested stockholder exceeds certain thresholds set forth in the statute. For purposes of the foregoing provisions, "interested stockholder" means either a person, other than our Company or our subsidiaries, who directly or indirectly beneficially owns 10% or more of the voting power of our outstanding voting shares, or one of our affiliates or associates which at any time within three years immediately before the date in question directly or indirectly beneficially owned 10% or more of the voting power of our outstanding shares.
 
In addition, the acquisition of controlling interest provisions of the Nevada Revised Statutes provide that a stockholder acquiring a controlling interest in our Company, and those acting in association with that stockholder, obtain no voting rights in the control shares unless voting rights are conferred by stockholders holding a majority of our voting power (exclusive of the control shares). For purposes of these provisions, "controlling interest" means the ownership of outstanding voting shares enabling the acquiring person to exercise (either directly or indirectly or in association with others) one-fifth or more but less than one-third, one-third or more but less than a majority, or a majority or more of the voting power in the election of our directors, and "control shares" means those shares the stockholder acquired on the date it obtained a controlling interest or in the 90-day period preceding that date.
 
 
-15-
 
Accordingly, the provisions could require multiple votes with respect to voting rights in share acquisitions effected in separate stages, and the effect of these provisions may be to discourage, delay or prevent a change in control of our Company.
 
The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.
 
Our articles of incorporation give our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights, which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any shares of preferred stock or to create a series of preferred stock, we may issue such shares in the future. 
 
Our common stock is subject to the "penny stock" rules of the Securities and Exchange Commission and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
 
The Securities and Exchange Commission (the “SEC”) has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
 
that a broker or dealer approve a person's account for transactions in penny stocks; and
 
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
 
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
 
obtain financial information and investment experience objectives of the person; and
 
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
 
 
sets forth the basis on which the broker or dealer made the suitability determination; and
 
 
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
 
 
-16-
 
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
 
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
 
 Risks Related to this Offering
 
Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
 
                If we successfully sell all securities registered by this offering and investors exercise all Warrants included in this offering, new investors will own approximately 38.2% of our outstanding common stock. In addition, we have issued options, warrants or other derivative securities to acquire common stock at prices below the public offering price. To the extent outstanding options, warrants or other derivative securities are ultimately exercised or converted, or if we issue restricted stock to our employees under our equity incentive plans, there will be further dilution to investors who purchase shares in this offering. In addition, if we issue additional equity securities or derivative securities, investors purchasing shares in this offering will experience additional dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.
 
We may allocate the net proceeds from this offering in ways that differ from our estimates based on our current plans and assumptions discussed in the section titled "Use of Proceeds" and with which you may not agree.
 
The allocation of net proceeds of the offering set forth in the “Use of Proceeds” section of this prospectus represents our estimates based upon our current plans and assumptions regarding industry and general economic conditions, our future revenue and expenditures. The amounts and timing of our actual expenditures will depend on numerous factors, including market conditions, cash generated by our operations, business developments and related rate of growth. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes. Circumstances that may give rise to a change in the use of proceeds and the alternate purposes for which the proceeds may be used are discussed in the section in this prospectus entitled “Use of Proceeds”. You may not have an opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our proceeds. As a result, you and other stockholders may not agree with our decisions. See “Use of Proceeds” for additional information.  
The Warrants are speculative in nature.
 
The Warrants offered by us in this offering do not confer any rights of ownership of shares of common stock on its holders, such as voting rights or the right to receive dividends, but only represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire the shares of common stock and pay an exercise price of $0.15 per share, with respect to the Series A Warrants and an exercise price of $0.15 per share with respect to the Series B Warrants subject to adjustment upon certain events, prior to five years from the date of issuance for the Series A Warrants and one year from the date of issuance for the Series B Warrants, after which date any unexercised Warrants will expire and have no further value.
 
There is no established public trading market for the Warrants offered in this offering and we do not intend to apply to list the Warrants on a securities exchange or automated quotation system.
 
There is no established public trading market for the Warrants offered in this offering. We do not intend to apply to list the Warrants on a securities exchange or automated quotation system. Without an active trading market, the liquidity of Warrants will be limited.
 
 
-17-
 
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus includes forward-looking statements. All statements, other than statements of historical fact, contained in this prospectus, including statements regarding our future operating results, financial position and cash flows, our business strategy and plans and our objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “plan,” “target,” “project,” “contemplate,” “predict,” “potential,” “would,” “could,” “should,” “intend” and “expect” or the negative of these terms or other similar expressions.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions, including those described under sections in this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time. It is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by applicable law, we undertake no obligation to update publicly or revise any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, whether as a result of any new information, future events, changed circumstances or otherwise.
This prospectus contains estimates and statistical data that we obtained from industry publications and reports. These publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information, and you are cautioned not to give undue weight to such estimates. Although we believe the publications are reliable, we have not independently verified their data. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
 
 
-18-
 
USE OF PROCEEDS
 
We will not receive any of the proceeds from the sale of the common stock by the Selling Stockholder named in this prospectus. All proceeds from the sale of the common stock will be paid directly to the Selling Stockholder.
 
 
 

 
-19-
 
PRICE RANGE FOR OUR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
 
Our common stock is quoted on the OTCQB Marketplace under the symbol “INNV.” The approximate last closing bid price of our common stock was $0.18 on March 15, 2017.
 
The high and low bid prices of our common stock for the periods indicated are set forth below.  These prices do not reflect retail mark-up, markdown or commissions. Such OTCQB quotations reflect inter-dealer prices, without markup, markdown or commissions and, particularly because our common stock is traded infrequently, may not necessarily represent actual transactions or a liquid trading market.
 

 
 High
 
 
Low
 
Year Ending December 31, 2017
 
 
 
 
 
 
First quarter ending March 31, 2017 (through March 15, 2017)
 $0.39
 $0.14
 
    
    
Year Ended December 31, 2016
    
    
First quarter ended March 31, 2016
 $0.10 
 $0.03 
Second quarter ended June 30, 2016
 $0.37 
 $0.05 
Third quarter ended September 30, 2016
 $0.66 
 $0.21 
Fourth quarter ended December 31, 2016
 $0.33 
 $0.16 
 
    
    
Year Ended December 31, 2015
    
    
First quarter ended March 31, 2015
 $0.28 
 $0.13 
Second quarter ended June 30, 2015
 $0.19 
 $0.11 
Third quarter ended September 30, 2015
 $0.16 
 $0.05 
Fourth quarter ended December 31, 2015
 $0.12 
 $0.05 
 
Holders
 
As of March 15, 2017, we had 124,810,756 shares of common stock, $0.001 par value, issued and outstanding held by approximately 544 shareholders of record.  Our transfer agent is Interwest Transfer Co., Inc., 1981 Murray Holladay Road, Suite 100 Salt Lake City, Utah 84117.
 
 
-20-
 
DIVIDENDS
 
The payment of dividends is subject to the discretion of our board of directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition and other relevant factors. We have not paid or declared any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements do not anticipate paying any dividends upon our common stock in the foreseeable future.
 
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our board of directors, based upon the Board’s assessment of:
 
our financial condition;
 
earnings;
 
need for funds;
 
capital requirements;
 
prior claims of preferred stock to the extent issued and outstanding; and
 
including any applicable laws.
 
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
 
CAPITALIZATION
 
               The following table sets forth our capitalization as of December 31, 2016 that is derived from our audited consolidated financial information included elsewhere in this prospectus:
 
on an actual basis; and
 
on a pro forma basis, giving effect to the sale and issuance by us of 25,666,669 shares of common stock and Warrants to purchase up to 51,333,338 shares of common stock in this offering, at an offering price of $0.15 per share and related warrants, and after deducting placement agent’s fees and estimated offering expenses payable by us.
 
 
 
  December 31, 2016
 
 
 
Actual    
 
 
As Adjusted
 
 
 
     
 
 
(unaudited)   
 
 
 
 
 
 
 
 
Cash
 $829,933 
 $4,137,508 
Debt:
    
    
Notes payable and non-convertible debenture, net of discount of $216,871
 $681,127 
 $681,127 
Convertible debentures, net of discount of $845,730
  714,192 
  714,192 
Total debt
  1,395,319 
  1,395,319 
 
    
    
Stockholders’ Equity:
    
    
Common stock, $0.001 par value; 292,500,000 shares authorized; 121,694,293 shares issued and outstanding, actual; 147,360,962 shares issued and outstanding as adjusted
  121,694 
  147,361
 
Additional paid-in capital
  30,108,028 
  33,389,936
 
Accumulated deficit
  (29,135,749)
  (29,135,749)
Total stockholders’ equity
  1,093,973 
  4,401,548
 
Total capitalization
 $2,489,292 
 $5,796,867
 
 
 
-21-
 
Common stock outstanding in the table above excludes the following shares as of December 31, 2016:
 
237,500 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2016, at a weighted average exercise price of $0.22 per share;
 
15,983,814 unallocated shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of no shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan ("2013 Plan "), 146,314 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan ("2014 Plan"), and 15,837,500 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan ("2016 Plan") (together, the “Incentive Plans ”), and such additional shares that become available under our Incentive Plans pursuant to provisions thereof that automatically increase the share reserves under the Incentive Plans each year;
 
12,874,848 shares of common stock reserved for issuance of outstanding restricted stock units;
 
6,414,132 shares of common stock issuable upon conversion of the 2016 convertible notes payable as of December 31, 2016;
 
5,967,054 shares of common stock issuable upon the exercise of warrants outstanding as of December 31, 2016, at a weighted average exercise price of $0.34 per share; and
 
52,616,671 shares of common stock issuable upon exercise of Warrants to be issued in connection with this offering, including warrants to be issued to the placement agent.
 
            Although the foregoing includes common stock issuable upon conversion of outstanding 2016 Notes, as a result of the offering, the holders of such notes (i) may elect to convert all principal and accrued interest into shares of common stock at a 10% discount to the price per share of common stock in the offering; or (ii) shall receive a prepayment of 110% of outstanding principal and 110% of all accrued unpaid interest directly from the proceeds of this offering. As a result, in the event all holders of 2016 Notes elect to convert into common stock, an additional 4,329,540 shares of common stock will be issued and outstanding.
 
 
-22-
 
DILUTION
 
If you invest in our common stock in this offering, your ownership interest will immediately be diluted to the extent of the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the as adjusted net tangible book deficit per share of our common stock immediately after this offering.
 
As of December 31, 2016, our historical net tangible book deficit was approximately $(4.8) million, or ($0.04) per share of our common stock. Net tangible book deficit per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding as of December 31, 2016.
 
After giving further effect to our sale of 25,666,669 shares of our common stock in this offering at a public offering price of $0.15 per share and related Warrants, and after deducting placement agent’s fees and estimated offering expenses payable by us, our as adjusted net tangible book deficit as of December 31, 2016 would have been approximately $(1.5) million, or approximately ($0.01) per share of our common stock. This represents an immediate increase in as adjusted net tangible book value of $0.03 per share to existing stockholders and an immediate dilution of $0.16 per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this dilution:
 
Public offering price per share and related Warrants
 
 
 
 $0.15
 
 
 
 
    
Net tangible book deficit per share as of December 31, 2016
 $(0.04)
    
 
    
    
Increase per share attributable to new investors in this offering
    0.03
    
  
    
    
As adjusted net tangible book deficit per share after this offering
    
 (0.01) 
  
    
    
Dilution per share to new investors in this offering
    
 $0.16
 

 
-23-

The foregoing table and discussion is based on 121,694,293 shares of our common stock outstanding as of December 31, 2016 and excludes the following, in each case as of such date:
 
237,500 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2016, at a weighted average exercise price of $0.22 per share;
 
15,983,814 unallocated shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of no shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan ("2013 Plan "), 146,314 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan ("2014 Plan"), and 15,837,500 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan ("2016 Plan") (together, the “Incentive Plans ”), and such additional shares that become available under our Incentive Plans pursuant to provisions thereof that automatically increase the share reserves under the Incentive Plans each year;
 
12,874,848 shares of common stock reserved for issuance of outstanding restricted stock units;
 
6,414,132 shares of common stock issuable upon conversion of the 2016 convertible notes payable as of December 31, 2016;
 
5,967,054 shares of common stock issuable upon the exercise of warrants outstanding as of December 31, 2016, at a weighted average exercise price of $0.34 per share; and
 
52,616,671 shares of common stock issuable upon exercise of Warrants to be issued in connection with this offering, including warrants to be issued to the placement agent.
 
Although the foregoing includes common stock issuable upon conversion of outstanding 2016 Notes, as a result of the offering, the holders of such notes (i) may elect to convert all principal and accrued interest into shares of common stock at a 10% discount to the price per share of common stock in the offering; or (ii) shall receive a prepayment of 110% of outstanding principal and 110% of all accrued unpaid interest directly from the proceeds of this offering. As a result, in the event all holders of 2016 Notes elect to convert into common stock, an additional 4,329,540 shares of common stock will be issued and outstanding.
 
To the extent that any of the outstanding options or warrants to purchase shares of our common stock are exercised, new investors may experience further dilution. In addition, we may issue additional shares of common stock, other equity securities or convertible debt securities in the future, which may cause further dilution to new investors in this offering.
 
 
 
-24-
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
Historical results and trends should not be taken as indicative of future operations. Management's statements contained in this report that are not historical facts are forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "prospects," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition and generally accepted accounting principles. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
 
Overview
 
We are an emerging over-the-counter ("OTC") consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine and consumer care products to improve men’s and women’s health and vitality and respiratory diseases.  We deliver innovative and uniquely presented and packaged health solutions through our (a) OTC medicines and consumer and health products, which we market directly, (b) commercial partners to primary care physicians, urologists, gynecologists and therapists, and (c) directly to consumers through our on-line channels, retailers and wholesalers. We are dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products. We are actively pursuing opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.
 
Our business model leverages our ability to (a) develop and build our current pipeline of products and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through our existing supply chain, retail and on-line (including Amazon®-based business platform) channels to tap new markets and drive demand for such products and to establish physician relationships. We currently have 17 products marketed in the U.S with six of those being marketed and sold in multiple countries around the world through some of our 14 commercial partners. We currently expect to launch an additional five products in the U.S. in 2017 and we currently have approvals to launch certain of our already marketed products in 31 additional countries.
 
