Nugen 10-Q 2009 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________

Commission File No.

000-52865

INOVACHEM, INC.

(Exact name of small business issuer as specified in its charter)

Delaware	26-1946130
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

c/o Polymed Therapeutics, Inc 3040 Post Oak Road, Suite 1110 Houston, TX	77056
(Address of principal executive offices)	(Zip Code)

(713) 777-7088

(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

Common stock outstanding ($.001 par value) as of July 31, 2009: 21,515,013 shares.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	3
Item 1. Financial Information	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3. Not applicable	7
Item 4. Controls and Procedures	7
PART II -OTHER INFORMATION	8
Item 1. Legal Proceedings.	8
Item 1A. Not Required	8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	8
Item 3. Defaults Upon Senior Securities.	8
Item 4. Submission of Matters to a Vote of Security Holders.	8
Item 5. Other Information.	8
Item 6. Exhibits	8
SIGNATURES	9

2

PART I – FINANCIAL INFORMATION

Item 1.

INOVACHEM, INC. AND SUBSIDIARY

 (A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2009

(UNAUDITED)

Table of Contents

	Page #
FINANCIAL STATEMENTS
Consolidated Balance Sheets		F-1
Consolidated  Statements of Operations		F-2
Consolidated  Statements of Changes in Stockholders’ Equity (Deficit)		F-3
Consolidated Statements of Cash Flows		F-4
Notes to Consolidated Financial Statements		F-5

3

InovaChem, Inc. and Subsidiary

(a development stage company)

CONSOLIDATED BALANCE SHEETS

	June 30,			September 30,
	2009			2008
	(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents	$	120,540		$	350,356
Prepaid expenses		2,562			4,618
Total current assets		123,102			354,974
	$	123,102		$	354,974
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	67,913		$	146,767
Accrued expenses		23,675			15,084
Due to related parties		316,250			160,220
Total current liabilities		407,838			322,071
Total liabilities		407,838			322,071
Commitments and contingencies (Note 4)
Stockholders' equity (deficit)
Preferred stock - $0.001 par value; 50,000,000 shares authorized, none issued and outstanding		-			-
Common stock - $0.001 par value; 200,000,000 shares authorized, 21,515,013 shares issued and outstanding		21,515			21,515
Additional paid-in capital		831,470			711,470
Deficit accumulated during development stage		(1,137,721	)		(700,082	)
Total stockholders' equity		(284,736	)		32,903
	$	123,102		$	354,974

The accompanying notes are an integral part of these unaudited consolidated  financial statements

F-1

InovaChem, Inc. and Subsidiary

(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

													Cumulative
										For Period from			For Period from
										February 14, 2008			February 14, 2008
	Three months ended			Three months ended			Nine months ended			(inception) to			(inception) to
	June 30,			June 30,			June 30,			June 30,			June 30,
	2009			2008			2009			2008			2009
Revenues	$	-		$	-		$	-		$	-		$	-
Operating expenses
Compensation		75,000			279,500			358,572			279,500			860,782
Professional fees		4,499			46,752			13,278			46,752			114,930
Impairment expense		-			-			-			-			45,944
Travel expenses		7,202			-			48,608			-			79,413
Other general and administrative expenses		5,794			-			18,354			-			38,775
Total operating expenses		92,495			326,252			438,812			326,252			1,139,844
Net loss from operations		(92,495	)		(326,252	)		(438,812	)		(326,252	)		(1,139,844	)
Other income and (expense)
Interest income		360			-			1,479			-			2,534
Interest expense		(99	)		-			(306	)		-			(411	)
Total other income and (expense)		261			-			1,173			-			2,123
Net loss	$	(92,234	)	$	(326,252	)	$	(437,639	)	$	(326,252	)	$	(1,137,721	)
Net loss per share	$	(0.00	)	$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.06	)
Weighted average number  of common stock outstanding		21,515,013			16,742,778			21,515,013			16,716,667			20,195,146

The accompanying notes are an integral part of these unaudited consolidated  financial statements

F-2

InovaChem, Inc. and Subsidiary

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FROM October 1, 2008 to June 30, 2009 and

FROM February 14, 2008 (INCEPTION) to September 30, 2008

(UNAUDITED)

