<PAGE> 1
===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the three months ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________, 19__, to __________, 19__.
Commission File Number 0-29746
INNOVA PURE WATER, INC.
-----------------------
(Exact Name of Registrant as Specified in Charter)
Florida 59-2567034
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
13130 56th Court, Suite 604, Clearwater, Florida 33760
------------------------------------------------------
(Address of Principal Executive Offices)
(727) 572-1000
--------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[X] YES [ ] NO
There were 10,078,401 shares of the Registrant's $.0001 par value common stock
outstanding as of September 30, 1999.
Transitional Small Business Format (check one) Yes [ ] NO [X]
===============================================================================
<PAGE> 2
INNOVA PURE WATER, INC.
CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNOVA PURE WATER, INC.
FINANCIAL STATEMENTS
Three Months Ended September 30, 1999
and 1998 (Unaudited)
CONTENTS
Financial Statements:
Balance Sheet for September 30, 1999 (unaudited)...................... 1
Statements of Operations for the Three Months Ended
September 30, 1999 and 1998 (unaudited)............................. 2
Statement of Changes in Stockholders' Equity for the
Three Months Ended September 30, 1999 (unaudited)................... 3
Statements of Cash Flows for the Three Months Ended
September 30, 1999 and 1998 (unaudited)............................. 4
Note to Financial Statements.......................................... 5
<PAGE> 4
INNOVA PURE WATER, INC.
BALANCE SHEET
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current
assets:
Cash and cash equivalents $ 752,000
Accounts receivable, trade, net of allowance for
doubtful accounts of $8,800 5,400
Other receivables, including related party of $94,600 133,000
Inventories 104,200
Other current assets 16,000
-----------
Total current assets 1,010,600
Property and equipment, net 152,500
Other assets 239,300
-----------
$ 1,402,400
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 50,000
Accrued expenses 5,500
Current portion of obligation under capital lease 3,800
Current portion of long-term debt 6,700
-----------
Total current liabilities 66,000
-----------
Long-term liabilities:
Obligation under capital lease, net of current portion 5,500
Long-term debt, net of current portion 11,700
-----------
Total long-term liabilities 17,200
-----------
Stockholders' equity:
Preferred stock; $.001 par value; 2,000,000 shares
authorized; 0 shares issued and outstanding
Common stock; $.0001 par value; 50,000,000 shares
authorized; 10,078,401 shares issued; and
10,068,401 shares outstanding 1,000
Capital in excess of par value 8,029,800
Accumulated deficit (6,709,700)
Less treasury stock, at cost, 10,000 shares (1,900)
-----------
Total shareholders' equity 1,319,200
-----------
$ 1,402,400
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 5
INNOVA PURE WATER, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1999 1998
----------- ---------
<S> <C> <C>
Net sales, related parties $ 232,800
Net sales, other $ 88,900 1,272,000
----------- ---------
88,900 1,504,800
Cost of sales 68,000 753,500
----------- ---------
Gross profit 20,900 751,300
----------- ---------
Operating expenses:
Selling expenses 23,500 58,600
General and administrative expenses 268,500 431,800
Research and product development 50,800 31,600
----------- ---------
342,800 522,000
----------- ---------
Net (loss) income from operations (321,900) 229,300
----------- ---------
Other (income) expenses:
Interest, net (5,000) (9,100)
Other (6,100)
----------- ---------
(11,100) (9,100)
----------- ---------
Net (loss) income $ (310,800) $ 238,400
=========== =========
(Loss) earnings per common share $ (.03) $ .02
=========== =========
(Loss) earnings per common share,
assuming dilution $ (.03) $ .02
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 6
INNOVA PURE WATER, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital In
----------------------- Excess Of Accumulated Treasury
Shares Amount Par Value Deficit Stock
---------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1999 10,078,401 $1,000 $8,019,400 $(6,398,900)
Acquisition of treasury stock, 10,000 shares $1,900
Compensation for stock options issued 10,400
Net loss (310,800)
---------- ------ ---------- ----------- ------
Balance, September 30, 1999 10,078,401 $1,000 $8,029,800 $(6,709,700) $1,900
========== ====== ========== =========== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 7
INNOVA PURE WATER, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1999 1998
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(310,800) $ 238,400
--------- -----------
Adjustments to reconcile net (loss) income to net cash and
cash equivalents provided by operating activities:
Depreciation and amortization 41,000 47,700
Compensation stock and stock options issued for services 10,400 4,900
Decrease (increase) in:
Accounts and other receivables 385,600 615,700
Inventories 20,700 2,500
Other assets (8,300)
(Decrease) increase in accounts payable and
accrued expenses (38,000) 73,500
--------- -----------
Total adjustments 419,700 736,000
--------- -----------
Net cash and cash equivalents provided by operating activities 108,900 974,400
--------- -----------
INVESTING ACTIVITIES
Acquisition of equipment (7,900) (39,200)
Acquisition of patents (27,000) (31,900)
Advances to related parties (10,400) (164,600)
--------- -----------
Net cash and cash equivalents used by investing activities (45,300) (235,700)
--------- -----------
FINANCING ACTIVITIES
Payments on long-term debt (1,600) (1,400)
Payments on capital lease obligations (800) (1,900)
Acquisition of treasury stock (1,900)
--------- -----------
Net cash and cash equivalents used by
financing activities (4,300) (3,300)
--------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59,300 735,400
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 692,700 488,200
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 752,000 $ 1,223,600
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
AND NONCASH FINANCING ACTIVITIES:
Cash paid during the year for interest $ 600 $ 1,100
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 8
INNOVA PURE WATER, INC.