Our Strategy
 
Our corporate strategy focuses on two primary objectives:
 
1.
Developing a diversified product portfolio of exclusive, unique and patented non-prescription OTC and branded ANDA drugs and consumer health products through: (a) the introduction of line extensions and reformulations of either our or third-party currently marketed products; and (b) the acquisition of products or obtaining exclusive licensing rights to market such products; and
 
2.
Building an innovative, U.S. and global sales and marketing model through direct to consumer approaches such as our proprietary Beyond Human® Sales and Marketing platform, the addition of new online platforms such as Amazon® and commercial partnerships with established international complimentary partners that: (a) generates revenue, and (b) requires a lower cost structure compared to traditional pharmaceutical companies thereby increasing our gross margins.
 
 
-25-
 
Our Products
 
We currently generate revenue from 17 products in the U.S. and six in international countries, as follows:
 
1. 
Vesele® for promoting sexual and health (U.S. and U.K.);
2. 
Zestra® for female arousal (U.S., U.K., Denmark, Canada, Morocco, the UAE and South Korea);
3. 
Zestra Glide® (U.S, Canada and the MENA countries);
4. 
EjectDelay® indicated for the treatment of premature ejaculation (U.S. and Canada);
5. 
Sensum+® to alleviate reduced penile sensitivity (U.S., U.K. and Morocco);
6. 
Beyond Human® Testosterone Booster;
7. 
Beyond Human® Ketones;
8. 
Beyond Human ® Krill Oil;
9. 
Beyond Human® Omega 3 Fish Oil;
10. 
Beyond Human® Vision Formula;
11. 
Beyond Human® Blood Sugar;
12. 
Beyond Human® Colon Cleanse;
13. 
Beyond Human® Green Coffee Extract;
14. 
Beyond Human® Growth Agent;
15. 
RecalMax for brain health;
16. 
Androferti® (U.S. and Canada) for the support of overall male reproductive health and sperm quality; and
17. 
UriVarx for overactive bladder and urinary incontinence.
 
In addition, we currently expect to launch in the U.S. the following products in 2017, subject to the applicable regulatory approvals, if required:
 
1.     Xyralid™ for the relief of the pain and symptoms caused by hemorrhoids (first half of 2017);
2.     AllerVarx for allergic rhinitis symptoms (first half of 2017);
3.     AndroVit™ for prostate and sexual health (second half of 2017);
4.     Urocis™ XR for urinary tract infections in women (second half of 2017); and
5.     FlutiCare for allergic rhinitis subject to FDA ANDA approval (second half of 2017).
 
Sales and Marketing Strategy U.S. and Internationally
 
Our sales and marketing strategy is based on (a) the use of direct to consumer advertisements in print and online media through our proprietary Beyond Human® sales and marketing infrastructure acquired in March 2016, (b) working with direct commercial channel partners in the U.S. and also directly marketing the products ourselves to physicians, urologists, gynecologists and therapists and to other healthcare providers, and (c) working with exclusive commercial partners outside of the U.S. that would be responsible for sales and marketing in those territories. We have now fully integrated most of our existing line of products such as Vesele®, Sensum+®, UriVarx, Zestra®, and RecalMax into the Beyond Human® sales and marketing platform. We plan to integrate Xyralid™, AllerVarx, AndroVit™, Urocis™ XR; and FlutiCare, subject to regulatory approvals, upon their commercial launches in 2017. We also market and distribute our products in the U.S. through retailers, wholesalers and other online channels. Our strategy outside the U.S. is to partner with companies who can effectively market and sell our products in their countries through their direct marketing and sales teams. The strategy of using our partners to commercialize our products is designed to limit our expenses and fix our cost structure, enabling us to increase our reach while minimizing our incremental spending.
 
Our current OTC monograph, Rx-to-OTC ANDA switch drugs and consumer care products marketing strategy is to focus on four main U.S. markets which we believe each to be in excess of $1.0 billion: (1) Sexual health (female and male sexual dysfunction and health); (2) Urology (bladder and prostate health); (3) Respiratory disease; and (4) Brain health. We will focus our current efforts on these four markets and will seek to develop, acquire or license products that we can sell through our sales channels in these fields.
 
 
-26-
 
Results of Operations for the Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
 
  
 
  Year Ended December 31, 2016
 
 
  Year Ended December 31, 2015
 
 
$ Change
 
 
  % Change
 
NET REVENUE:
 
 
 
 
 
 
 
 
 
 
 
 
Product sales, net
 4,817,603 
 730,717 
 4,086,886 
  559.3%
License revenue
  1,000 
  5,000 
  (4,000)
  (80.0)%
     Net revenue
  4,818,603 
  735,717 
  4,082,886 
  555.0%
 
    
    
    
    
OPERATING EXPENSE:
    
    
    
    
Cost of product sales
  1,083,094 
  340,713 
  742,381 
  217.9%
Research and development
  77,804 
  - 
  77,804 
  100.0%
Sales and marketing
  3,621,045 
  82,079 
  3,538,966 
  4,311.7%
General and administrative
  5,870,572 
  3,828,113 
  2,042,459 
  53.4%
Impairment of goodwill
  - 
  759,428 
  (759,428)
  (100.0)%
     Total operating expense
  10,652,515 
  5,010,333 
  5,642,182 
  112.6%
LOSS FROM OPERATIONS
  (5,833,912)
  (4,274,616)
  (1,559,296)
  36.5%
OTHER INCOME (EXPENSE):
    
    
    
    
Interest expense
  (6,661,694)
  (1,153,376)
  (5,508,318)
  477.6%
Loss on extinguishment of debt
  - 
  (32,500)
  32,500 
  (100.0)%
Other income (expense), net
  1,649 
  (8,495)
  10,144 
  (119.4)%
Change in fair value of contingent consideration
  (1,269,857)
  115,822 
  (1,385,679)
  (1,196.4)%
Change in fair value of derivative liabilities
  65,060 
  393,509 
  (328,449)
  (83.5)%
LOSS BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES
  (13,698,754)
  (4,959,656)
  (8,739,098)
  176.2%
Provision for (benefit from) income taxes
  2,400 
  (757,028)
  759,428 
  (100.3)%
NET LOSS
 (13,701,154)
 (4,202,628)
 (9,498,526)
  226.0%
 
 Net Revenue
 
We recognized net revenue of approximately $4.8 million for the year ended December 31, 2016 compared to $0.7 million for the year ended December 31, 2015. The increase in revenue in 2016 was primarily the result of the product sales generated through the sales and marketing platform acquired in the Beyond Human® asset acquisition. The increase was also due to an increase in sales of Vesele® and Sensum+® which generated net revenue of approximately $2.2 million and $0.4 million during the year ended December 31, 2016, respectively, compared to approximately $7,000 and less than $1,000 during the year ended December 31, 2015, respectively. We generated additional net revenue of approximately $0.8 million and $0.2 million when selling Vesele® and Sensum+® with other Beyond Human® products during the year ended December 31, 2016, respectively. The increase in net revenue from the sale of products through the Beyond Human® sales and marketing platform was offset by decreases in our other existing product sales channels to major retailers and wholesalers as we concentrated our sales efforts and resources on integrating our existing products into the Beyond Human® sales and marketing platform. The decreases in existing product sales channels resulted in net revenue from the Zestra® products decreasing approximately $0.3 million during the year ended December 31, 2016 when compared to the same period in 2015. We signed an exclusive license and distribution agreement in November 2016 which is expected to lead to an increase in product sales of Zestra® and Zestra Glide® through that sales channel in 2017.
 
 
-27-
 
 
Cost of Product Sales
 
We recognized cost of product sales of approximately $1.1 million for the year ended December 31, 2016 compared to $0.3 million for the year ended December 31, 2015. The cost of product sales includes the cost of inventory, shipping and royalties. The increase in cost of product sales is a result of higher shipping costs due to an increase in the number of units shipped.  The increase in the gross margin to 78% in 2016 compared to 54% in 2015 is due to the higher margins earned on the increased volume of our product sales through the Beyond Human® sales and marketing platform. The increased margin in 2016 is also due to fewer sales when compared to 2015 through our retail and wholesale sales channels, which have lower margins.
 
Research and Development
 
We recognized research and development expense of approximately $78,000 for the year ended December 31, 2016 compared to no expense for the year ended December 31, 2015. The research and development expense includes salary and the related health benefits for an employee, the fair value of the shares of common stock issued to CRI totaling $23,000 for the settlement of certain clinical and regulatory milestone payments due under the in-license agreement for Sensum+®, as well as, clinical costs incurred related to post marketing studies for Vesele® and Beyond Human® Testosterone Booster.
 
Sales and Marketing
 
We recognized sales and marketing expense of approximately $3.6 million for the year ended December 31, 2016 compared to $82,000 for the year ended December 31, 2015. Sales and marketing expense of $3.6 million during the year ended December 31, 2016 consists primarily of print advertisements and sales and marketing support. The increase in sales and marketing expense during the year ended December 31, 2016 when compared to the same period in 2015 is due to the costs of integration of our existing products into the Beyond Human® sales and marketing platform and the increase in the number of print and online media advertisements of our existing products through the Beyond Human® platform. The increase is also attributable to increased costs in sales and marketing support services due to the higher volume of sales orders received as a result of the Beyond Human® asset acquisition and the integration of more products into this platform.
 
General and Administrative
 
We recognized general and administrative expense of approximately $5.9 million for the year ended December 31, 2016 compared to $3.8 million for the year ended December 31, 2015. General and administrative expense consists primarily of investor relation expense, legal, accounting, public reporting costs and other infrastructure expense related to the launch of our products.  Additionally, our general and administrative expense includes professional fees, insurance premiums and general corporate expense. The increase is primarily due to the increase in non-cash stock-based compensation to consultants for services rendered, an increase in merchant processing fees due to increased credit card sales volume, an increase in the amortization of intangible assets as a result of the acquisitions in 2016 and 2015 and increased payroll and related costs due to the increase in headcount when compared to 2015.
 
Other Income and Expense
 
We recognized interest expense of approximately $6.7 million for the year ended December 31, 2016 compared to $1.2 million for the year ended December 31, 2015. Interest expense primarily includes interest related to our debt, amortization of debt discounts and the fair value of the embedded conversion feature derivative liability in excess of the proceeds allocated to the debt (see Notes 5, 6 and 9 to the accompanying consolidated financial statements included elsewhere in this Annual Report). Due to the shares, warrants and cash discounts provided to our lenders, the effective interest rate is significantly higher than the coupon rate. The increase in interest expense reflects the larger amount of debt discount amortization of approximately $2.7 million when compared to 2015 due to the convertible debt and note payable financings completed in 2016 and 2015 and the increase in the fair value in excess of the allocated proceeds of the embedded conversion feature in the convertible debt financings in June and July of 2016 of approximately $2.7 million.
 
 
-28-
 
 
We recognized a loss from the change in fair value of contingent consideration of approximately $1.3 million for the year ended December 31, 2016 compared to a gain from the change in fair value of consideration of $0.1 million for the year ended December 31, 2015. Change in fair value of contingent consideration consists primarily of the increase in the fair value of the contingent ANDA shares of common stock issuable to Novalere Holdings, LLC in connection with our acquisition in 2015 totaling approximately $1.4 million and the increase in the royalty contingent consideration to Semprae of approximately $103,000 (see Note 3 to the accompanying consolidated financial statements included elsewhere in this Annual Report). Such amount was offset with the gain on contingent consideration of $180,000 as a result of the settlement agreement entered into with the sellers of the Beyond Human® assets in September 2016 (see Note 3 to the accompanying consolidated financial statements included elsewhere in this Annual Report).
 
We recognized a gain from the change in fair value of derivative liabilities of approximately $65,000 for the year ended December 31, 2016 compared a gain from the change in fair value of derivative liabilities of $0.4 million for the year ended December 31, 2015. Change in fair value of derivative liabilities primarily includes the change in the fair value of the warrants and embedded conversion features classified as derivative liabilities. The decrease in the gain on change in fair value of derivative liabilities during the year ended December 31, 2016 is due to the increase in our stock price during that period when compared to 2015.
 
Income Taxes
 
We recognized a provision for income taxes of $2,400 for the year ended December 31, 2016 compared to a benefit from income taxes of approximately $0.8 million for the year ended December 31, 2015.  The benefit from income taxes during the year ended December 31, 2015 is due to the release of a portion of the deferred tax valuation allowance as a result of the Novalere acquisition.
 
Net Loss
 
Net loss for the year ended December 31, 2016 was approximately $(13.7 million), or $(0.15) basic and diluted net loss per share, compared to a net loss for the same period in 2015 of $(4.2 million), or $(0.08) basic and diluted net loss per share.
 
Liquidity and Capital Resources
 
Historically, we have funded losses from operations through the sale of equity and issuance of debt instruments. Combined with revenue, these funds have provided us with the resources to operate our business, to sell and support our products, attract and retain key personnel, and add new products to our portfolio. To date, we have experienced net losses each year since our inception. As of December 31, 2016, we had an accumulated deficit of $29.1 million and a working capital deficit of $1.7 million.
 
As of February 28, 2017, we had approximately $0.7 million in cash and $150,000 of cash collections held by our third-party merchant service provider, which is expected to be remitted to us by April 2017. Although no assurances can be given, we currently plan to raise additional capital through the sale of equity or debt securities. We expect, however, that our existing capital resources, revenue from sales of our products and upcoming new product launches and sales milestone payments from the commercial partners signed for our products, and equity instruments available to pay certain vendors and consultants, will be sufficient to allow us to continue our operations, commence the product development process and launch selected products through at least the next 12 months. In addition, our Chief Executive Officer, who is also a significant shareholder, has deferred the payment of his salary earned thru June 30, 2016 for at least the next 12 months.
 
 
 
-29-
 
 
Our principal debt instruments include the following:
 
February 2016 Note Payable
 
On February 24, 2016, the Company and SBI Investments, LLC, 2014-1 (“SBI”) entered into an agreement in which SBI loaned us gross proceeds of $550,000 pursuant to a purchase agreement, 20% secured promissory note and security agreement (“February 2016 Note Payable”), all dated February 19, 2016 (collectively, the “Finance Agreements”), to purchase substantially all of the assets of Beyond Human®.  Of the $550,000 gross proceeds, $300,000 was paid into an escrow account held by a third-party bank and was released to Beyond Human® upon closing of the transaction, $242,500 was provided directly to us for use in building the Beyond Human® business and $7,500 was provided for attorneys’ fees.
 