	Preferred Stock				Common Stock				Additional
	Number of		Par		Number of		Par		Paid-in			Accumulated
	Shares		Value		Shares		Value		Capital			Deficit			Total
Balance at February 14, 2008		-	$	-		16,666,667	$	16,667	$	43,333		$	-		$	60,000
Recapitalization		-		-		2,500,000	$	2,500		(34,014	)		-			(31,514	)
Issuance of common stock to  officers and directors for services		-		-		925,000		925		276,575			-			277,500
Issuance of common stock for cash		-		-		1,423,346		1,423		425,576			-			426,999
Net loss from February 14, 2008  (inception) to September 30, 2008		-		-		-		-		-			(700,082	)		(700,082	)
Balance at September 30, 2008						21,515,013		21,515		711,470			(700,082	)		32,903
Contributed services										120,000						120,000
Net loss from October 1, 2008  to June 30, 2009		-		-		-		-		-			(437,639	)		(437,639	)
Balance at June 30, 2009		-	$	-		21,515,013		21,515		831,470			(1,137,721	)		(284,736	)

The accompanying notes are an integral part of these unaudited consolidated financial statements

F-3

InovaChem, Inc. and Subsidiary

(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

							Cumulative For
				For Period from			Period from
				February 14,			February 14,
	For Nine Months			2008			2008
	Ended June 30,			(inception) to			(inception) to
	2009			June 30, 2008			June 30, 2009
Cash flows from operating activities:
Net loss	$	(437,639	)	$	(326,252	)	$	(1,137,721	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Contributed services		120,000			-			120,000
Stock issued as compensation		-			277,500			277,500
Impairment expense		-			-			45,944
Changes in operating assets and liabilities:
Prepaid expenses		2,056			-			2,063
Accounts payable		(78,854	)		-			(67,595	)
Accrued expenses		8,591			-			(22,269	)
Due to related parties		156,030			-			310,351
Net cash provided by (used in)
operating activities		(229,816	)		(48,752	)		(471,727	)
Cash flows from investing activities:
Cash acquired in recapitalization		-			105,268			105,268
Net cash provided by (used in)		-			-			-
investing activities		-			105,268			105,268
Cash flows from financing activities:
Proceeds from sale of common stock, net		-			60,000			486,999
Net cash provided by (used in)		-			-			-
financing activities		-			60,000			486,999
Net increase in cash and cash equivalents		(229,816	)		116,516			120,540
Cash and cash equivalents at beginning of period		350,356			-			-
Cash and cash equivalents at end of period	$	120,540		$	116,516		$	120,540
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	306		$	-		$	411
Cash paid during the period for taxes	$	-		$	-		$	-
Supplemental disclosure of non- cash investing  and financing activities:
Net non-cash assets and (liabilities) assumed in recapitalization	$	-		$	(136,782	)	$	(136,782	)

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements

F-4

Note 1. Nature of Operations, Basis of Presentation and Going Concern:

Nature of Operations

InovaChem, Inc. and its subsidiary (the “Company”) is a development stage research, development and manufacturing company. The Company’s strategic plan is to reduce the cost of manufacturing of food, pharmaceutical and other products, including sucralose, through the utilization of new technologies. The Company intends to obtain these technologies through their purchase, acquisition or in-house development.

On June 28, 2008, InovaChem Mergerco, LLC a Texas limited liability company (“Mergerco”) and a wholly owned subsidiary of the Company merged (the “Merger”) with and into Trinterprise LLC, a Texas limited liability company (“Trinterprise”) with Trinterprise surviving the Merger. As a result of the Merger, the Company acquired the rights in and to three patent applications of Trinterprise, and Trinterprise became a wholly owned subsidiary of the Company. As discussed below in Note 5, this transaction was treated as a recapitalization of Trinterprise. The Company is maintaining its fiscal year end of September 30, which was the historical fiscal year end of Inovachem, Inc. and Trinterprise.

Activities during the development stage include obtaining patents pending, developing the business plan, and raising capital.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operations.

It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments and non-recurring adjustments) have been made which are necessary for a fair consolidated financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

The information included in these unaudited consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained in this report and the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2008.

Going Concern

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $92,234 and $437,639, for the three and nine months ended June 30, 2009, respectively a net loss of $326,252 for both the three months ended June 30, 2008 and for the period from February 14, 2008 (inception) to June 30, 2008, respectively. The Company used cash in operating activities of $229,816 for the nine months ended June 30, 2009. The Company had a net loss of $1,137,721 and used cash in operating activities of $471,727 for the period from February 14, 2008 (inception) to June 30, 2009. In addition the Company had a working capital deficit of $284,736 at June 30, 2009. The Company expects to have to expend cash for operations and technology investments in order to implement its business plan and does not expect immediate revenues to offset such expenditures. 

