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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, 2000
[ ] 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 Identification Number)
Incorporation or Organization)
13130 56th Court, Suite 609, Clearwater, Florida 33760
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(Address of Principal Executive Offices)
(727) 572-1000
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(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 10,043,401 shares of the Registrant's $.0001 par value common stock
outstanding as of September 30, 2000.
Transitional Small Business Format (check one) Yes [ ] NO [X]
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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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Innova Pure Water, Inc.
Financial Statements
Three Months Ended September 30, 2000
and 1999 (Unaudited)
CONTENTS
Financial Statements:
Balance Sheet for September 30, 2000 (Unaudited)..........................1
Statements of Operations for the Three Months
Ended September 30, 2000 and 1999 (Unaudited).........................2
Statement of Changes in Stockholders' Equity for the
Three Months Ended September 30, 2000 (Unaudited).....................3
Statements of Cash Flows for the Three Months Ended
September 30, 2000 and 1999 (Unaudited)...............................4
Notes to Financial Statements...........................................5-6
<PAGE> 4
Innova Pure Water, Inc.
Balance Sheet
September 30, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 121,900
Accounts receivable, trade 5,800
Other receivables, net of allowance for doubtful accounts
of $8,800, including related party of $116,000 133,600
Inventories 186,900
Other current assets 5,000
-----------
Total current assets 453,200
Property and equipment, net 69,500
Other assets 407,300
-----------
$ 930,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 136,000
Accrued expenses, including related party of $108,900 172,400
Current portion of obligation under capital lease 4,300
Current portion of long-term debt 7,200
-----------
Total current liabilities 319,900
-----------
Long-term liabilities:
Obligation under capital lease, net of current portion 1,100
Long-term debt, net of current portion 4,600
-----------
Total long-term liabilities 5,700
-----------
Stockholders' equity:
Preferred stock; $.001 par value; 2,000,000 shares
authorized; 0 shares issued and outstanding
Common stock; $.0001 par value; 50,000,000 shares
authorized; 10,078,401 shares issued; and
10,043,401 shares outstanding 1,000
Capital in excess of par value 8,074,400
Accumulated deficit (7,466,100)
-----------
609,300
Treasury stock, at cost, 35,000 shares (4,900)
-----------
Total stockholders' equity 604,400
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$ 930,000
===========
The accompanying notes are an integral part of the financial statements. 1
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Innova Pure Water, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Net sales $ 199,300 $ 88,900
Cost of sales 109,300 68,000
--------------------------------
Gross profit 90,000 20,900
--------------------------------
Operating expenses:
Selling expenses 2,400 23,500
General and administrative expenses 211,300 268,500
Research and product development 26,500 50,800
--------------------------------
240,200 342,800
--------------------------------
Net loss from operations (150,200) (321,900)
--------------------------------
Other income:
Gain on sale of assets (300)
Interest, net (2,900) (5,000)
Other (2,000) (6,100)
--------------------------------
(5,200) (11,100)
--------------------------------
Net loss $ (145,000) $ (310,800)
================================
Loss per common share $ (.01) $ (.03)
================================
Loss per common share, assuming dilution $ (.01) $ (.03)
================================
</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, 2000
(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, 2000 10,078,401 $1,000 $ 8,066,000 $ (7,321,100) $ 4,900
Compensation for stock options 8,400
vested
Net loss for period (145,000)
-------------------------------------------------------------------------
Balance, September 30, 2000 10,078,401 $1,000 $ 8,074,400 $ (7,466,100) $ 4,900
=========================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements. 3
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Innova Pure Water, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
2000 1999
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (145,000) $ (310,800)
------------------------------
Adjustments to reconcile net loss to net cash and cash
equivalents provided by operating activities:
Depreciation and amortization 31,300 41,000
Gain on disposal of equipment (300)
Compensation stock and stock options issued for services 8,400 10,400
(Increase) decrease in:
Accounts and other receivables 306,500 385,600
Inventories (26,700) 20,700
Other assets 2,500
Decrease in accounts payable and accrued expenses (204,400) (38,000)
------------------------------
Total adjustments 117,300 419,700
------------------------------
Net cash and cash equivalents (used) provided by operating activities (27,700) 108,900
------------------------------
INVESTING ACTIVITIES
Proceeds from sale of equipment 1,500
Acquisition of equipment (7,900)
Acquisition of patents (43,700) (27,000)
Advances to related parties (10,400)
------------------------------
Net cash and cash equivalents used by investing activities (42,200) (45,300)
------------------------------
FINANCING ACTIVITIES
Payments on long-term debt (1,600) (1,600)
Payments on capital lease obligations (1,100) (800)
Acquisition of treasury stock (1,900)
------------------------------
Net cash and cash equivalents used by financing activities (2,700) (4,300)
------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (72,600) 59,300
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 194,500 692,700
------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 121,900 $ 752,000
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
AND NONCASH FINANCING ACTIVITIES:
Cash paid during the period for interest $ 500 $ 1,100
==============================
</TABLE>
During the three months ended September 30, 2000, the Company incurred $82,800
of payables for the acquisition of patents.