Pursuant to the Finance Agreements, the principal amount of the February 2016 Note Payable is $550,000 and the interest rate thereon is 20% per annum.  We began to pay principal and interest on the February 2016 Note Payable on a monthly basis beginning on March 19, 2016 for a period of 24 months and the monthly mandatory principal and interest payment amount thereunder is $28,209. The monthly amount shall be paid by us through a deposit account control agreement with a third-party bank in which SBI shall be permitted to take the monthly mandatory payment amount from all revenue received by us from the Beyond Human® assets in the transaction.  The maturity date for the February 2016 Note Payable is February 19, 2018. The February 2016 Note Payable is secured by SBI through a first priority secured interest in all of the Beyond Human® assets acquired by us in the transaction including all revenue received by us from these assets.
 
Convertible Debentures - 2016 Financing
 
In the second and third quarter of 2016, we entered into Securities Purchase Agreements with eight accredited investors (the “Investors”), pursuant to which we received aggregate gross proceeds of $3,000,000 (net of OID). We sold nine convertible promissory notes totaling $3,303,889 (each a “2016 Note” and collectively the “2016 Notes”) (the 2016 Notes were sold at a 10% OID and we received an aggregate total of $2,657,500 in funds thereunder after debt issuance costs of $342,500). The 2016 Notes and accrued interest are convertible into shares of our common stock at a conversion price of $0.25 per share, with certain adjustment provisions noted below. The maturity date of the 2016 Notes issued on June 30, 2016 and July 15, 2016 is July 30, 2017 and the maturity date of the 2016 Notes issued on July 25, 2016 is August 25, 2017. The 2016 Notes bear interest on the unpaid principal amount at the rate of 5% per annum from the date of issuance until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.
 
Notwithstanding the foregoing, upon the occurrence of an Event of Default as defined in such 2016 Notes, a Default Amount is equal to the sum of (i) the principal amount, together with accrued interest due thereon through the date of payment payable at the holder’s option in cash or common stock and (ii) an additional amount equal to the principal amount payable at our option in cash or common stock. For purposes of payments in common stock, the following conversion formula shall apply: the conversion price shall be the lower of: (i) the fixed conversion price ($0.25) or (ii) 75% multiplied by the volume weighted average price of our common stock during the ten consecutive trading days immediately prior to the later of the Event of Default or the end of the applicable cure period. For purposes of the Investors request of repayment in cash but we are unable to do so, the following conversion formula shall apply: the conversion price shall be the lower of: (i) the fixed conversion price ($0.25) or (ii) 60% multiplied by the lowest daily volume weighted average price of our common stock during the ten consecutive trading days immediately prior to the conversion. Certain other conversion rates apply in the event of our sale or merger, default and other defined events.
 
We may prepay the 2016 Notes at any time on the terms set forth in the 2016 Notes at the rate of 110% of the then outstanding balance of the 2016 Notes. Under the terms of the 2016 Notes, we shall not effect certain corporate and business actions during the term of the 2016 Notes, although some may be done with proper notice. Pursuant to the Securities Purchase Agreements, with certain exceptions, the Investors have a right of participation during the term of the 2016 Notes; additionally, we granted the 2016 Note holders registration rights for the shares of common stock underlying the 2016 Notes up to $1,000,000 pursuant to Registration Rights Agreements.
 
 
 
-30-
 
 
December 2016 and January 2017 Notes Payable
 
On December 5, 2016 and January 19, 2017, we entered into a securities purchase agreement with three unrelated third-party investors in which the investors loaned us gross proceeds of $650,000 pursuant to 5% promissory notes.  The notes have an OID of $65,000 and requires payment of $715,000 in principal upon maturity. The notes bear interest at the rate of 5% per annum and the principal amount and interest are payable at maturity on October 4, 2017 and November 18, 2017. In connection with the notes, we issued the investors restricted shares of common stock totaling 1,441,111.  The fair value of the restricted shares of common stock issued was based on the market price of our common stock on the date of issuance of the notes.
 
Net Cash Flows
 
 
 
For the Year Ended December 31, 2016 
 
 
For the Year Ended December 31, 2015   
 
 
 
 
 
 
 
 
Net cash used in operating activities
 (1,784,258)
 (1,031,727)
Net cash used in investing activities
  (172,103)
  (12,816)
Net cash provided by financing activities
  2,730,393 
  1,092,965 
Net change in cash
  774,032 
  48,422 
Cash at beginning of the year
  55,901 
  7,479 
Cash at the end of the year
 829,933 
 55,901 
 
Operating Activities
 
For the year ended December 31, 2016, cash used in operating activities was approximately $1.8 million, consisting primarily of the net loss for the period of approximately $13.7 million, which was primarily offset by non-cash common stock, restricted stock units and stock options issued for services and compensation of approximately $2.7 million, amortization of debt discount of $3.6 million, fair value of the embedded conversion feature in excess of allocated proceeds of $2.8 million, change in fair value of contingent consideration of $1.4 million and amortization of intangible assets of $0.6 million. The non-cash expense was offset with the non-cash gain on contingent consideration of $0.2 million and change in fair value of derivative liabilities of $65,000. Additionally, working capital changes consisted of cash increases of approximately $1.0 million related to a decrease in accounts receivable from cash collections from customers of approximately $48,000, $0.9 million related to an increase in accrued compensation, and $0.7 million related to an increase in accounts payable and accrued expense, partially offset by a cash decrease related to the increase in prepaid expense and other current assets of $0.3 million and inventories of $0.3 million. The increase in net cash used in operating activities from 2015 was mainly due to expanding our operations, including hiring additional personnel, commercialization and marketing activities related to our existing products and those acquired in 2016, as well as, purchasing more finished goods inventory to fulfill the forecasted increase in revenue in 2017.
 
Investing Activities
 
For the year ended December 31, 2016, cash used in investing activities was approximately $0.2 million which consisted of the contingent consideration payment of approximately $0.2 million made to the seller of the Beyond Human® assets, as well as, a contingent royalty payment to Semprae for Zestra® product sales in 2015. Cash used in investing activities in 2015 was primarily related to the purchase of property and equipment.
 
 
-31-
 
 
Financing Activities
 
For the year ended December 31, 2016, cash provided by financing activities was approximately $2.7 million, consisting primarily of the net proceeds from notes payable and convertible debentures of approximately $3.6 million and proceeds from warrant exercises of $0.3 million, offset by the repayment of short-term loans payable of $0.3 million, notes payable of $0.4 million and the related party line of credit convertible debenture of $0.4 million.  Cash provided by financing activities in 2015 was primarily related to net proceeds from notes payable and convertible debentures of approximately $1.5 million and proceeds from short-term loans payable of $0.3 million, offset by the repayment of notes payable of $0.4 million and related party non-convertible debentures of $0.1 million.
 
Sources of Capital
 
Our operations have been financed primarily through the sale of equity and issuance of debt instruments and revenue generated from the launch of our products and commercial partnerships signed for the sale and distribution of our products domestic and internationally. These funds have provided us with the resources to operate our business, sell and support our products, attract and retain key personnel and add new products to our portfolio. We have experienced net losses and negative cash flows from operations each year since our inception.  As of December 31, 2016, we had an accumulated deficit of approximately $29.1 million and a working capital deficit of $1.7 million.
 
We have raised funds through the issuance of debt and the sale of common stock. We have also issued equity instruments in certain circumstances to pay for services from vendors and consultants. For the year ended December 31, 2016, we raised approximately $3.6 million in funds, which included net proceeds of $2.7 million from the issuance of convertible debentures (with warrants and common stock) and $0.9 million from the issuance of notes payable. The funds raised through the issuance of the convertible debentures were used to pay off other debt instruments and accounts payable, to increase inventory and for the expanded operations in 2016. In the event we do not pay the convertible debentures upon their maturity, or after the remedy period, the note holder has the right to convert the principal amount and accrued interest into shares of common stock at the lower of $0.25 per share or 60% multiplied by the lowest daily volume weighted average price of our shares of common stock. The outstanding convertible debentures principal and interest balance at December 31, 2016 was approximately $1.6 million.
 
Our actual needs will depend on numerous factors, including timing of introducing our products to the marketplace, our ability to attract additional Ex-U.S. distributors for our products and our ability to in-license in non-partnered territories and/or develop new product candidates. In addition, we continue to seek new licensing agreements from third-party vendors to commercialize our products in territories outside the U.S., which could result in upfront, milestone, royalty and/or other payments.
 
We may seek to raise additional capital, debt or equity from outside sources to pay for further expansion and development of our business and to meet current obligations, although no assurances can be given. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly issued equity or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders. If we raise funds by incurring additional debt,we may be required to pay significant interest expense and our leverage relative to our earnings or to our equity capitalization may increase. Obtaining commercial loans, assuming they would be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities, such as financial and operating covenants. Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including investment banking fees, legal fees, accounting fees, printing and distribution expense and other costs. We may also be required to recognize non-cash expense in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial results. Wemay be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals industries, or our operating history. In addition, the fact that we are not and have neverbeen profitable could further impact the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us. If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations entirely.
  
 
-32-
 
 
Critical Accounting Policies
 
See the “Critical Accounting Policies” discussed in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the year ended December 31, 2016.
 
Off Balance Sheet Arrangements
 
None.
 
Director Independence
 
We are not a listed issuer and, therefore, for purposes of determining whether our directors are independent, we are to use a definition of independence of a national securities exchange or of an inter-dealer quotation system which has requirements that a majority of the board of directors be independent, and state which definition is used. Whatever such definition we choose, we must use the same definition with respect to all directors. Our board of directors has determined that three of our current directors, Dr. Henry Esber, Ms. Vivian Liu, and Dr. Ziad Mirza, are independent as defined by the NASDAQ Marketplace Rules. 
 
We are not required to have any independent members of the board of directors.
 
Limited Public Market for Common Stock
 
There is presently a limited public market for our common stock.  We are listed on the OTCQB marketplace under the symbol “INNV.” The approximate last closing price of our common stock was $0.18 on March 15, 2017.
 
 
-33-
 
BUSINESS
 
Overview
 
We are an emerging over-the-counter (“OTC”) consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine and consumer care products to improve men’s and women’s health and vitality and respiratory diseases.  We deliver innovative and uniquely presented and packaged health solutions through our (a) OTC medicines and consumer and health products, which we market directly, (b) commercial partners to primary care physicians, urologists, gynecologists and therapists, and (c) directly to consumers through our on-line channels, retailers and wholesalers. We are dedicated to being a leader in developing and marketing new OTC and branded Abbreviated New Drug Application (“ANDA”) products. We are actively pursuing opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC. These “Rx-to-OTC switches” require Food and Drug Administration (“FDA”) approval through a process initiated by the New Drug Application (“NDA”) holder.
 
Our business model leverages our ability to (a) develop and build our current pipeline of products, and (b) to also acquire outright or in-license commercial products that are supported by scientific and/or clinical evidence, place them through our existing supply chain, retail and on-line (including Amazon®-based business platform) channels to tap new markets and drive demand for such products and to establish physician relationships. We currently have 17 products marketed in the United States with six of those being marketed and sold in multiple countries around the world through some of our 14 commercial partners. We currently expect to launch an additional five products in the U.S. in 2017 and we currently have approvals to launch certain of our already marketed products in 31 additional countries.
 
Corporate Structure
 
We incorporated in the State of Nevada. In December 2011, we merged with FasTrack Pharmaceuticals, Inc. and changed our name to “Innovus Pharmaceuticals, Inc.”
 
In December 2013, we acquired Semprae, which had two commercial products in the U.S. and one in Canada. As a result, Semprae became our wholly-owned subsidiary.
 
In February 2015, we entered into a merger agreement, whereby we acquired Novalere and its worldwide rights to the Fluticare brand (Fluticasone propionate nasal spray).  We expect that the ANDA filed in November 2014 with the FDA may be approved in 2017, which will allow us to market and sell Fluticare over the counter in the U.S in the second half of 2017.
 
Our Strategy
 
Our corporate strategy focuses on two primary objectives:
 
1
Developing a diversified product portfolio of exclusive, unique and patented non-prescription OTC and branded ANDA drugs and consumer health products through: (a) the introduction of line extensions and reformulations of either our or third-party currently marketed products; and (b) the acquisition of products or obtaining exclusive licensing rights to market such products; and
 
2.
Building an innovative, U.S. and global sales and marketing model through direct to consumer approaches such as our proprietary Beyond Human® Sales and Marketing platform, the addition of new online platforms such as Amazon® and commercial partnerships with established international complimentary partners that: (a) generates revenue, and (b) requires a lower cost structure compared to traditional pharmaceutical companies thereby increasing our gross margins.
 
 
 
-34-
 
 
We believe that our proven ability to market, license, acquire and develop brand name non-prescription pharmaceutical and consumer health products uniquely positions us to commercialize our products and grow in this market in a differentiated way. The following are additional details about our strategy:
 
Focusing on acquisition and licensing of commercial, non-prescription pharmaceutical and consumer health products that are well aligned with current therapeutic areas of male and female sexual health, pain, vitality and respiratory diseases. In general, we seek non-prescription pharmaceutical (OTC monograph, Rx to OTC ANDA switched drugs) and consumer health products that are already marketed with scientific and/or clinical data and evidence that are aligned with our therapeutic areas, which we then can grow through promotion to physicians and expanding sales through our existing retail and online channels and commercial partners on a worldwide basis. We have done this through our acquisitions and licensing of (1) Sensum+® from Centric Research Institute or CRI, (2) Zestra® and Zestra Glide® from Semprae, (3) Vesele® from Trōphikōs, LLC, (4) U.S. and Canada rights to Androferti® from Laboratorios Q Pharma (Spain), (5) FlutiCare from Novalere, and (6) UriVarx from Seipel Group;
 
Increasing the number of U.S. non-exclusive distribution channel partners for direct and online sales and also open more channels directly to physicians, urologists, gynecologists and therapists. One of our goals is to increase the number of U.S. distribution channel partners that sell our products. To do this, we have devised a three-pronged approach. First, we are seeking to expand the number of OTC direct selling partners, such as the larger in-store distributors for selected products, and to expand sales to the more regional, statewide and local distributors, such as regional pharmacy chains, large grocery stores and supplement and health stores for selected products. Second, we are working to expand our online presence through relationships with well-known online sellers and the acquisition of additional platforms such as established Amazon stores® . Third, we are seeking to expand sales of our OTC products directly through sampling programs and detailing to physicians, urologists, gynecologists, therapists and to other healthcare providers who generally are used to recommending to their patients products that are supported by strong scientific and/or clinical data and evidence;
 
Seeking commercial partnerships outside the U.S. and developing consistent international commercial and distribution systems.  We seek to develop a strong network of international distribution partners outside of the U.S. To do so, we are relying in part on past relationships that Dr. Bassam Damaj, our President and Chief Executive Officer, has had with certain commercial partners globally.  In addition, we believe we have the ability to develop new relationships with commercial distributors who can demonstrate they have leading positions in their regions and can provide us with effective marketing and sales efforts and teams to detail our products to physicians and therapists. Our commercial partners outside the U.S. are responsible for storing, distributing and promoting our products to physicians, urologists, gynecologists, therapists and to other healthcare providers. We have already entered into 14 commercial partnerships covering our products in 65 countries outside the U.S.;
 
Developing a proprietary patent portfolio to protect the therapeutic products and categories we desire to enter. We have filed and are working to secure patent claims in the U.S. and abroad covering product inventions and innovations that we believe are valuable. These patents, if issued and ultimately found to be valid, may enable us to create a barrier to entry for competitors on a worldwide basis; and
 
Achieving cost economies of scale from lower cost manufacturing, integrated distribution channels and multiple product discounts. We believe that we can achieve higher gross margins per product by shifting manufacturing to lower cost manufacturers. We also feel that we can acquire other OTC and consumer healthcare products and reintroduce them into our networks and sales and marketing platforms utilizing our integrated distribution and direct to consumer channels, thus receiving multiple product economies of scale from our distribution partners.
 