The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan, raise capital, and generate revenues.

Management is attempting to raise additional capital through public or private offerings; acquire a company; or merge with or into another company.

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 2. Summary of Significant Accounting Policies:

Principles of Consolidation

The consolidated financial statements include the accounts of Inovachem, Inc, and Trinterprise, LLC, its wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated in consolidation.

F-5

Use of Estimates

Management has used estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities and the Company’s reported expenses. Significant estimates during the periods presented include the valuation of patents contributed by founders in connection with the Trinterprise acquisition; valuation of subsequent capitalized patent costs, the valuation of stock-based compensation and the valuation of deferred tax assets. These estimates are reasonable in the judgment of the Company’s management.

Cash and Cash Equivalents

The Company considers cash on hand and amounts on deposit with financial institutions which have original maturities of three months or less to be cash and cash equivalents.

Fair Value of Financial Instruments

The Company's financial instruments may include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and liabilities to banks and shareholders. The carrying amount of long-term debt to banks approximates fair value based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. The carrying amounts of other financial instruments approximate their fair value because of short-term maturities.

Accounts Receivable

Accounts receivable and customer deposits do not exist at June 30, 2009.

Intangibles and Other Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

Revenue Recognition

The Company follows the guidance of the Securities and Exchange Commission's (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104 for revenue recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

Stock Based Compensation

At inception, the Company implemented Statement of Financial Accounting Standard 123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment,” which replaced SFAS No. 123 “Accounting for Stock-Based Compensation” and superseded Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” In March 2005, the SEC issued SAB No. 107 (SAB 107) regarding its interpretation of SFAS No. 123R. SFAS No. 123(R) and related interpretations requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. The Company values any employee or non-employee stock based compensation at fair value using the Black-Scholes Option Pricing Model.

Research and development

Research and development costs, if any, are expensed as incurred.

F-6

Income Taxes

The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At this time, the Company has set up an allowance for deferred taxes as there is no Company history to indicate the usage of deferred tax assets and liabilities.

Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period as required by the Financial Accounting Standards Board (“FASB”) under SFAS No. 128, “Earnings per Shares”. Diluted EPS reflects the potential dilution of securities that could share in the earnings. There were no common stock equivalents at June 30, 2009 that may dilute future EPS.

Recent Pronouncements

In September 2006, the FASB issued SFAS No. 157, “ Fair Value Measurements ”. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement has not had a material effect on the Company's reported financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 ”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “ Accounting for Certain Investments in Debt and Equity Securities ” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “ Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”. This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 affects those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

At its June 25, 2008 meeting, the Financial Accounting Standards Board ratified the consensus reached by the Emerging Issues Task Force Issue 07-5 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock   (EITF 07-5).  The adoption of EITF 07-5’s requirements will affect accounting for convertible instruments and warrants with provisions that protect holders from declines in the stock price (“round-down” provisions).  Warrants with such provisions will no longer be recorded in equity.  The Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted. 

Instruments with down-round protection are not considered indexed to a company’s own stock under EITF 07-5, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.  The appendix to the Consensus contains an example (example 8) of warrants with down-round provisions that concludes they are not indexed to the company’s owned stock.  A down-round provision may be viewed by some as a form of guarantee provided to the holder of the instrument, which is inconsistent with equity classification. 

F-7

EITF 07-5 guidance is to be applied to outstanding instruments as of the beginning of the fiscal year in which the Issue is applied.  The cumulative effect of the change in accounting principle shall be recognized as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year, presented separately.  The cumulative-effect adjustment is the difference between the amounts recognized in the statement of financial position before initial application of this Issue and the amounts recognized in the statement of financial position at initial application of this Issue.  The amounts recognized in the statement of financial position as a result of the initial application of this Issue shall be determined based on the amounts that would have been recognized if the guidance in this Issue had been applied from the issuance date of the instrument. 

There was no accounting effect of the adoption of this standard in January 1, 2009. 

Note 3. Related Parties

Two of the Company’s executive officers, William Zuo and Xiaojing Li, are also executive officers and shareholders of Polymed Therapeutics, Inc. (“Polymed”). Polymed is an affiliate of the Chongqing Polymed Chemical Co. Ltd. in the city of Chongqing, People’s Republic of China one of the Chinese facilities that will likely be producing the Company’s products pursuant to a proposed manufacturing contract with Polymed. The Company has the use of office space on an as needed basis at an affiliate. The value of such space used is de minimis.