NOTE TO FINANCIAL STATEMENTS
Three Months Ended September 30, 1999 and 1998 (Unaudited)
1. FINANCIAL STATEMENTS
In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three-month periods ended September 30, 1999 and 1998, (b)
the financial position at September 30, 1999, and (c) cash flows for the
three-month periods ended September 30, 1999 and 1998, have been made.
The unaudited financial statements and notes are presented as permitted by Form
10-QSB. Accordingly, certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The accompanying financial statements
and notes should be read in conjunction with the audited financial statements
and notes of the Company for the fiscal year ended June 30, 1999. The results
of operations for the three-month period ended September 30, 1999 are not
necessarily indicative of those to be expected for the entire year.
5
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED,"
"BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL,"
"COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION
REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH
FLOW. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO
FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY
INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO
ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER
MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL, INCLUDING, WITHOUT
LIMITATION, THE RISKS DESCRIBED UNDER THE CAPTION "BUSINESS." SHOULD ONE OR
MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS
PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM
THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY,
ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY
THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS
OR DEVELOPMENTS.
Innova cautions readers that in addition to important factors described
elsewhere, the following important facts, among others, sometimes have
affected, and in the future could affect, the Company's actual results, and
could cause the Company's actual results during 1999 and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, Innova.
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Three Months
Ended September 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Total revenue $ 88,900 $ 1,504,800
=========== ===========
Net (loss) income $ (310,800) $ 238,400
=========== ===========
(Loss) earnings per common share - basic $ (.03) $ .02
=========== ===========
Shares used in per share computation 10,068,401 10,059,436
=========== ===========
(Loss) earnings per common share -
assuming dilution $ (.03) $ .02
=========== ===========
Shares used in diluted computation 10,068,401 10,059,436
=========== ===========
</TABLE>
<PAGE> 10
BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Total assets $1,402,400
==========
Working capital $ 944,600
==========
Long-term debt $ 17,200
==========
Stockholders' equity $1,319,200
==========
</TABLE>
Year 2000
The "Year 2000" issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Programs with this
problem may recognize a date using "00" as the year 1900 rather than the Year
2000, resulting in system failures or miscalculations. Given this uncertainty,
the Company has recognized the need to remain vigilant in its Year 2000
analysis.
Determination of Year 2000 Readiness
The Company has completed a review of its information technology (IT) and
non-information technology systems (non-IT). An inventory was taken of the
Company's essential data processing equipment as well as the equipment used in
the Company's manufacturing processes.
The Company has information on the Year 2000 compliance of its essential data
processing hardware, which include its computers, printers, scanners, modems,
copiers, and facsimile machines or any other equipment that may process date
data. This information was gathered by actual testing by the Company or from
the manufacturer either by direct correspondence or information that is
available from the manufacturer's Internet website. The Company has found that
all essential data processing hardware is Year 2000 compliant.
A review of the Company's essential data processing equipment firmware and
software has found it to be either Year 2000 compliant when it was purchased or
was able to be fixed by the download of a "patch" from the software
manufacturer's Internet website.
A review of the equipment used in the Company's manufacturing processes did not
find any potential problem areas due to date processing, including embedded
technologies. The potential for problems occurring in this area is decreased
because the Company essentially assembles complete components from outside
manufacturers into its finished products.