 
-35-
 
Our Products
 
Marketed Products
 
We currently market 17 products in the United States and six in multiple countries around the world through our commercial partners:
 
1.
Vesele® for promoting sexual and health (U.S. and U.K.);
2.
Zestra® for female arousal (U.S., U.K., Denmark, Canada, Morocco, the UAE and South Korea);
3.
Zestra Glide® (U.S, Canada and the MENA countries);
4.
EjectDelay® indicated for the treatment of premature ejaculation (U.S. and Canada);
5.
Sensum+® to alleviate reduced penile sensitivity (U.S., U.K. and Morocco);
6.
Beyond Human® Testosterone Booster;
7.
Beyond Human® Ketones;
8.
Beyond Human® Krill Oil;
9.
Beyond Human® Omega 3 Fish Oil;
10.
Beyond Human® Vision Formula;
11.
Beyond Human® Blood Sugar;
12.
Beyond Human® Colon Cleanse;
13.
Beyond Human® Green Coffee Extract;
14.
Beyond Human® Growth Agent;
15.
RecalMax for brain health;
16.
Androferti® (U.S. and Canada) supports overall male reproductive health and sperm quality; and
17.
UriVarx for overactive bladder and urinary incontinence.
  
Below is a more detailed description of each of our main products that we currently market and sell:
 
Vesele®
 
Vesele® is a proprietary oral supplement of Arginine with high absorption backed with clinical use data in men and women for sexual dysfunction. Vesele® contains a patented formulation of L-Arginine and L-Citrulline in combination with the natural absorption enhancer Bioperine®. The beneficial effects of Vesele® on sexual and cognitive functions were confirmed in a four month US clinical survey study involving 152 patients (69 men and 83 women). Results from the clinical survey have indicated (1) improvement of erectile hardness and maintenance in men and increased sexual intercourse frequency with their partners, and (2) lubrication in women, when taken separately by each.  
 
Sensum+®
 
Sensum+® is a non-medicated cream which moisturizes the head and shaft of the penis for enhanced feelings of sensation and greater sexual satisfaction. It is a patent-pending blend of essential oils and ingredients generally recognized as safe that recently commenced marketing in the U.S. We acquired the global ex-U.S. distribution rights to Sensum+® from CRI. The safety and efficacy of Sensum+® was evaluated in two post-marketing survey studies in circumcised and non-circumcised men. A total of 382 men used Sensum+® twice daily for 14 consecutive days followed by once daily for eight weeks and as needed thereafter. Study participants reported a ~50% increase in penile sensitivity with the use of Sensum+®.
 
Beyond Human® Testosterone Booster (BHT)
 
BHT is a proprietary oral supplement containing clinically tested ingredients to increase libido, vitality and sexual health endpoints in combination with the natural absorption enhancer Bioperine®.
 
Zestra®
 
Zestra® is our proprietary blend of essential oils proven in two peer-reviewed and published U.S. placebo controlled clinical trials in 276 women to increase desire, arousal and satisfaction. Zestra® is commercialized in the U.S. and Canada through major retailers, drug wholesalers such as McKesson and Cardinal Health and online.
 
 
-36-
 
Female Sexual Arousal Disorder, or FSAD, is a disorder part of the Female Sexual Dysfunction, or FSD, and is characterized by the persistent or recurrent inability to attain sexual arousal or to maintain arousal until completion of sexual activity. 43% of women age 18-59 experience some sort of sexual difficulties with one approved prescription product. (Laumann, E.O. et al. Sexual Dysfunction in the United States: Prevalence and Predictors. JAMA, Feb. 10, 1999. vol. 281, No. 6.537-542). The arousal liquid market in the U.S. is estimated to be around $500.0 million.
RecalMax
RecalMax is a proprietary, novel oral dietary supplement to maximize nitric oxide’s beneficial effects on brain health. RecalMax contains a patented formulation of low dose L-Arginine and L-Citrulline, in combination with the natural absorption enhancer Bioperine®. The beneficial effects of RecalMax on cognitive functions were confirmed in a four month U.S. clinical survey study involving 152 patients (69 men and 83 women). Results from the clinical survey have indicated improvement in multiple brain functions including word recall and focus.
 
UriVarx
 
UriVarx is proprietary supplement clinically proven and to reduce urinary urgency, accidents and both day and night frequency in Overactive Bladder (“OAB”) and Urinary Incontinence (“UI”) patients. UriVarx was tested in OAB and UI patients in a 152 double blind placebo patient study over a period of eight weeks yielding up to 60% in reduction of urinary urgency and nocturnia.
 
EjectDelay®
 
EjectDelay® is our proprietary, clinical proven OTC monograph compliant 7.5% benzocaine gel for premature ejaculation.  Benzocaine acts to inhibit the voltage-dependent sodium channels on the nerve membrane, stopping the propagation of the action potential and resulting in temporary numbing of the application site.   EjectDelay® is applied to the head of the penis ten minutes before intercourse.   Premature Ejaculation, or PE, is the absence of voluntary control over ejaculation resulting in ejaculation either preceding vaginal entry or occurring immediately upon vaginal entry and is defined as an ejaculation latency time of less than one minute. It is estimated that over 30% of males suffer from PE with a market size of $1.0 billion with a 10.3% annual growth rate. Topical anesthetics make up 14% of the total PE market (The Journal of Sexual Medicine in 2007 Sex Med 2007).
 
 Zestra Glide®
 
Zestra Glide® is a clinically tested water-based longer lasting lubricant. We acquired Zestra Glide® in our acquisition of Semprae in December 2013. In a 57 patient safety clinical study, Zestra Glide® proved to be safe and caused no irritation or skin side effects during the six week trial. To our knowledge, Zestra Glide® is the only water-based lubricant clinically tested for safety and has a viscosity of over 16000cps on the market. Increased viscosity usually translates into longer effects. The lubricant market is estimated to be around $200.0 million in the U.S. (Symphony IRI Group Study, 2012).
 
Androferti®
 
Androferti® is a patented natural supplement that supports overall male reproductive health and sperm quality. Androferti®, has been shown in over five published clinical trials to statistically increase seminal quality (concentration, motility, morphology and vitality) and enhances spermatozoa quality (decreases of vacuoles in the sperm nucleus), decreases DNA fragmentation, decreases the dynamics of sperm DNA fragmentation and improvement on the inventory of mobile sperms.
 
Pipeline Products
 
Fluticare™ (Fluticasone propionate nasal spray)
 
We expect that the ANDA filed in November 2014 with the FDA to be approved in 2017, which will allow us to market and sell Fluticare™ over the counter in the second half of 2017.  FlutiCare™ is a nasal spray in the form of fluticasone propionate that has been the most prescribed nasal spray to patients in the U.S. for more than five consecutive years. The nasal steroid market is over $1.0 billion annually in the U.S. (Reed, Lee and McCrory, “The Economic Burden of Allergic Rhinitis, Pharmacoecomics 2004, 22 (6) 345-361).
 
 
 
-37-
 
Xyralid™
 
Xyralid™ is a lidocaine based cream for the relief of pain and symptoms caused by hemorrhoids. We expect to launch Xyralid™ in the first half of 2017 under our Beyond Human® sales and marketing platform.
 
AllerVarx
 
AllerVarx is a patented formulation produced in bilayer tablets with a technology that allows a controlled release of the ingredients. The fast-release layer allows the rapid antihistaminic activity of perilla. The sustained-release layer enhances quercetin and vitamin D3 bioavailability, thanks to its lipidic matrix, and exerts antiallergic activity spread over time. AllerVarx was studied in a clinical trial assessing the reduction of both nasal and ocular symptoms in allergic patients, and daily consumption of anti-allergic drugs, over a period of 30 days. AllerVarx showed a reduction of approximately 70% in total symptom scores and a reduction of approximately 73% in the use of anti-allergic drugs. There were no side effects noted during the administration of AllerVarx and all the patients enrolled finished the study with good compliance. We expect to launch this product in the first half of 2017.
 
Urocis™ XR
 
Urocis™ XR, a proprietary 24 hour extended release of vaccinium marcocarpon for urinary tract infections in women shown to provide 24-hour coverage in the body to increase compliance of the use of the product to get full benefit. According to Business Insights in their "The Antibacterials Market Outlook to 2016" report, urinary tract infections are very common, with an estimated incidence of 9.6%, or 7.0 million people in the U.S. Urinary tract infections typically affect post-pubescent females and the elderly. We expect to launch this product in the second half of 2017.
 
AndroVit™
 
AndroVit™ is a proprietary supplement to support overall prostate and male sexual health currently marketed in Europe. AndroVit™ was specifically formulated with ingredients known to support the normal prostate health and vitality and male sexual health. We expect to launch this product in the second half of 2017.
 
Sales and Marketing Strategy U.S. and Internationally
 
Our sales and marketing strategy is based on (a) the use of direct to consumer advertisements in print and online media through our proprietary Beyond Human® sales and marketing platform acquired in March 2016, (b) working with direct commercial channel partners in the U.S. and also directly marketing the products ourselves to physicians, urologists, gynecologists and therapists and to other healthcare providers, and (c) working with exclusive commercial partners outside of the U.S. that would be responsible for sales and marketing in those territories. We have now fully integrated most of our existing line of products such as Vesele®, Sensum+®, UriVarx, Zestra®, and RecalMax into the Beyond Human® sales and marketing platform. We plan to integrate Xyralid™, AllerVarx, AndroVit™, Urocis™ XR; and FlutiCare, subject to regulatory approvals, upon their expected commercial launches in 2017. We also market and distribute our products in the U.S. through retailers, wholesalers and other online channels. Our strategy outside the U.S. is to partner with companies who can effectively market and sell our products in their countries through their direct marketing and sales teams. The strategy of using our partners to commercialize our products is designed to limit our expenses and fix our cost structure, enabling us to increase our reach while minimizing our incremental spending.
 
Our current OTC, Rx-to-OTC ANDA switch drugs and consumer care products marketing strategy is to focus on four main U.S. markets which we all believe to be each in excess of $1.0 billion: (1) Sexual health (female and male sexual dysfunction and health); (2) Urology (bladder and prostate health); (3) Respiratory disease; and (4) Brain health. We will focus our current efforts on these four markets and will seek to develop, acquire or license products that we can sell through our sales channels in these fields.
 
 
-38-
 
Manufacturers and Single Source Suppliers
 
We use third-party manufacturers for the production of our products for development and commercial purposes. We believe there is currently excess capacity for manufacturing in the marketplace and opportunities to lower manufacturing cost through outsourcing to regions and countries that can do it on a more cost-effective basis. Some of our products are currently available only from sole or limited suppliers. We currently have multiple contract manufacturers for our multiple products and we issue purchase orders to these suppliers each time we require replenishment of our product inventory. All of our current manufacturers are based in the U.S. except for two based in Italy and we are looking to establish contract manufacturing for certain of our products in Europe and the Middle Eastern and Northern Africa region to reduce the cost and risk of supply chain to our current and potential commercial partners in their territories.
 
Government Regulation
 
Our products are normally subject to regulatory approval or must comply with various U.S. and international regulatory requirements. Unlike pharmaceutical companies who primarily sell prescription products, we currently sell drug or health products into the OTC market. While prescription products normally must progress from pre-clinical to clinical to FDA approval and then can be marketed and sold, our products are normally subject to conformity to FDA monograph requirements and similar requirements in other countries, which requires a shorter time frame for us to satisfy regulatory requirements and permits us to begin commercialization.
 
Below is a brief description of the FDA regulatory process for the Company’s products in the U.S.
 
US Food and Drug Administration
 
The FDA and other federal, state, local and foreign regulatory agencies impose substantial requirements upon the clinical development, approval, labeling, manufacture, marketing and distribution of drug products. These agencies regulate, among other things, research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, advertising and promotion of our product candidates. The regulatory approval process is generally lengthy and expensive, with no guarantee of a positive result. Moreover, failure to comply with applicable FDA or other requirements may result in civil or criminal penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from the market.
 
The FDA regulates, among other things, the research, manufacture, promotion and distribution of drugs in the U.S. under the Federal Food, Drug and Cosmetic Act, or the ("FFDCA"), and other statutes and implementing regulations. The process required by the FDA before prescription drug product candidates may be marketed in the United States generally involves the following:
 
completion of extensive nonclinical laboratory tests, animal studies and formulation studies, all performed in accordance with the FDA’s Good Laboratory Practice regulations;
 
submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;
 
for some products, performance of adequate and well-controlled human clinical trials in accordance with the FDA’s regulations, including Good Clinical Practices, to establish the safety and efficacy of the product candidate for each proposed indication;
 
submission to the FDA of a new drug application, or NDA;
 
submission to the FDA of an abbreviated new drug application, or ANDA;
 
satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced to assess compliance with current Good Manufacturing Practice, or cGMP, regulations; and
 
FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.
   
 
 
-39-
 
The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.
 
Nonclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animals and other animal studies. The results of nonclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND to the FDA. Some nonclinical testing may continue even after an IND is submitted. The IND also includes one or more protocols for the initial clinical trial or trials and an investigator’s brochure. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to the proposed clinical trials as outlined in the IND and places the clinical trial on a clinical hold. In such cases, the IND sponsor and the FDA must resolve any outstanding concerns or questions before any clinical trials can begin. Clinical trial holds also may be imposed at any time before or during studies due to safety concerns or non-compliance with regulatory requirements. An independent institutional review board, or IRB, at each of the clinical centers proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the consent form signed by the trial participants and must monitor the study until completed.
 
Abbreviated New Drug Application
 
An ANDA contains data which when submitted to FDA's Center for Drug Evaluation and Research, Office of Generic Drugs, provides for the review and ultimate approval of a generic drug product. Once approved, an applicant may manufacture and market the generic drug product to provide a safe, effective, low cost alternative to the public than a bioequivalent prescription product.
 
A generic drug product is one that is comparable to an innovator drug product in dosage form, strength, route of administration, quality, performance characteristics and intended use.  Generic drug applications are termed "abbreviated" because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness.  Instead, generic applicants must scientifically demonstrate that their product is bioequivalent (i.e., performs in the same manner as the innovator drug).  One way scientists demonstrate bioequivalence is to measure the time it takes the generic drug to reach the bloodstream in 24 to 36 healthy, volunteers.  This gives them the rate of absorption, or bioavailability, of the generic drug, which they can then compare to that of the innovator drug.  The generic version must deliver the same amount of active ingredients into a patient's bloodstream in the same amount of time as the innovator drug.   
 
Using bioequivalence as the basis for approving generic copies of drug products was established by the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Waxman-Hatch Act. This Act expedites the availability of less costly generic drugs by permitting FDA to approve applications to market generic versions of brand-name drugs without conducting costly and duplicative clinical trials.  At the same time, the Act granted companies the ability to apply for up to five additional years of patent protection for the innovator drugs developed to make up for time lost while their products were going through the FDA's approval process. Brand-name drugs are subject to the same bioequivalence tests as generics upon reformulation.
 
BioEquivalency Studies
 
Studies to measure bioavailability and/or establish bioequivalence of a product are important elements in support of investigational new drug applications, or INDs, new drug applications, or NDAs, ANDAs and their supplements. As part of INDs and NDAs for orally administered drug products, bioavailability studies focus on determining the process by which a drug is released from the oral dosage form and moves to the site of action. Bioavailability data provide an estimate of the fraction of the drug absorbed, as well as its subsequent distribution and elimination. Bioavailability can be generally documented by a systemic exposure profile obtained by measuring drug and/or metabolite concentration in the systemic circulation over time. The systemic exposure profile determined during clinical trials in the IND period can serve as a benchmark for subsequent bioequivalence studies. Studies to establish bioequivalence between two products are important for certain changes before approval for a pioneer product in NDA and ANDA submissions and in the presence of certain post-approval changes in NDAs and ANDAs. In bioequivalence studies, an applicant compares the systemic exposure profile of a test drug product to that of a reference drug product. For two orally or intra-nasally administered drug products to be bioequivalent, the active drug ingredient or active moiety in the test product must exhibit the same rate. 
 
 
-40-
 
OTC Monograph Process
 
The FDA regulates certain non-prescription drugs using an OTC Monograph which, when final, is published in the Code of Federal Regulations at 21 C.F.R. Parts 330-358. Such products that meet each of the conditions established in the OTC Monograph regulations, as well as all other applicable regulations, may be marketed without prior approval by the FDA.
 
The general conditions set forth for OTC Monograph products include, among other things:
 
the product is manufactured at FDA registered establishments and in accordance with cGMPs;
 
the product label meets applicable format and content requirements including permissible “Indications” and all required dosing instructions and limitations, warnings, precautions and contraindications that have been established in an applicable OTC Monograph;
 
the product contains only permissible active ingredients in permissible strengths and dosage forms;
 
the product contains only suitable inactive ingredients which are safe in the amounts administered and do not interfere with the effectiveness of the preparation; and
 
the product container and container components meet FDA’s requirements.
  
The advertising for OTC drug products is regulated by the Federal Trade Commission, or FTC, which generally requires that advertising claims be truthful, not misleading, and substantiated by adequate and reliable scientific evidence. False, misleading or unsubstantiated OTC drug advertising may be subject to FTC enforcement action and may also be challenged in court by competitors or others under the federal Lanham Act or similar state laws. Penalties for false or misleading advertising may include monetary fines or judgments as well as injunctions against further dissemination of such advertising claims.
 
A product marketed pursuant to an OTC Monograph must be listed with the FDA’s Drug Regulation and Listing System and have a National Drug Code listing which is required for all marketed drug products. After marketing, the FDA may test the product or otherwise investigate the manufacturing and development of the product to ensure compliance with the OTC Monograph. Should the FDA determine that a product is not marketed in compliance with the OTC Monograph or is advertised outside of its regulations, the FDA may require corrective action up to and including market withdrawal and recall.
 
Other Regulatory Requirements
 
Maintaining substantial compliance with appropriate federal, state, local and international statutes and regulations requires the expenditure of substantial time and financial resources. Drug manufacturers are required to register their establishments with the FDA and certain state agencies and, after approval, the FDA and these state agencies conduct periodic unannounced inspections to ensure continued compliance with ongoing regulatory requirements, including cGMPs. In addition, after approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. The FDA may require post-approval testing and surveillance programs to monitor safety and the effectiveness of approved products that have been commercialized. Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including:
 
meeting record-keeping requirements;
 
reporting of adverse experiences with the drug;
 
 
providing the FDA with updated safety and efficacy information;
 
 
reporting on advertisements and promotional labeling;
 
  
drug sampling and distribution requirements; and
 
 
complying with electronic record and signature requirements.
 
 
-41-
 
In addition, the FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market. There are numerous regulations and policies that govern various means for disseminating information to health-care professionals as well as consumers, including to industry sponsored scientific and educational activities, information provided to the media and information provided over the Internet. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label.
 
The FDA has very broad enforcement authority and the failure to comply with applicable regulatory requirements can result in administrative or judicial sanctions being imposed on us or on the manufacturers and distributors of our approved products, including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution and disgorgement of profit, recall or seizure of products, total or partial suspension of production or distribution, withdrawal of approvals, refusal to approve pending applications and criminal prosecution resulting in fines and incarceration. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label or unapproved uses may be subject to significant liability. In addition, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.
 
Competition
 
The OTC pharmaceutical market is highly competitive with many established manufacturers, suppliers and distributors that are actively engaged in all phases of the business. We believe that competition in the sale of our products will be based primarily on efficacy, regulatory compliance, brand awareness, availability, product safety and price. Our brand name OTC pharmaceutical products may be subject to competition from alternate therapies during the period of patent protection and thereafter from generic or other competitive products. All of our existing products and products we have agreements to acquire compete with generic and other competitive products in the marketplace.
 
Competing in the branded product business requires us to identify and quickly bring to market new products embodying technological innovations. Successful marketing of branded products depends primarily on the ability to communicate the efficacy, safety and value to healthcare professionals in private practice, group practices and managed care organizations. We anticipate that our branded product offerings will support our existing lines of therapeutic focus. Based upon business conditions and other factors, we regularly reexamine our business strategies and may from time to time reallocate our resources from one therapeutic area to another, withdraw from a therapeutic area or add an additional therapeutic area in order to maximize our overall growth opportunities.
 
Some of our existing products and products we have agreements to acquire compete with one or more products marketed by very large pharmaceutical companies that have much greater financial resources for marketing, selling and developing their products. These competitors, as well as others, have been in business for a longer period of time, have a greater number of products on the market and have greater financial and other resources than we do. If we directly compete with them for the same markets and/or products, their financial and market strength could prevent us from capturing a meaningful share of those markets.
 
We also compete with other OTC pharmaceutical companies for product line acquisitions as well as for new products and acquisitions of other companies.
 
Research and Development
 
We have used outside contract research organizations to carry out our research and development activities.  During the years ended December 31, 2015 and 2016, we incurred research and development costs totaling $0, and $77,804, respectively. This increase was a result of the cost of salary and the related health benefits for an employee, conclusion of testing, non-human primate safety studies, clinical studies for our products Zestra®, Zestra Glide®, EjectDelay® and Sensum+®, as well as the fair value of the shares of common stock issued to CRI totaling $23,000 for the settlement of certain clinical and regulatory milestone payments due under the in-license agreement for Sensum+®.
 
 
-42-
 
Employees
 
We currently have five full-time employees, including Dr. Bassam Damaj, who serves as our President and Chief Executive Officer. We also rely on a number of consultants. Our employees are not represented by a labor union or by a collective bargaining agreement. Subject to the availability of financing, we intend to expand our staff to implement our growth strategy.
  
Intellectual Property Protection
 
Our ability to protect our intellectual property, including our technology, will be an important factor in the success and continued growth of our business. We protect our intellectual property through trade secrets law, patents, copyrights, trademarks and contracts. Some of our technology relies upon third-party licensed intellectual property.
 
We currently hold four patents in the United States and six patents registered outside the United States. We currently have no patent applications pending in the U.S. and 11 patent applications pending in countries other than the United States. We also have exclusive U.S. rights to multiple patents in the U.S. and Europe licensed under the product license agreements we have with NTC Pharma and Q Pharma.
 
We own nine trademark registrations and have four trademark applications pending in the United States. We also own 19 trademarks registered outside of the United States, with no applications currently pending.
 
We have established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality agreements and assignment-of-inventions agreements with employees, independent contractors, consultants and companies with which we conduct business.
 
Description of Property
 
We maintain our principal office at 9171 Towne Centre Drive, Suite 440, San Diego, California 92122. Our telephone number at that office is (858) 964-5123. Our lease agreement was entered into on January 15, 2014 and was extended on November 2, 2015 to expire on January 31, 2019. Our current monthly rental rate under the agreement is $7,682.
 
We believe that our existing facilities are suitable and adequate to meet our current business requirements, but we will require a larger, more permanent space as we add personnel consistent with our business plan. We anticipate we will be able to acquire additional facilities as needed on terms consistent with our current lease.  We maintain a website at www.innovuspharma.com and the information contained on that website is not deemed to be a part of this prospectus.
 
Legal Proceedings
 
In the normal course of business, we may be a party to legal proceedings. We are not currently a party to any material legal proceedings. 
 
 
-43-
 
MANAGEMENT
Executive Officers and Directors
 
Name
 
Age
 
Title
Bassam Damaj, Ph.D.
 
48
 
President, Chief Executive Officer, Chief Accounting Officer
Robert E. Hoffman
 
51
 
Executive Vice President and Chief Financial Officer
Randy Berholtz, MBA, JD
 
55
 
Executive Vice President, Corporate Development and General Counsel
Henry Esber, Ph.D.
 
78
 
Chairman of the Board of Directors
Vivian Liu
 
55
 
Director
Ziad Mirza, MBA, M.D.
 
55
 
Director
 
Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors are elected. Officers are elected annually and serve at the discretion of the board of directors.
 
Bassam Damaj, Ph.D. has served on our board of directors and as our President and Chief Executive Officer, since January, 2013 and as our Chief Accounting Officer from July 2015 until September 6, 2016. Before joining Innovus, Dr. Damaj served as President and Chief Executive Officer of Apricus Biosciences, Inc. (Nasdaq: APRI), a drug discovery and development company (“Apricus Bio”), from December 2009 until November 2012. Before joining Apricus Bio, Dr. Damaj was a co-founder of Bio-Quant, Inc., a pre-clinical contract services company (“Bio-Quant”) and served as the Chief Executive Officer and Chief Scientific Officer and as a member of Bio-Quant’s board of directors from its inception in June 2000 until its acquisition by Apricus Bio in June 2011. In addition, Dr. Damaj was the founder, Chairman, President and Chief Executive Officer of R&D Healthcare, a wholesale drug distribution company, and the co-founder of Celltek Biotechnologies, a drug discovery and services company. He also served as a member of the board of directors of CreAgri, Inc., a drug discovery company, and was a member of the Scientific Advisory Board of MicroIslet, Inc., a drug discovery company. Since July, 2016 Dr. Damaj has been a member of the board of directors of Hispanica International Delights of America, Inc. (OTCQB:HISP), an ethnic food company. He is the author of the Immunological Reagents and Solutions reference book, the inventor of many patents and the author of numerous peer reviewed scientific publications. Dr. Damaj won a U.S. Congressional award for the Anthrax Multiplex Diagnostic Test in 2003. Dr. Damaj holds a Ph.D. degree in Immunology/Microbiology from Laval University and completed a postdoctoral fellowship in molecular oncology at McGill University.
 
Dr. Damaj’s significant experience with our business and his significant executive leadership experience, including his experience leading several pharmaceutical companies, were instrumental in his selection as a member of the board of directors.
 
Robert E. Hoffman was appointed as Executive Vice President and Chief Financial Officer on August 29, 2016 and began his service on September 6, 2016. Mr. Hoffman was most recently Chief Financial Officer of AnaptysBio, Inc., a clinical stage biopharmaceutical company. He was part of the founding management team of Arena Pharmaceuticals, Inc., (Nasdaq:ARNA), a biopharmaceutical company, in 1997, serving as Senior Vice President, Finance and Chief Financial Officer until 2015. Mr. Hoffman is a member of the board of directors of CombiMatrix Corporation, (Nasdaq:CBMX), a molecular diagnostics company, Kura Oncology, Inc., a (Nasdaq:KURA), a biotechnology company, and MabVax Therapeutics Holdings, Inc., (Nasdaq:MBVX), a biopharmaceutical company. He also was a member of the Financial Accounting Standards Board’s Small Business Advisory Committee and is a member of the steering committee of the Association of Bioscience Financial Officers. Mr. Hoffman received his B.B.A. from St. Bonaventure University, and is licensed as a C.P.A. (inactive) in the State of California.
 