“Due to related parties” includes deferred compensation due to officers in the amount of $316,250 (see note 4).

Note 4. Commitments and Contingencies

Employment Agreements

On June 30, 2008, the Company entered into employment agreements with its Executive Chairman, Executive Vice Chairman, Chief Science Officer, Vice President / Corporate Secretary and Chief Financial Officer / Treasurer. The employment agreements for the Executive Chairman and the Vice President / Corporate Secretary are for an initial term ending on December 31, 2011. The other employment agreements are for an initial term ending on December 31, 2009.

Pursuant to the terms of the employment agreements, each of the Executive Chairman, Executive Vice Chairman, Chief Science Officer, Vice President / Corporate Secretary and Chief Financial Officer / Treasurer will be entitled to receive a base salary of $300,000, $150,000, $100,000, $100,000, and $125,000, respectively, in each case subject to review and increase at the Company's Board of Directors' discretion. Pursuant to the terms of the employment agreements, the Company may defer payment of some or all of the compensation to each of the executives until such time as the Company’s financial situation permits payment of such compensation. The Board of Directors and Compensation Committee have approved the deferral of a portion of the cash compensation due to each of the executives such that the total monthly compensation (beginning in July 2008 and ending in December 2008) that is being paid to the Company’s executive officers totals approximately $13,000 per month. A total of approximately $51,600 per month of the executive’s compensation will be deferred until such time as determined by the Company’s Compensation Committee. Effective January 1, 2009 the Company stopped the payment of salaries to its executives through the end of the initial terms of the agreements. The Company’s Chief Financial Officer receives, through his consulting company, a $5,000 per month fee. The Compensation Committee of the Company reserves the right to reassess these payments and adjust the amount to be paid as the financial condition of the Company changes. Each of the executives will also be entitled to receive an annual bonus with a targeted amount of 50% of their respective base salary based on performance criteria established by the Board of Directors. Each of the executives shall be entitled to participate in disability, health, life insurance and other fringe benefit plans or programs offered to all employees of the Company, as well as be entitled to four weeks vacation per year.

The employment agreements of each executive may be terminated by (a) the Company upon death or disability of the executive, for "Cause" (as defined in the employment agreement), or for any reason in the Company's sole and absolute discretion or (b) by the executive for "Good Reason" (as defined in the employment agreement). In the event of a termination upon death or disability, the executive and/or the executive's family shall continue to be covered by all of the Company's medical, health and dental plans, at the Company's expense, for a period of 18 months following such executive's death or disability.

In the event of a termination by the Company for any reason other than death, disability or Cause, or by the executive for Good Reason, the executive shall be entitled to receive his/her base salary for the longer of (i) the remaining term of the employment agreement or (ii) 12 months from the date of termination.

F-8

Effective January 1, 2009 the Company executed amendments to all of its  employment Agreements such that, the CEO,  Executive VP, Chief Science and Technical Officer and Vice President had their agreement amended to reflect that no salaries are accrued or paid to the executives until the end of the initial term of the agreements; the employment agreement of the Company’s CFO was amended such that his salary is replaced by a monthly consulting fee, paid to the CFO’s consulting company, in the amount of $5,000 per month effective until the end of the initial term of his agreement.

The employment agreements provide for a non-compete for the period during which the executive is employed by the Company and for so long as the Executive is receiving payments under the terms of the employment agreement following termination.

Note 5. Merger and Recapitalization

On June 28, 2008, Mergerco, which is a wholly owned subsidiary of the Company, merged with and into Trinterprise, with Trinterprise surviving the Merger as a wholly-owned subsidiary of the Company.

Under the terms of the Merger Agreement, the Trinterprise Members received an aggregate of 16,666,667 newly issued shares (the “Merger Shares”) of common stock, par value $.001 per share (the “Common Stock”), of the Company in exchange for all of the outstanding membership interest in Trinterprise. Upon consummation of the Merger, the Trinterprise Members owned approximately 80% of the issued and outstanding Common Stock of InovaChem. All but one of the Trinterprise Members are directors and/or officers of the Company. In addition, the Executive Chairman and Vice President / Corporate Secretary of the Company are the managers of Trinterprise. Each Trinterprise Member received an amount of Merger Shares that is equal in proportion to the interest in Trinterprise held by such Trinterprise Members.