The manufacturer of the Company's telephone equipment does not list our
particular system as Year 2000 compliant. The flaw concerns the printing out of
voicemail reports where the year would be listed as 00 instead of 2000. Since
the system should operate fine after January 1, 2000 and the Company does not
use this particular reporting function, it is not necessary to replace the
telephone system. This was the only potential problem area found in the review
of the Company's non-information technology systems.
As a result of these reviews, the Company feels that we are Year 2000 compliant
and that nothing further must be done to our IT and non-IT systems in order to
be prepared for the Year 2000 internally.
<PAGE> 11
An assessment of external risks, which are outside the Company's control, was
conducted. The Company has identified four major suppliers and two major
customers that were contacted and asked to fill out a questionnaire about their
Year 2000 capabilities and remediation programs. All but one responded that
they were Year 2000 compliant as of June 30, 1999. The Company feels that the
one unresponsive supplier could be replaced without any major interruption to
the business should the need arise.
A survey of the Company's financial institution and utility companies, by
direct correspondence, Internet website, or published statements, found that
they are or will be Year 2000 compliant by December 31, 1999 with little risk
of service interruption due to untested systems or processes.
Contingencies
At this time, the Company has determined that it does not need to have
increased inventory levels on December 31, 1999 or purchase any additional
liability insurance due to any litigation that may result from the Year 2000
changeover.
The Company feels that the internal risk of a Year 2000 system failure is
minimal, but is going to take the following steps in order to recover from such
a failure:
1. All records will be backed up before the end of business on December 31,
1999.
2. Some essential systems will have their internal system clocks turned
back two weeks and maintained in December 1999 "time" until a
determination can be made if there were any system failures, related to
the Year 2000 changeover, on similar systems on January 1, 2000. This
will cause an error in date reporting, but essential services can still
be performed.
RESULTS OF OPERATIONS
Net Sales
Net sales for the three-month period ended September 30, 1999 were $88,900, a
decrease of 94 percent from the $1,504,800 of net sales for the comparable
period in 1998. This decrease is attributable to the decision by Newell, after
the acquisition of Rubbermaid, to alter priorities away from water filtration
and other new programs to concentrate on Rubbermaid's historic core business.
Cost of Sales
For the three months ended September 30, 1999, the cost of sales decreased to
$68,000 from the $753,500 of costs for the three months ended September 30,
1998. This decrease is mainly due to the reduction of sales indicated above.
Gross profit margin decreased 52 percent for the three months ended September
30, 1999, to a gross profit margin of 24 percent from an overall gross profit
margin of 50 percent for the three months ended September 30, 1998. This is
principally attributable to the lower sales volume that had to absorb the same
fixed costs of manufacturing.
<PAGE> 12
Operating Expense
Operating expenses for the three months ended September 30, 1999 were $342,800
as compared to $522,000 for the similar period last year. This 34 percent
reduction of operating expenses is principally attributable to cutbacks in
personnel whose function had become under utilized or less critical to the
operation of the Company.
Other Income
For the three months ended September 30, 1999, net interest income amounted to
$5,000 as compared to net interest income of $9,100 for the three months ended
September 30, 1998. This decrease is due to the decrease in cash invested in
interest bearing securities or accounts with a major national bank.
Other income for the three months ended September 30, 1999 of $6,100 was due to
a distribution from a trust fund administered by a law firm that represents the
Company.
Income Taxes
Due to the Company's history of operating losses, management has established a
valuation allowance in the full amount of the deferred tax assets arising from
these losses because management believes it is more likely than not that the
Company will not generate sufficient taxable income within the appropriate
period to offset these operating loss carryforwards.
Net Income
Net loss for the three months ended September 30, 1999 amounted to $310,800 as
compared to net income of $238,400 for the three months ended September 30,
1998. This decrease in income is principally attributable to the reduction of
sales as indicated above.
Earnings Per Share
For the three months ended September 30, 1999, basic and diluted loss per share
amounted to $(.03). For the comparable period in 1998, basic and diluted
earnings per share amounted to $.02. The decrease in earnings per share is due
principally to a decrease in income during the three months ended September 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the three months ended September 30, 1999, net cash provided by operating
activities amounted to approximately $108,900, a decrease from the net cash
provided by operating activities of approximately $974,400 for the comparable
period in 1998. The decrease is primarily a result of the reduction of sales as
indicated above.
Investment Activities
The Company's investment activities include equipment purchases, patent
acquisitions, and net changes in related party advances.