 
-44-
 
Randy Berholtz, MBA, JD has served as our Executive Vice President, Corporate Development and General Counsel of the Company since January 9, 2017. He also became the Secretary of the Company at that time. Mr. Berholtz had previously been a part-time consultant for the Company from July 2013 to mid-May 2016. Mr. Berholtz was recently the founding partner of the Sorrento Valley Law Group, a healthcare and life sciences law firm. Previously, from 2011 to 2013, he was the Executive Vice President, General Counsel and Secretary of Apricus Biosciences, Inc., a biotechnology company; from 2004 to 2010, he was the Vice President, General Counsel and Secretary of the ACON Group of private U.S. and Chinese life science companies; from 2003 to 2004, he was the Chief Operating Officer and General Counsel to Inglewood Ventures, a life sciences venture capital firm; and from 2000 to 2003, he held multiple titles and rose to become the Acting General Counsel and Secretary of Nanogen, Inc., a genomics tools company. From 1992 to 2000, Mr. Berholtz was in private practice with law firms in New York and San Diego, and from 1990 to 1991, he was a law clerk to Judge Jerry E. Smith on the U.S. Court of Appeals for the Fifth Circuit. Mr. Berholtz is a member of the board of directors of Hispanica International Delights of America, Inc., an ethnic food company and Larada Health, Inc., a private company in the medical supply business, and is a Senior Advisor to Mesa Verde Ventures, a life sciences venture capital firm. Mr. Berholtz received his B.A. from Cornell University, his M.Litt. from Oxford University where he was a Rhodes Scholar, his J.D. from Yale University and his M.B.A. from the University of San Diego.
 
Henry Esber, Ph.D. has served as a member of our board of directors since January 2011 and has served as Chairman of the Board since January 2013. In 2000, Dr. Esber co-founded Bio-Quant, and from 2000 to 2010, he served as its Senior Vice President and Chief Business Development Officer. Dr. Esber has more than 30 years of experience in the pharmaceutical service industry. Dr. Esber served on the board of directors of Apricus Bio from December 2009 to January 2013 and currently serves on the board of directors of several private pharmaceutical companies.   Dr. Esber holds a Ph.D. in Immunology/Microbiology from the West Virginia University School of Medicine, as well as an M.S. in Public Health and Medical Parasitology from University of North Carolina Chapel Hill. His PreMed B.S is from Norfolk College of William and Mary, now Old Dominion University.
 
Dr. Esber’s significant scientific background and experience was instrumental in his selection as a member of the board of directors.
 
Vivian Liu has served as a member of our board of directors since December 2011 and served as our President, Chief Executive Officer and Chief Financial Officer from December 2011 to January 22, 2013. Prior to that, she served as the President and Chief Executive Officer of FasTrack Pharma, (“FasTrack Pharma”), a pharmaceutical company, from January 2011 to December 2011. Ms. Liu is currently the Chief Operating Officer of Cesca Therapeutics, Inc. (“Cesca”). She has been a member of the Board of Directors of Cesca since November 2016. From February 2013 to March 2017, Ms. Liu served as Managing Director of OxOnc Services Company, an oncology development company. In 1995, Ms. Liu co-founded NexMed, Inc. a Delaware corporation (“NextMed”), which in 2010 was renamed to Apricus BioSciences, Inc. Ms. Liu was NexMed’s President and Chief Executive Officer from 2007 to 2009. Prior to her appointment as President, Ms. Liu served in several executive capacities, including Executive Vice President, Chief Operating Officer, Chief Financial Officer and Vice President of Corporate Affairs. She was appointed as a director of NexMed in 2007 and served as Chairman of its board of directors from 2009 to 2010. Ms. Liu has an M.P.A. from the University of Southern California and has a B.A. from the University of California, Berkeley.
 
Ms. Liu’s significant executive leadership experience, including her experience leading several pharmaceutical companies, as well as her membership on public company boards was instrumental in her selection as a member of the board of directors.
 
Ziad Mirza, MBA, M.D. has served as a member of our board of directors since December 2011 and served as Chairman of our board of directors from December 2011 to January 2013. He also served as FasTrack Pharma’s Acting Chief Executive Officer from March 2010 to December 2010. Since February, 2016, Dr. Mirza has been the Chief Medical Officer of HyperHeal Hyperbarics, Inc., an outpatient hyperbaric oxygen therapy company. He is the President and co-founder of Baltimore Medical and Surgical Associates. He is a Certified Medical Director of long term care through the American Medical Directors Association. He is also a Certified Physician Executive from the American College of Physician Executives. He consults for pharmaceutical companies on clinical trial design. He has an M.D. from the American University of Beirut and completed his residency at Good Samaritan Hospital in Baltimore, Maryland. He received an M.B.A. from the University of Massachusetts. 
 
Dr. Mirza’s significant medical and scientific background was instrumental in his selection as a member of the board of directors.
 
 
-45-
 
Family Relationships
 
Dr. Mirza and Dr. Damaj are cousins. Otherwise, there are no family relationships among any of the members of our board of directors or our executive officers.
 
Involvement in Certain Legal Proceedings
 
Our directors and executive officers have not been involved in any of the following events during the past ten years:
 
1.
any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
 
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
 
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
 
4.
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
 
5.
being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
 
6.
being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
Director Independence
 
We have determined that all of our directors, other than Dr. Bassam Damaj, are “independent” as defined by applicable rules and regulations. Accordingly, a majority of the members of our board of directors are “independent.”
 
Board of Directors’ Meetings
 
During the fiscal year ended December 31, 2016, our board of directors held four meetings and approved certain actions by unanimous written consent. We expect our directors to attend all board and committee meetings and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Due to the limited size of our board of directors, we currently do not use board committees. As a result, the board as a whole carries out the functions of audit, nominating and compensation committees.
 
 
-46-
 
Director Nominations
 
Generally, nominees for director are identified and suggested by the members of the Board using various methods. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates in the past and does not intend to in the near future. In selecting a nominee for director, the Board considers the following criteria:
 
1. 
whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to the affairs of the Company;
 
2. 
whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations;
 
3. 
whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to the Company’s current or future business, will add specific value as a Board member; and
 
4. 
whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing Board member to continue his/her service.
 
The Board has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather the Board will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and make a determination regarding whether a candidate should be recommended to the stockholders for election as a director.
 
During 2016, the Company received no recommendation for directors from its stockholders.
 
Board of Directors’ Leadership Structure and Role in Risk Oversight
 
Dr. Esber serves as the Chairman of the board of directors of the Company. Dr. Damaj serves as the President of the Company. The Board believes this leadership structure provides the most efficient and effective leadership model for the Company by enhancing the Chairman and President’s ability to provide clear insight and direction of business strategies and plans to both the Board and management by keeping separate the position of Chairman and President. The Board regularly evaluates its leadership structure and currently believes the Company can most effectively execute its business strategies and plans. While the Board has not made a determination as to director independence and all our directors, except for Dr. Bassam Damaj, are considered as independent under Nasdaq definition and requirements, as determined by outside counsel.
 
We take a comprehensive approach to risk management, which is reflected in the reporting process by which our management provides timely and comprehensive information to the Board to support the Board’s role in oversight, approval and decision-making. Our senior management is responsible for assessing and managing the Company’s various exposures to risk on a day-to-day basis, including the creation of appropriate risk management programs and policies. The Board is responsible for overseeing management in the execution of its responsibilities and for assessing the Company’s approach to risk management. The Board exercises these responsibilities periodically as part of its meetings. In addition, an overall review of risk is inherent in the Board’s consideration of the Company’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. 
 
Code of Business Conduct and Ethics and Insider Trading Policy
 
Our board of directors adopted a Code of Ethical Conduct and an Insider Trading Policy. These documents are available for review by contacting the Company’s Corporate Secretary at Innovus Pharmaceuticals, Inc., 9171 Towne Centre Drive, Suite 440, San Diego, CA 92122.
 
 
-47-
 
EXECUTIVE COMPENSATION
 
The following table sets forth information concerning compensation earned for services rendered to us during the two years ended December 31, 2016 and 2015 by (i) all individuals serving as our principal executive officer or acting in a similar capacity during the last completed fiscal year (“PEO”), regardless of compensation level; (ii) our two most highly compensated executive officers other than the PEO who were serving as executive officers at the end of each of the last two completed fiscal years and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to clause (ii) but for the fact that the individual was not serving as an executive officer at the end of each of the last two completed fiscal years.
 
Summary Compensation Table
 
Name and Principal Position
Year
 
Salary
 
 
Bonus(1)
 
 
Stock
 Awards
 
 
Stock Unit
 Awards
 
 
All Other
 Compen-sation
 
 
Total
 
 
Bassam Damaj Ph D.,
2016
 $532,400(2)
 $-
 
 $- 
 $240,000(3)
 $- 
 $772,400 
President and Chief Executive Officer, and former Chief Financial Officer (4)
2015
 $484,000(2)
 $- 
 $- 
 $630,000(3)
 $- 
 $1,114,000
 
 
    
    
    
    
    
    
Robert E. Hoffman,
 
    
    
    
    
    
    
Executive Vice President and Chief Financial Officer(5)
2016
 $96,731 
 $- 
 $- 
 $675,000(3)
 $- 
 $771,731 
 
(1)  
Our board of directors has not yet determined the amounts of bonuses payable to our named executive officers earned in 2016. We anticipate that bonuses, if any, for 2016 will be determined by our board of directors by mid-April 2017.
 
(2)
Pursuant to the LOC Convertible Debenture, Dr. Damaj agreed not to draw a salary pursuant to his employment agreement for so long as payment of such salary would jeopardize the Company’s ability to continue as a going concern and not to draw any salary accrued through December 31, 2015. Salary through June 30, 2016 was accrued for and remains unpaid as of December 31, 2016. Effective July 1, 2016, Dr. Damaj started receiving his salary in cash.

(3)  
Represents the total grant date fair value, as determined under FASB ASC Topic 718, Stock Compensation, of restricted stock unit awards granted during the respective fiscal year.
 
(4)  
Dr. Damaj served as Chief Financial Officer from July 2015 until September 6, 2016 when Mr. Robert E. Hoffman became Executive Vice President and Chief Financial Officer.
 
(5)
 
 
Represents Mr. Hoffman’s salary from the commencement of his employment on September 6, 2016, through December 31, 2016.
 
 
 
-48-
 
Outstanding Equity Awards at Fiscal Year-End 2016
 
                  The following table presents, for each of the named executive officers, information regarding outstanding stock options held as of December 31, 2016. 
 
 
 
 
 
 
Option Awards          
 
Name
Grant Date(1)
 
Number of Securities Underlying Unexercised Options (#) Exercisable
 
 
Number of Securities Underlying Unexercised Options (#) Unexercisable
 
 
Option Exercise
Price ($)
 
Option Expiration Date
 
Robert E. Hoffman(1)
 
Sep. 30, 2013
  10,500 
   
 $0.90 
Sep. 29, 2023
    
Dec. 31, 2013
  10,500 
   
 $0.38 
Dec. 30, 2023
    
Mar. 31, 2014
  10,500 
   
 $0.40 
Mar. 30, 2024
    
Jun. 30, 2014
  10,500 
   
 $0.25 
Jun. 29, 2024
    
Sep. 30, 2014
  10,500 
   
 $0.40 
Sep. 29, 2024
    
Dec. 31, 2014
  10,500 
   
 $0.18 
Dec. 30, 2024
    
Mar 31, 2015
  10,500 
   
 $0.14 
Mar. 30, 2025
    
Jun. 30, 2015
  10,500 
   
 $0.12 
Jun. 29, 2025
    
Sep. 30, 2015
  10,500 
   
 $0.07 
Sep. 29, 2025
    
Dec. 31, 2015
  10,500 
   
 $0.07 
Dec. 30, 2025
    
Mar. 31, 2016
  10,500 
   
 $0.05 
Mar. 30, 2026
 
(1)
Represents options fully vested at grant date to Mr. Hoffman while he was a consultant to the Company, prior to being appointed Executive Vice President and Chief Financial Officer in September 2016.
 
                The following table presents, for each of the named executive officers, information regarding outstanding restricted stock units held as of December 31, 2016.
 
Name
  Grant Date(1)
  Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) 
  Equity incentive plan awards: Market or payout value of unearned shares, units or other rights
Bassam Damaj(1)
Mar. 31, 2015
  375,000 
 $75,000 
Robert E. Hoffman(2)
Sep. 6, 2016
  2,500,000 
 $500,000 
 
(1)    
Unvested RSUs vest 125,000 per month through March 2017.
 
(2)
    Unvested RSUs vest 25% on September 6, 2017 with the balance vesting ratably over eight quarters and fully vested on September 6, 2019.
 
Employment Agreements
 
Dr. Bassam Damaj. On January 22, 2013, the Company entered into an employment agreement (the “Employment Agreement”) with Dr. Bassam Damaj to serve as its President and Chief Executive Officer, which was amended on January 21, 2015.   
 
The Employment Agreement has an initial term of five years, which term will be extended by an additional year on the fourth and each subsequent anniversary.  Dr. Damaj earned a base salary of $375,000 for the first year, $440,000 in the second year and increasing a minimum of 10% per year thereafter.  Dr. Damaj’s salary will be accrued and not paid for so long as payment of such salary would jeopardize the Company’s ability to continue as a going concern, in Dr. Damaj’s sole determination. Dr. Damaj will have annual cash bonus targets equal to 75% and 30%, respectively, of base salary, based on performance objectives established by the board of directors, with the board of directors determining the amount of the annual bonus.
 
Dr. Damaj received 6.0 million RSU's of common stock on January 22, 2013, of which 2.0 million shares vested immediately, and the remaining 4.0 million shares vested in eight equal quarterly installments beginning on April 1, 2013.
 
Upon termination of the Employment Agreement for any reason, Dr. Damaj will receive (i) a pro-rata bonus during that fiscal year based on the number of days employed during that fiscal year, and (ii) Company group medical, dental and vision insurance coverage for Dr. Damaj and his dependents for 12 months paid by the Company.
 
 
 
-49-
 
Pursuant to the Employment Agreement, if Dr. Damaj’s employment is terminated as a result of death, disability or without Cause (as defined in the Employment Agreement) or Dr. Damaj resigns for Good Reason (as defined in the Employment Agreement), Dr. Damaj or his estate, as applicable, is entitled to the following payments and benefits, provided that a mutual release of claims is executed: (1) a cash payment in an amount equal to 1.5 times his then base salary and annual target bonus amount, or two times his then base salary and annual target bonus amount if such termination occurs within 24 months of a change of control; (2) Company group medical, dental and vision insurance coverage for Dr. Damaj and his dependents for 24 months paid by the Company; and (3) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards.
 