In accordance with the terms of the Merger Agreement, 4,166,667 Merger Shares were placed in escrow to satisfy certain indemnity obligations the Trinterprise Members may have to the Company. The escrowed Merger Shares will be released on the later ( the "Release Date") of (i) the sixth month anniversary of the Merger Agreement, or (ii) the date of delivery to the Company of executed supply agreements between Polymed and two designated manufacturing facilities in China. The Company will be entitled to receive all or a portion of the escrowed Merger Shares prior to the Release Date in the event the Company is entitled to indemnification under the terms of the Merger Agreement.

As the Trinterprise Members obtained voting and management control of the Company as a result of the Merger, the Merger was accounted for as a recapitalization of Trinterprise. Accordingly, the financial statements of the Company subsequent to the Merger consist of the balance sheets of InovaChem, Inc. and Trinterprise, the historical operations of Trinterprise and the operations of both InovaChem, Inc. and Trinterprise from June 28, 2008 (date of Merger) until June 30, 2009. As a result of the Merger, the historical financial statements of InovaChem, Inc. for the period prior to June 28, 2008, are not presented herein.

As a result of the Merger, the 2,500,000 common shares that had previously been issued to the pre-merger stockholders of Inovachem, Inc. were recapitalized and valued as the net of the $141,407 of current liabilities, $105,268 of cash and cash equivalents and $4,625 of prepaid expenses that were assumed by the Company. The net charge of $31,514 is reflected on the Company’s Statement of Changes in Stockholders’ Equity.

All of the effects of the recapitalization are reflected retroactively in the accompanying consolidated financial statements.

In June 2008, certain patent applications were assigned to Trinterprise from certain controlled affiliates of the founders of Trinterprise. Pursuant to Staff Accounting Bulletin Topic 5(G), "Transfers of Nonmonetary Assets by Promoters or Shareholders" , the patent applications of Trinterprise were acquired by the Company at their historical cost basis of $0 as determined under generally accepted accounting principles and therefore there was no accounting effect of the assignment.

Note 6. Stockholder's Equity

Preferred stock includes 50,000,000 shares authorized at a par value of $0.001, of which none are issued or outstanding. Common Stock includes 200,000,000 shares authorized at a par value of $0.001.

In February 2008, the Trinterprise Members paid $60,000 for their membership interest in Trinterprise. As a result of the Merger, this membership interest was converted to 16,666,667 common shares of the Company which is reflected retroactively in the accompanying consolidated financial statements. The existing 2,500,000 common shares were deemed to be issued to the pre-merger stockholders of Inovachem, Inc. as a result of the recapitalization. (See Note 5 – Merger and Recapitalization).

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In June 2008 the Company granted, pursuant to the Employment Agreements it entered into with its officers and pursuant to its arrangement with its directors, 925,000 shares of Common Stock to its officers and directors valued at the then contemporaneous private offering price of $.30 per share. As the shares were fully vested on the grant date, a total of $277,500 was charged to compensation expense in the quarter ended June 30, 2008.

In July 2008, the Company sold a total of 1,423,346 shares of Common Stock, pursuant to its private offering, at a price of $.30 per share for aggregate proceeds of $426,999.

Contributed Capital

During the quarter and nine months ended June 30, 2009, four of the Company’s officers worked for the Company without compensation. Included in Compensation expense is $60,000 and $120,000 respectively for these periods, of contributed capital by these four officers. Management believes its estimate of the value of contributed services is reasonable.

2008 Stock Option Plan

On June 30, 2008, the Company's Board of Directors adopted the 2008 Stock Option Plan (the “Plan”). The Plan was implemented for the purpose of furthering the Company’s long-term stability, continuing growth and financial success by retaining and attracting key employees, officers and directors through the use of stock incentives. The Company will submit the Plan to its stockholders for approval at its next annual meeting of stockholders. Awards may be granted under the Plan in the form of incentive stock options and non-qualified stock options, subject to stockholder approval of the Plan. Pursuant to the Plan, the Company has reserved 2,000,000 shares of its Common Stock for awards.

All of the Company’s officers, directors and executive, managerial, administrative and professional employees are eligible to receive awards under the Plan. The Company’s Compensation Committee has the power and complete discretion, as provided in the Plan, to select which persons will receive awards and to determine for each such person the terms, conditions and nature of the award, and the number of shares to be allocated to each individual as part of each award.