<PAGE> 13
Net cash used by investing activities for the three months ended September 30,
1999 was approximately $45,300, as compared to net cash used by investing
activities of approximately $235,700 for the comparable period in 1998. The
decrease in cash expended for investing activities is due primarily to fewer
receivables to related parties during the period as compared to the same period
last year.
Financing Activities
The Company's financing activities include payments on borrowings and capital
leases and the acquisition of treasury stock.
Net cash of approximately $4,300 was used by financing activities for the three
months ended September 30, 1999, as compared to net cash provided by financing
activities of approximately $3,300 for the three months ended September 30,
1998. The slight increase in cash used for financing activities results from
the acquisition of treasury stock.
CAPITAL RESOURCES
At September 30, 1999, the Company does not have any material commitments for
capital expenditures other than for those expenditures incurred in the ordinary
course of business.
The Company believes that its current operations and cash balances will be
sufficient to satisfy capital its currently anticipated cash requirements for
the next 12 months. However, additional capital could be required in excess of
the Company's liquidity, requiring it to raise additional capital through an
equity offering, secured or unsecured debt financing. The availability of
additional capital resources will depend on prevailing market conditions,
interest rates, and the existing financial position and results of operations of
the Company.
PART 11 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was the plaintiff in a patent infringement and unfair competition
lawsuit entitled Innova/Pure Water, Inc. v. Aladdin Sales & Marketing, Inc.,
Filtex USA, Ltd., ACT Marketing, Inc., ACT Marketing, Ltd., Advanced Consumer
Technologies, Inc., and Robert Luzenberg, Case No. 97-924-Civ-T-25D (M.D. Fla.)
filed by the Company on April 18, 1997. The Company claimed patent infringement
for one patent and false advertising on the part of the Defendants. Prior to
trial, the Company resolved the false advertising claims on terms deemed
favorable to the Company by management. A subsequent judgment was handed down by
the Federal Circuit Court on August 10, 1999, ruling that the Aladdin and Filtex
products infringed the Company's U.S. Patent 5,609,759 and was enforceable.
Damage payments were negotiated and paid to the satisfaction of the Company.
The Company is currently the plaintiff in a second patent infringement lawsuit
entitled Innova/Pure Water, Inc., Plaintiff v. Safari Water Filtration Systems,
Inc. d/b/a Safari Outdoor Products, Defendant; Case No. 99-1781-Civ-T-23F filed
by the Company on August 4, 1999. The case was filed with the U.S. District
Court, Middle District of Florida, Tampa Division. The Company has claimed
patent infringement of U.S. Patent 5,609,759 on the part of the Defendants.
<PAGE> 14
ITEM 2. CHANGES IN SECURITIES
During the three-month period ended September 30, 1999, there was no
modification of any instruments defining the rights of holders of the Company's
common stock and no limitation or qualification of the rights evidenced by the
Company's common stock as a result of the issuance of any other class of
securities or the modification thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the three-month period ended September 30, 1999, the Company was not in
default on any of its indebtedness.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three-month period ended September 30, 1999, the Company did not
submit any matters to a vote of its security holders.
ITEM 5. OTHER MATTERS
The Company does not have any material information to report with respect to
the three-month period ended September 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are:
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized:
INNOVA PURE WATER, INC.
Dated: November 12, 1999 By: /s/ Rose C. Smith
--------------------------------------
Rose C. Smith
President, Chief Executive Officer
Director
Dated: November 12, 1999 By: /s/ John E. Nohren, Jr.
--------------------------------------
John E. Nohren, Jr.
Chairman of the Board of Directors
Chief Financial Officer
Dated: November 12, 1999 By: /s/ Robert Connell
--------------------------------------
Robert Connell
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 752,000
<SECURITIES> 0
<RECEIVABLES> 138,400
<ALLOWANCES> (8,800)
<INVENTORY> 104,200
<CURRENT-ASSETS> 1,010,600
<PP&E> 653,600
<DEPRECIATION> 501,100
<TOTAL-ASSETS> 1,402,400
<CURRENT-LIABILITIES> 66,000
<BONDS> 17,200
0
0
<COMMON> 1,000
<OTHER-SE> 1,318,200
<TOTAL-LIABILITY-AND-EQUITY> 1,402,400
<SALES> 88,900
<TOTAL-REVENUES> 88,900
<CGS> 68,000
<TOTAL-COSTS> 68,000
<OTHER-EXPENSES> 342,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (310,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (310,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (310,800)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