For purposes of the  Employment Agreement, “Cause” generally means (1) commission of fraud or other unlawful conduct in the performance of duties for the Company, (2) conviction of or, entry into a plea of “guilty” or “no contest” to, a felony under United States federal or state law, and such felony is either work-related or materially impairs Dr. Damaj’s ability to perform services to the Company, and (3) a willful, material breach of the Employment Agreement that causes material harm to the Company, provided, however, that the board of directors must provide 30 days prior written notice of its intention to terminate for Cause and give Dr. Damaj the opportunity to cure or remedy such alleged Cause and present Dr. Damaj’s case to the board of directors and afterwards, at least 75% of the board of directors (except for Dr. Damaj in the event he the subject of the hearing) affirmatively determines that termination is for Cause. 
 
For purposes of the  Employment Agreement, “Good Reason” generally means that within one year prior to the date of resigning, (1) a material diminution in Dr. Damaj’s title, authority, duties or responsibilities (for Dr. Damaj, this includes remaining a member of the board of directors), (2) a reduction in Dr. Damaj’s base salary or target bonus amount, (3) a change in the geographic location greater than 25 miles from the current office at which Dr. Damaj must perform his duties, (4)  the Company elects not to renew the  Employment Agreement for another term or (5) the Company materially breaches any provision of the Employment Agreement, provided, however, that Dr. Damaj must provide 30 days prior written notice of his intention to resign for Good Reason, which notice must be given within 90 days of the initial occurrence of such cause and gives the Company the opportunity to cure or remedy such alleged Good Reason.
 
Robert E. Hoffman. The Company and Mr. Hoffman entered into an employment agreement, effective, September 6, 2016 wherein Mr. Hoffman will receive an annual base salary of $300,000 as well as an annual bonus based on personal performance and as approved by the board of directors. The target bonus amount is 35% of his annual base salary.
 
Mr. Hoffman will also receive an RSU covering 2.5 million shares of the Company’s common stock; 625,000 of which will vest after one year of employment. The remaining RSU’s will vest in eight equal quarterly installments over two years of continued service.
 
Upon termination of the Employment Agreement for any reason, Mr. Hoffman will receive (i) a pro-rata bonus during that fiscal year based on the number of days employed during that fiscal year, and (ii) Company group medical, dental and vision insurance coverage for Mr. Hoffman and his dependents for six months paid by the Company.
 
Pursuant to the Employment Agreement, if Mr. Hoffman’s employment is terminated as a result of death, disability or without Cause (as defined in the Employment Agreement) or Executive resigns for Good Reason (as defined in the Employment Agreement), Executive or their estate, as applicable, is entitled to the following payments and benefits, provided that a mutual release of claims is executed: (1) a cash payment in an amount equal to six months of his then base salary and annual target bonus amount, if such termination occurs within six months of a change of control; (2) Company group medical, dental and vision insurance coverage for Mr. Hoffman and his dependents for six months paid by the Company; and (3) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards.
 
For purposes of the  Employment Agreement, “Cause” generally means (1) commission of fraud or other unlawful conduct in the performance of duties for the Company, (2) conviction of or, entry into a plea of “guilty” or “no contest” to, a felony under United States federal or state law, and such felony is either work-related or materially impairs Mr. Hoffman’s ability to perform services to the Company, and (3) a willful, material breach of the Employment Agreement that causes material harm to the Company, provided, however, that the board of directors must provide 30 days prior written notice of its intention to terminate for Cause and give Mr. Hoffman the opportunity to cure or remedy such alleged Cause and present Executive’s case to the board of directors and afterwards, at least 75% of the board of directors (except for Hoffman in the event he the subject of the hearing) affirmatively determines that termination is for Cause. 
 
 
-50-
 
For purposes of the  Employment Agreement, “Good Reason” generally means that within one year prior to the date of resigning, (1) a material diminution in Mr. Hoffman’s title, authority, duties or responsibilities (for Mr. Hoffman, this includes remaining a member of the board of directors), (2) a reduction in Mr. Hoffman’s base salary or target bonus amount, (3) a change in the geographic location greater than 25 miles from the current office at which Mr. Hoffman must perform his duties, (4)  the Company elects not to renew the  Employment Agreement for another term, or (5) the Company materially breaches any provision of the Employment Agreement, provided, however, that Mr. Hoffman must provide 30 days prior written notice of his intention to resign for Good Reason, which notice must be given within 90 days of the initial occurrence of such cause and gives the Company the opportunity to cure or remedy such alleged Good Reason.
 
Randy Berholtz. The Company and Mr. Berholtz entered into an employment agreement, effective, January 9, 2017 wherein Mr. Berholtz will receive an annual base salary of $280,000 as well as an annual bonus based on personal performance and as approved by the board of directors. The target bonus amount is 35% of his annual base salary.
 
Mr. Berholtz will also receive RSU’s covering 2.0 million shares of the Company’s common stock; 666,666 of which will vest after one year of employment. The remaining RSU’s will vest in eight equal quarterly installments over two years of continued service.
 
Upon termination of the Employment Agreement for any reason, Berholtz will receive (i) a pro-rata bonus during that fiscal year based on the number of days employed during that fiscal year, and (ii) Company group medical, dental and vision insurance coverage for such Executive and their dependents for six months paid by the Company.
 
Pursuant to the Employment Agreement, if Mr. Berholtz’s employment is terminated as a result of death, disability or without Cause (as defined in the Employment Agreement) or Berholtz resigns for Good Reason (as defined in the Employment Agreement), Mr. Berholtz or his estate, as applicable, is entitled to the following payments and benefits, provided that a mutual release of claims is executed: (1) a cash payment in an amount equal to six months of his then base salary and annual target bonus amount, if such termination occurs within six months of a change of control; (2) Company group medical, dental and vision insurance coverage for Executive and his dependents for six months paid by the Company; and (3) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards.
 
For purposes of the  Employment Agreement, “Cause” generally means (1) commission of fraud or other unlawful conduct in the performance of duties for the Company, (2) conviction of or, entry into a plea of “guilty” or “no contest” to, a felony under United States federal or state law, and such felony is either work-related or materially impairs Mr. Berholtz’s ability to perform services to the Company, and (3) a willful, material breach of the Employment Agreement that causes material harm to the Company, provided, however, that the board of directors must provide 30 days prior written notice of its intention to terminate for Cause and give Mr. Berholtz the opportunity to cure or remedy such alleged Cause and present Mr. Berholtz’s case to the board of directors and afterwards, at least 75% of the board of directors (except for Mr. Berholtzin the event he the subject of the hearing) affirmatively determines that termination is for Cause. 
 
For purposes of the  Employment Agreement, “Good Reason” generally means that within one year prior to the date of resigning, (1) a material diminution in Mr. Berholtz’s title, authority, duties or responsibilities (for Mr. Berholtz, this includes remaining a member of the board of directors), (2) a reduction in Mr. Berholtz’s base salary or target bonus amount, (3) a change in the geographic location greater than 25 miles from the current office at which Berholtz must perform his duties, (4)  the Company elects not to renew the  Employment Agreement for another term, or (5) the Company materially breaches any provision of the Employment Agreement, provided, however, that Mr. Berholtz must provide 30 days prior written notice of his intention to resign for Good Reason, which notice must be given within 90 days of the initial occurrence of such cause and gives the Company the opportunity to cure or remedy such alleged Good Reason.
 
 
-51-
 
Director Compensation
 
Each non-employee director of the Company is to receive quarterly compensation of $3,000, which is paid in RSUs. In addition, the Chairman of the board of directors is entitled to receive an additional $3,000 in quarterly compensation paid in RSUs.
 
The following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2016 for services to our Company.
Name
 
 
Fees Earned
or Paid in
Cash
 
 
Stock
Awards
 
 
 
Stock Unit
 Awards (1) (2)
 
 
 
Total
 
Henry Esber, Ph.D.
 $- 
 $- 
 $57,333 
 $57,333 
Vivian Liu
  - 
  - 
  45,333 
  45,333 
Ziad Mirza, MBA, M.D.
  - 
  - 
  45,333 
  45,333 
Total:
 $- 
 $- 
 $147,999 
 $147,999 
 
(1)  
Represents the total grant date fair value, as determined under FASB ASC Topic 718, Stock Compensation, of RSU awards granted during the respective fiscal year.
 
(2)  
Includes an award of 833,333 RSUs granted to each of the directors on January 29, 2016 under the 2014 Plan in connection with the acquisition of Beyond Human® assets. One-half of the RSUs were vested upon grant and the remaining RSUs vested upon the closing of the Beyond Human® acquisition on March 1, 2016.
 
Description of Equity Compensation Plans
 
2013 Equity Incentive Plan
 
The Company has issued common stock, restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the 2013 Incentive Plan (“2013 Plan”). The 2013 Plan allows for the issuance of up to 10.0 million shares of the Company’s common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. The exercise price for all equity awards issued under the 2013 Plan is based on the fair market value of the common stock. Currently, because the Company’s common stock is quoted on the OTCQB, the fair market value of the common stock is equal to the last-sale price reported by the OTCQB as of the date of determination, or if there were no sales on such date, on the last date preceding such date on which a sale was reported. Generally, each vested stock unit entitles the recipient to receive one share of Company common stock, which is eligible for settlement at the earliest of their termination, a change in control of the Company or a specified date. Restricted stock units can vest according to a schedule or immediately upon award. Stock options generally vest over a three-year period, first year cliff vesting with quarterly vesting thereafter on the three-year awards, and have a ten-year life. Stock options outstanding are subject to time-based vesting as described above and thus are not performance-based. As of December 31, 2016, no shares were available under the 2013 Plan.
 
2014 Equity Incentive Plan
 
The Company has issued common stock, restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the 2014 Incentive Plan (“2014 Plan”). The 2014 Plan allows for the issuance of up to 20.0 million shares of the Company’s common stock to be issued in the form of stock options, stock awards, stock unit awards, stock appreciation rights, performance shares and other share-based awards. The exercise price for all equity awards issued under the 2014 Plan is based on the fair market value of the common stock. Currently, because the Company’s common stock is quoted on the OTCQB, the fair market value of the common stock is equal to the last-sale price reported by the OTCQB as of the date of determination, or if there were no sales on such date, on the last date preceding such date on which a sale was reported. Generally, each vested stock unit entitles the recipient to receive one share of Company common stock, which is eligible for settlement at the earliest of their termination, a change in control of the Company or a specified date. Restricted stock units can vest according to a schedule or immediately upon award. Stock options generally vest over a three-year period, first year cliff vesting with quarterly vesting thereafter on the three-year awards and have a ten-year life. Stock options outstanding are subject to time-based vesting as described above and thus are not performance-based. As of December 31, 2016, 146,314 shares were available under the 2014 Plan.
 
 
-52-
 
2016 Equity Incentive Plan
 
The Company has issued common stock, restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the 2016 Equity Incentive Plan (“2016 Plan”). A maximum of 20.0 million shares of the Company’s common stock are initially authorized for issuance and available for future grants under our 2016 Plan (the “Initial Reserve”). The number of shares of common stock authorized for issuance and available for future grants under the 2016 Plan will be increased each January 1 after the effective date of the 2016 Plan by a number of shares of common stock equal to the lesser of: (a) 4% of the number of shares of common stock issued and outstanding on a fully-diluted basis as of the close of business on the immediately preceding December 31, or (b) a number of shares of common stock set by our Board.
 
As of December 31, 2016, a total of 3.75 million RSUs have been granted under the 2016 Plan and 412,500 shares have been issued to consultants under the 2016 Plan. We have not yet granted stock options and stock appreciation rights under the 2016 Plan. As of December 31, 2016, 15,837,500 million shares remained issuable under the 2016 Plan.
 
 
-53-
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table presents information, to the best of our knowledge, about the beneficial ownership of our common stock on March 15, 2017 by those persons known to beneficially own more than 5% of our capital stock, by each of our directors and named executive officers and all of our directors and current executive officers as a group. The percentage of beneficial ownership for the following table is based on 124,810,756 shares of common stock outstanding as of March 15, 2017.
 
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (“SEC”) and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after March 15, 2017 pursuant to options, warrants, restricted stock units, conversion privileges or other rights. The percentage of ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the SEC, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
 
 
NAME OF OWNER (1)
 
Amount and nature of beneficial ownership of Common Stock (2)
 
 
Percentage of outstanding Common Stock Before the Offering(3)
 
 
Percentage of outstanding
Common Stock
Following the Offering (10)
 
5% Stockholders
 
 
 
 
 
 
 
 
 
Novalere Holdings LLC
151 Treemont Street, Penthouse
Boston, MA 02111
  25,617,592 
  20.53%
  17.02%
 
    
    
    
Directors and Named Executive Officers:
    
    
    
Bassam Damaj, Ph.D. (4)
  23,703,347 
  18.42%
  15.36%
Robert E. Hoffman (5)
  395,603 
  * 
  * 
Randy Berholtz, MBA/JD (6)
  175,000 
  * 
  * 
Henry Esber, Ph.D. (7)
  1,853,109 
  1.46%
  1.22%
Vivian Liu (8)
  2,439,780 
  1.93%
  1.60%
Ziad Mirza, MBA/M.D. (9)
  2,013,044 
  1.59%
  1.32%
Officers and Directors as a Group (6 persons)
  30,579,883 
  22.82%
  19.15%
    * Represents less than 1%
 
(1)
Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o Innovus Pharmaceuticals, Inc., 9171 Towne Centre Drive, Suite 440, San Diego, California 92122.
 
(2)
Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 15, 2017 are deemed outstanding for computing the percentage of the owner’s holding such option or warrant but are not deemed outstanding for computing the percentage of any other owner.
 
(3)
Percentage based upon 124,810,756 shares of common stock issued and outstanding as of March 15, 2017.
 
(4)
Includes 3,875,000 shares of common stock issuable upon conversion of vested RSUs within 60 days after March 15, 2017 and 129,393 shares of common stock held by Dr. Damaj’s spouse.
 
(5)
Includes 115,500 shares of common stock issuable upon the exercise of stock options exercisable within 60 days after March 15, 2017.
 
(6)
Includes 131,250 shares of common stock issuable upon conversion of vested RSUs within 60 days after March 15, 2017.
 
(7)
Includes 1,853,109 shares of common stock issuable upon conversion of vested RSUs within 60 days after March 15, 2017.
 
(8)
Includes 1,595,097 shares of common stock issuable upon conversion of vested RSUs within 60 days after March 15, 2017.
 
(9)
Includes 1,595,097 shares of common stock issuable upon conversion of vested RSUs within 60 days after March 15, 2017. 
 
(10)
Percentage based upon 150,477,425 shares of common stock issued and outstanding immediately after the offering.
 