Upon adoption of the Plan, the Company’s Board of Directors approved the issuance of options to purchase 1,200,000 common shares, subject to stockholder approval of the Plan. The shares subject to the stock options vest in 12 quarterly installments on the last day of each fiscal quarter commencing on June 30, 2008. The shares will not actually vest until the Plan is approved by the Company’s shareholders. As of June 30, 2009 the Plan had not been approved by shareholders, and accordingly, pursuant to SFAS No. 123R, there is no measurement date and no expense for these grants as of June 30, 2009.

Note 7. Concentrations

Concentrations of Credit Risk:

Financial instruments which potentially expose the Company to concentrations of credit risk consist principally of operating demand deposit accounts. The Company's policy is to place its operating demand deposit accounts with high credit quality financial institutions. At June 30, 2009, there were no bank deposits that exceed federally insured limits. The FDIC insurance limits were temporarily increased to $250,000 per institution through December 31, 2013.

Patent Applications Concentration

The Company’s business relies on patent applications assigned to the Company by its founders. Although the Company has received a Freedom to Operate opinion from its patent counsel regarding these applications, there can be no assurance that the U.S. Patent and Trademark Office will grant the Company the patents. Accordingly, there is a risk that if the patents are not granted, there can be a material effect on the Company’s planned operations.

Note 8. Impairment of Assets

Through May 31, 2008, the Company incurred patent application costs of $45,944. These costs were capitalized but then impaired since the Company is a newly formed development stage company with no revenues and therefore could not project positive cash flows to support the value of such assets as of May 31, 2008.

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 Note 9. Income Taxes

The Company operated as a Limited Liability Company (LLC) from February 14, 2008 (inception) through June 28, 2008, the date of the recapitalization.  Accordingly, any net income or loss is passed through directly to the LLC members for that period.  Upon acquisition of Trinterprise, LLC by Inovachem, Inc. the Company expects to be taxed as a Delaware Corporation.

There was no income tax expense for period from June 29, 2008 through June 30, 2009 due to the Company’s net losses.

Note 10. Subsequent Events

As discussed in Note 5, in accordance with the terms of the Merger Agreement, 4,166,667 Merger Shares were placed in escrow to satisfy certain indemnity obligations the Trinterprise Members may have to the Company. The escrowed Merger Shares will be released on the later ( the "Release Date") of (i) the sixth month anniversary of the Merger Agreement, and (ii) the date of delivery to the Company of executed supply agreements between Polymed and two designated manufacturing facilities in China. The Company will be entitled to receive all or a portion of the escrowed Merger Shares prior to the Release Date in the event the Company is entitled to indemnification under the terms of the Merger Agreement.  As of December 28, 2008 and February 13, 2009, the sixth month anniversary of the Merger has passed and accordingly the shares have not been released since the Company has not yet received executed supply agreements between Polymed and two designated manufacturing facilities in China.

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

Forward-Looking Statements

We caution readers that this report includes “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as “anticipate,” “could,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “intend,” “plan,” “envision,” “continue,” target,” “contemplate,” or “will” and similar words or phrases or corporate terminology. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control.

Some of the factors that could affect our financial performance, cause actual results to differ from our estimates or underlie such forward-looking statements are set forth in various places in this report. These factors include, but are not limited to:

· general economic conditions,

· our ability to evaluate and predict our future operations and expenses, being an early stage development company with limited assets and no current operations,

· the possibility of future product-related liability claims,

· our future capital needs and our ability to obtain financing,

· our ability to protect our intellectual property and trade secrets, both domestically and abroad,

· expenses involved in protecting our intellectual property and trade secrets,

· our ability to attract and retain key management, technical, and research and development personnel,

· our ability to research and develop new technology, products and design and manufacturing techniques,

· technological advances, the introduction of new and competing products, and new design and manufacturing techniques developed by our competitors,

· anticipated and unanticipated trends and conditions in our industry,

· our ability to predict consumer preferences,

· changes in the costs of operation,

· our ability to compete,

· our ability to manage growth and carry out growth strategies, including international expansion,

· possible necessity of obtaining government approvals for both new and continuing operations,

· risks, expenses and requirements involved in operating in various foreign markets, including China,

· exposure to foreign currency risk and interest rate risk,

· possible foreign import controls and United States-imposed embargoes,

· possible disruption in commercial activities due to terrorist activity, armed conflict and government instability, and

· other factors set forth in this report and in our other Securities and Exchange Commission (“SEC”) filings.

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You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

General

We are an early stage research, development and manufacturing company. Our strategic plan is to reduce the cost of manufacture of food, pharmaceutical and other products, including sucralose, through the utilization of new technologies. We intend to obtain these technologies through their purchase, acquisition or in-house development. Our business plan currently anticipates that we will also develop and produce chemicals for use in electronic “smart glass” and solvents to be used as new carriers for use in lithium batteries. These developments will not occur in our current fiscal year.

As a result of our acquisition of Trinterprise on June 28, 2008, we own the rights to certain pending patent applications for the production and manufacture of sucralose, a non-caloric sweetener made from sugar. We anticipate that sucralose will be our first product. Sucralose is a non-caloric, high-intensity sweetener made from sugar, 600 times sweeter than sucrose. This product is used worldwide by food manufacturers, diet soda bottling companies and has many other commercial uses. 

Our merger with Trinterprise was accounted for as a recapitalization rather than as a business combination. As a result, the historical financial statements of Trinterprise are reflected as our historical consolidated financial statements. Accordingly, our consolidated financial statements subsequent to the merger consist of the balance sheets of InovaChem, Inc. and Trinterprise, the historical operations of Trinterprise and the operations of both InovaChem, Inc. and Trinterprise from June 28, 2008 (date of merger) until June 30, 2009. As a result of the merger, the historical financial statements of InovaChem, Inc. for the period prior to June 28, 2008, are not presented herein.

We are maintaining our fiscal year end of September 30, which was the historical fiscal year end of Inovachem, Inc. and Trinterprise.

Results of Operation

We did not have any operating revenues from our inception, February 14, 2008 until June 30, 2009. We had a net loss of $92,234 and $437,639 for the three and nine months ended June 30, 2009, respectively, a net loss of $326,252 for both the three months ended June 30, 2008 and for the period from February 14, 2008 (inception) to June 30, 2008, respectively. We had a cumulative net loss of $1,137,721 for the period from February 14, 2008 (inception) to June 30, 2009. We had a working capital deficit of $284,736 at June 30, 2009. We expect to expend cash for operations and technology investments in order to implement our business plan and we do not expect immediate revenues to offset such expenditures. 

Liquidity and Capital Resources

Our principal source of funds has been equity provided by our stockholders. Our principal use of funds has been for general and administrative expenses, relating to legal, travel and start-up expenses. We expect to rely upon our recently completed equity financings, as well as possible future equity financings, to implement our business plan. We do not believe that we can implement our business plan without raising additional capital. We have not yet determined how much additional capital we will require and will not know until we complete our business plan which we do not plan to do until the economy improves.

At June 30, 2009, we had $120,540 of cash on hand. As reflected in the accompanying unaudited consolidated financial statements, for the period ended June 30, 2009, we were in the development stage with no operations and we had a net loss of $92,234 and $437,639 for the three and nine months ended June 30, 2009, respectively, a net loss of $326,252 for both the three months ended June 30, 2008 and for the period from February 14, 2008 (inception) to June 30, 2008, respectively. We had a cumulative net loss of $1,137,721 for the period from February 14, 2008 (inception) to June 30, 2009. The net loss consisted primarily of compensation expense, professional fees and travel expenses. We raised approximately $427,000 in our private offering in the first half of July 2008. We have not yet determined the amount of additional funds we will need to raise to meet our liquidity needs for the coming year. Once we reach that determination, the funds required, if any, will be raised through private and/or public offerings.

Prior to the June 2008 recapitalization, on February 11, 2008, Exchequer, Inc., a party affiliated with one of our shareholders, purchased all of the 100,000 outstanding shares of our common stock from our original sole stockholder. We were then renamed InovaChem, Inc. The original sole stockholder owned a total of 100,000 shares of our common stock. Following the purchase, we declared a stock dividend of 8.7 shares for every share of our common stock issued and outstanding, and issued an additional 870,000 shares of common stock to Exchequer, Inc. for a total of 970,000 outstanding shares of common stock. All share and per share amounts have been retroactively restated to reflect that 970,000 shares were issued and outstanding from our inception. In connection with the stock dividend, we then issued 1,530,000 shares of common stock to five additional people for an aggregate of $153,000. These amounts total the 2,500,000 common shares that we deemed issued to the pre-capitalization shareholders of InovaChem, Inc. pursuant to the June 2008 recapitalization.