 
 
-54-
 
Restricted Stock Grants
 
During March 2015, the Company entered into stock unit agreements with its employees, board of directors and certain key consultants. Under the terms of the agreements, the Company issued 10,370,000 RSUs, of which 3,456,667 of the RSUs vested immediately, while the remaining 6,913,333 vested in equal monthly installments through March 2017, subject to the continued service to the Company as of the vesting date.  The Company recognized compensation expense and other expense as appropriate in the first quarter corresponding to the appropriate service period.
 
During the year ended December 31, 2016, the Company issued 14,636,106 RSUs to employees and board members. In 2016, 886,107 were from the 2013 Plan and vested immediately, 9,999,999 were from the 2014 Plan and 3,750,000 were from the 2016 Plan.  A total of 6,000,001 of 9,999,999 RSUs issued under the 2014 Plan vested immediately and the remaining 3,999,998 vested upon the closing of the Beyond Human® asset acquisition. The RSUs issued under the 2016 Plan vest as to 25% on the one year anniversary from the date of grant and then in equal quarterly installments for the next two years.
 
 
-55-
 
 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
On occasion we may engage in certain related party transactions. All prior related party transactions were approved by a majority of the disinterested directors. Upon the consummation of offering, our policy is that all related party transactions will be reviewed and approved by the independent members of our board of directors prior to our entering into any related party transactions.
 
Non-Convertible Note
 
In January 2013, the Company entered into a line of credit convertible debenture with Dr. Bassam Damaj, the Company’s CEO (the “LOC Convertible Debenture”). Under the terms of its original issuance: (i) the Company could request to borrow up to a maximum principal amount of $250,000 from time to time; (ii) amounts borrowed bore an annual interest rate of 8%; (iii) the amounts borrowed plus accrued interest were payable in cash at the earlier of January 14, 2014 or when the Company completed a Financing, as defined in the LOC Convertible Debenture; and (iv) the holder had sole discretion to determine whether or not to make an advance upon the Company’s request.  During 2013, the LOC Convertible Debenture was further amended to: (y) increase the maximum principal amount available for borrowing to $1.0 million plus any amounts of salary or related payments paid to Dr. Damaj prior to the termination of the funding commitment; and (z) change the holder’s funding commitment to automatically terminate on the earlier of either (a) when the Company completes a financing with minimum net proceeds of at least $4.0 million, or (b) July 1, 2016.
 
On August 12, 2015, the principal amount that may be borrowed under the LOC Convertible Debenture was increased to $2.0 million and the automatic termination date described above was extended to October 1, 2016. The LOC Convertible Debenture was not renewed upon expiration. The conversion price was $0.16 per share, 80% times the quoted market price of the Company’s common stock on the date of the amendment.
 
During the years ended December 31, 2016 and 2015, the Company borrowed $0 and $114, respectively, under the LOC Convertible Debenture, and recognized interest expense on the outstanding debentures to a related party totaling $16,430 and $33,174 during the years ended December 31, 2016 and 2015, respectively.  The Company repaid the LOC Convertible Debenture balance and accrued interest in full during the year ended December 31, 2016.
 
Accrued Compensation
 
The Company has accrued certain wages, vacation pay and target-based bonuses payable to Dr. Damaj, as follows:
 
 
 
  December 31, 2016 
 
 
  December 31,
2015 
 
Wages
 1,455,886 
 1,178,909 
Vacation
  261,325 
  170,371 
Bonus
  449,038 
  - 
Payroll taxes on the above
  133,344 
  93,510 
    Total
  2,299,593 
  1,442,790 
Classified as long-term
  (1,531,904)
  (906,928)
Accrued compensation
 767,689 
 535,862 
 
 
-56-
 
Accrued wages as of December 31, 2016 and 2015, which totaled $1.4 million and $1.1 million, respectively, are entirely related to wages owed to Dr. Damaj. Under the terms of his employment agreement, wages are to be accrued but no payment made for so long as payment of such salary would jeopardize the Company’s ability to continue as a going concern. Dr. Damaj started to receive payment of salary in July 2016. Under the third quarter 2015 financing agreement, salaries prior to January 1, 2015 totaling $906,928 could not be repaid until certain indebtedness was repaid in full or otherwise extinguished by conversion or other means and, accordingly, the accrued compensation was shown as a long-term liability. During the year ended December 31, 2016, the indebtedness was fully converted into shares of common stock. We do not expect to pay the wages and related payroll tax amounts within the next 12 months and thus is classified as a long-term liability.
 
All future transactions between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel.
 
To the best of our knowledge, during the past three fiscal years, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business).
 
 
-57-
 
DESCRIPTION OF SECURITIES
 
Common Stock
 
Our Amended and Restated Articles of Incorporation authorizes the issuance of 292,500,000 shares of common stock, $0.001 par value per share and 7,500,000 shares of preferred stock; 124,810,756 shares were outstanding as March 15, 2017. Upon sale, conversion or exercise of the 78,283,340 shares offered herein, we may have outstanding, up to 203,094,096 shares of common stock.  Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have no cumulative voting rights, but are entitled to one vote for each shares of common stock they hold. Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the board of directors in its discretion, from funds legally available to be distributed. In the event of a liquidation, dissolution or winding up of Innovus, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities and the prior payment to the preferred stockholders if any. Holders of common stock have no preemptive rights to purchase our common stock. There are no conversion rights or redemption or sinking fund provisions with respect to the common stock.
 
Preferred Stock
 
Our Articles of Incorporation give our board of directors the right to create a new series of preferred stock. There are currently no series of preferred stock authorized and thus no shares of preferred stock outstanding.
 
Our board of directors, subject to the provisions of our Articles of Incorporation and limitations imposed by law, is authorized to:
 
adopt resolutions;
 
to issue the shares;
 
to fix the number of shares;
 
to change the number of shares constituting any series; and
 
to provide for or change the following:
 
the voting powers;
 
designations;
 
preferences; and
 
relative, participating, optional or other special rights, qualifications, limitations or restrictions, including the following:
 
dividend rights (including whether dividends are cumulative);
 
dividend rates;
 
terms of redemption (including sinking fund provisions);
 
redemption prices;
 
conversion rights; and
 
 
liquidation preferences of the shares constituting any class or series of the preferred stock.
 
 
-58-
 
In each of the listed cases, we will not need any further action or vote by the stockholders.
 
One of the effects of undesignated preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant to the board of director’s authority described above may adversely affect the rights of holders of common stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the common stock at a premium or may otherwise adversely affect the market price of the common stock.
 
Options
 
As of March 15, 2017, we had options to purchase 253,500 shares of our common stock outstanding pursuant to our 2013 Plan, our 2014 Plan, and our 2016 Plan, with a weighted exercise price of $0.21 per share.
 
Warrants
 
As of March 15, 2017, warrants to purchase 5,967,054 shares of our common stock were outstanding, with a weighted average exercise price of $0.34 per share.
 
Warrants Offered Hereby
 
We are offering Series A Warrants to purchase up to 25,666,669 shares of our common stock and Series B Warrants to purchase up to 25,666,669 shares of our common stock to purchasers in this offering.  Each Warrant entitles the holder thereof to purchase one share of common stock at an exercise price of $0.15 per share (100% of the public offering price of our common stock) for Series A Warrants and an exercise price of $0.15 per share (100% of the public offering price of our common stock) for Series B Warrants.
 
The following is a brief summary of certain terms and conditions of the Warrants to be issued in connection with this offering and are subject in all respects to the provisions contained in the Warrants. Please see the section titled “Plan of Distribution” below for additional information about the warrants to be issued to the placement agents in connection with this offering.
 
Form 
 
The Warrants will be physically delivered to participants in this offering. You should review a copy of the form of Series A Warrant and Series B Warrant, which are filed as exhibits to the registration statement of which this prospectus forms a part, for a complete description of the terms and conditions applicable to the Warrants.
 
Exercisability 
 
The Warrants are exercisable at any time after their original issuance, and at any time up to the date that is five-years after the original issuance date with respect to the Series A Warrants and one-year after the original issuance date with respect to the Series B Warrants. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the shares of common stock underlying the Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering the issuance of the shares of common stock underlying the Warrants under the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the Warrants through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the Warrant.
 
 
-59-
 
Exercise Limitation
 
A holder will not have the right to exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days’ prior notice from the holder to us.
 
Exercise Price
 
The exercise price per whole share of common stock purchasable upon exercise of the Warrants is $0.15 per share of common stock, which represents 100% of the public offering price of the shares of common stock in this offering for Series A Warrants and $0.15 per share of common stock, which represents 100% of the public offering price of the shares of common stock in this offering for Series B Warrants. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.
 
Transferability 
 
Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.
 
Exchange Listing
 
There is no established public trading market for the Warrants and we do not intend to apply to list the Warrants on any securities exchange or automated quotation system.
 
Rights as a Stockholder
 
Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of any Warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the Warrant.
 
Nevada Laws
 
The Nevada Business Corporation Law contains a provision governing “Acquisition of Controlling Interest.” This law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly-held Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights in whole or in part. The control share acquisition act provides that a person or entity acquires “control shares” whenever it acquires shares that, but for the operation of the control share acquisition act, would bring its voting power within any of the following three ranges:
 
    20% to 33%
 
    33% to 50%
 
    more than 50%
 
A “control share acquisition” is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding control shares. The stockholders or board of directors of a corporation may elect to exempt the stock of the corporation from the provisions of the control share acquisition act through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do exempt our common stock from the control share acquisition act.
 
 
-60-
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Future sales of substantial amounts of common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of certain restrictions on resale, sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.
 
Upon completion of this offering, and assuming the exercise or conversion of all derivative securities, we may have outstanding an aggregate of up to 229,332,457 shares of common stock issued and outstanding. Of these shares, at least 163,940,209 will be freely tradable without restriction or further registration under the Securities Act, unless such shares are purchased by individuals who become “affiliates” as that term is defined in Rule 144 under the Securities Act, as the result of the securities they acquire in this offering which provide them, directly or indirectly, with control or the capacity to control us. Our officers and directors will not be purchasing shares in this offering. The remaining shares of common stock held by our existing stockholders are “restricted securities” as that term is defined in Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 and or Section 4(a)(1). As a result of these provisions of Rule 144, additional shares will be available for sale in the public market as follows:
 
no restricted shares will be eligible for immediate sale on the date of this prospectus; and
 
 
the remainder of the restricted shares will be eligible for sale from time to time pursuant to available exemptions, subject to restrictions on such sales by affiliates.
 
Sales pursuant to Rule 144 are subject to certain requirements relating to the availability of current public information about us. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned restricted shares for at least six months is entitled to sell such shares under Rule 144 without regard to the resale limitations.
 
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver to the prospective purchaser a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the prospective purchaser and receive the purchaser’s written agreement to the transaction. Furthermore, subsequent to a transaction in a penny stock, the broker-dealer will be required to deliver monthly or quarterly statements containing specific information about the penny stock. It is anticipated that our common stock will be traded on an OTC market at a price of less than $5.00. In this event, broker-dealers would be required to comply with the disclosure requirements mandated by the penny stock rules.
 
These disclosure requirements will likely make it more difficult for investors in this offering to sell their common stock in the secondary market.
 
 
-61-
 
 
SELLING STOCKHOLDER
 
In addition to the shares of common stock and warrants offered by the Company herein, this prospectus also relates to the possible resale by Selling Stockholder of shares of our common stock, which were issued to the Selling Stockholder in connection with the merger of Novalere FP, Inc., a Delaware corporation, with and into a wholly-owned subsidiary of the Company in February 5, 2015 (the “Novalere Merger”), as further described below.
 
The Novalere Merger 
 
On February 5, 2015 (the “Closing Date”), the Company, Innovus Pharma Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Innovus (“Merger Subsidiary I”), Innovus Pharma Acquisition Corporation II, a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Subsidiary II”), Novalere FP, Inc., a Delaware corporation (“Novalere FP”) and Novalere Holdings, LLC, a Delaware limited liability company (“Novalere Holdings”), as representative of the shareholders of Novalere Holdings (the “Novalere Stockholders”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Subsidiary I merged into Novalere and then Novalere merged with and into Merger Subsidiary II (the “Merger”), with Merger Subsidiary II surviving as a wholly-owned subsidiary of the Company. Pursuant to the articles of merger effectuating the Merger, Merger Subsidiary II changed its name to Novalere, Inc.
 
With the Merger, the Company acquired the worldwide rights to market and sell the Fluticare brand (Fluticasone propionate nasal spray) and the related manufacturing agreement from Novalere FP. The Company currently anticipates that the ANDA filed in November 2014 by the manufacturer with the FDA may be approved in 2017, which, when and if approved, may allow the Company to market and sell Fluticare OTC in the second half of 2017.
 
Under the terms of the Merger Agreement, at the Closing Date, Novalere Holdings received an aggregate total of 12,947,657 shares of common stock as payment of 50% of the consideration for the Novalere Merger, approximately $2.071 million. The remaining 50% of the consideration for the Novalere Merger was paid to Novalere Holdings on November 12, 2016 by the issuance of an aggregate total of 12,947,655 shares of our common stock. As a part of the Novalere Merger and subsequent amendment to the registration rights of Novalere Holdings, the Company agreed to register all shares of the Company’s common stock held by Novalere Holdings on behalf of the Novalere Stockholders.
 
The total number of shares registered for resale in the offering does not include 277,720 shares issued in connection with the Novalere Merger that are not being registered, which shares are held by individuals.

Selling Stockholder Table
 
The following table presents information regarding the Selling Stockholder and the shares of our common stock they may offer and resell from time to time under this prospectus.  The table is prepared based on information supplied to us by the Selling Stockholder, and reflects their respective holdings of our equity securities as of December 31, 2016.  The Selling Stockholder has represented to us that neither the Selling Stockholder nor any of its affiliates have held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates.  
 
As used in this prospectus, the term “Selling Stockholder” includes the entity listed below and any of its donees, pledgees, transferees or other successors in interest selling the shares of our common stock received after the date of this prospectus from the Selling Stockholder as a gift, pledge or other non-sale related transfer.  Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The percentage of shares beneficially owned prior to the offering is based on 124,810,756 shares of our common stock actually outstanding as of March 15, 2017.

   
 
 
 
Shares Beneficially
Owned Prior
 to Offering
 
 
 
Maximum Number of Shares Being Offered Pursuant to this Prospectus
 
 
 
Shares Beneficially
Owned
After Offering(4)

Name of Selling Security Holder(1)
 
 
Number
 
 
 
Percent