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In July 2008, we sold 1,423,346 shares of common stock at $0.30 per share for an aggregate amount of $426,999 to 46 “accredited investors” in a private offering under Regulation D promulgated by the SEC.  We expect that we will continue to require additional financing to execute our business strategy. There can be no assurance that we will be able to raise such funds if and when we wish to do so.

Effective January 1, 2009 the Company stopped the payment of salaries to its executives and the executives executed amendments to eliminate future salaries under their employment agreements. The Company’s Chief Financial Officer receives, through his consulting company, a $5,000 per month fee.

Our business plan currently anticipates that we will also develop and produce chemicals for use in electronic “smart glass” and solvents to be used as new carriers for use in lithium batteries. Although we are unable at present to estimate the funds we will require to purchase and/or acquire these products and technologies, management expects that we will need to raise additional funds through the sale of common stock if and when we pursue this aspect of our business plan. There can be no assurance that we will be able to raise such funds if and when we wish to do so. We do not plan to pursue this aspect of our business plan during our current fiscal year.

Critical Accounting Policies

We have identified the accounting policies outlined below as critical to our business operations and an understanding of our results of operations. Additionally, we intend to develop and adopt policies, once we commence operations, which are appropriate to our operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. In particular, given our early stage of business, our primary critical accounting policy and area in which we use judgment is in the area of the recoverability of deferred tax assets.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

At inception, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) (“SFAS No. 123 (R)“), “Share-Based Payment” which replaced SFAS No. 123 “Accounting for Stock-Based Compensation” and superseded Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.” In March 2005, the SEC issued SAB No. 107 regarding its interpretation of SFAS No. 123R. SFAS No. 123 (R) and related interpretations requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. The Company values any employee or non-employee stock based compensation at fair value using the Black-Scholes Option Pricing Model.

Recent Pronouncements

In September 2006, the FASB issued SFAS No. 157, “ Fair Value Measurements ”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 ”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “ Accounting for Certain Investments in Debt and Equity Securities ” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “ Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

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In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51”. This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 affects those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

At its June 25, 2008 meeting, the Financial Accounting Standards Board ratified the consensus reached by the Emerging Issues Task Force Issue 07-5 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock   (EITF 07-5).  The adoption of EITF 07-5’s requirements will affect accounting for convertible instruments and warrants with provisions that protect holders from declines in the stock price (“round-down” provisions).  Warrants with such provisions will no longer be recorded in equity.  The Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted. 

Instruments with down-round protection are not considered indexed to a company’s own stock under EITF 07-5, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.  The appendix to the Consensus contains an example (example 8) of warrants with down-round provisions that concludes they are not indexed to the company’s owned stock.  A down-round provision may be viewed by some as a form of guarantee provided to the holder of the instrument, which is inconsistent with equity classification. 

EITF 07-5 guidance is to be applied to outstanding instruments as of the beginning of the fiscal year in which the Issue is applied.  The cumulative effect of the change in accounting principle shall be recognized as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year, presented separately.  The cumulative-effect adjustment is the difference between the amounts recognized in the statement of financial position before initial application of this Issue and the amounts recognized in the statement of financial position at initial application of this Issue.  The amounts recognized in the statement of financial position as a result of the initial application of this Issue shall be determined based on the amounts that would have been recognized if the guidance in this Issue had been applied from the issuance date of the instrument. 

Since the Company has never issued any warrants, the application of EITF 07-5 is not applicable. 

ITEM 3.

NOT REQUIRED

ITEM 4.  

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2009. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that the Company’s disclosure and controls are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the internal controls over financial reporting during the nine months ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.            LEGAL PROCEEDINGS.

We are currently not a party to any pending legal proceedings and no such actions by, or to the best of its knowledge, against us have been threatened.

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

None

ITEM 3.            DEFAULTS UPON SENIOR SECURITIES.

None

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

No matter was submitted to a vote of our shareholders, through the solicitation of proxies or otherwise during the quarter ended June 30, 2009.

ITEM 5.            OTHER INFORMATION.

None

ITEM 6.            EXHIBITS

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By:	/s/ William Zuo
William Zuo
President, Chief Executive Officer
August 14, 2009

By:	/s/Alan Pritzker
Alan Pritzker
Chief Financial Officer
August 14, 2009

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