The accompanying notes are an integral part of the financial statements. 4
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Innova Pure Water, Inc.
Notes to Financial Statements
Three Months Ended September 30, 2000 and 1999 (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, 2000 and 1999, (b)
the financial position at September 30, 2000, and (c) cash flows for the
three-month periods ended September 30, 2000 and 1999, 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 accounting principles
generally accepted in the United States of America 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, 2000. The results of operations for the three-month period ended
September 30, 2000 are not necessarily indicative of those to be expected for
the entire year.
2. CONTINGENCIES
The Company is currently the plaintiff in a 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. It is not
yet possible to evaluate the likelihood of a favorable or unfavorable outcome.
The Company is currently the plaintiff in a patent infringement lawsuit entitled
Innova/Pure Water, Inc., Plaintiff v. Brita Products Company, Defendant; Case
No. 00-157-Civ-T-26C filed by the Company on February 29, 2000. 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. It is not yet possible to evaluate the likelihood of a
favorable or unfavorable outcome.
3. EMPLOYMENT AGREEMENT
During the three-month period ended September 30, 2000, the Company entered into
a month-to-month employment agreement with an individual to provide advisory
services to the chairman and treasurer of the Company. In exchange for these
services, the employee will receive a monthly salary of $6,250, to be paid in
the form of shares of the Company's common stock. As of September 30, 2000,
6,250 shares of the Company's common stock valued at $1,250 were due and payable
to the employee.
5
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Innova Pure Water, Inc.
Notes to Financial Statements
Three Months Ended September 30, 2000 and 1999 (Unaudited)
3. EMPLOYMENT AGREEMENT (CONTINUED)
As part of the employment agreement, the employee was granted an option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$.50 per share. These options may be exercised beginning September 26, 2001
through September 25, 2003.
The above options have been accounted for under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense has been recorded as the exercise price
exceeds the fair market value of the underlying stock at the date of grant. Had
the provisions of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation," been applied, compensation expense
for the three months ended September 30, 2000 would have amounted to
approximately $1,100.
6
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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. 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 2000 and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
Innova.
Income Statement Data
Three Months Ended
September 30,
-------------------------------
2000 1999
-------------------------------
Total revenue $ 199,300 $ 88,900
===============================
Net loss $ (145,000) $ (310,800)
===============================
Loss per common share - basic $ (.01) $ (.03)
===============================
Shares used in per share computation 10,043,401 10,068,401
===============================
Loss per common share - assuming dilution $ (.01) $ (.03)
===============================
Shares used in diluted computation 10,043,401 10,068,401
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7
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Balance Sheet Data
September 30,
2000
-------------
Total assets $ 930,000
============
Working capital $ 133,300
============
Long-term debt $ 5,700
============
Stockholders' equity $ 604,400
============
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
In 1999, the Company 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 compiled 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 found that all
essential data processing hardware is Year 2000 compliant.
A review of the Company's essential data processing equipment firmware and
software 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 operated normally 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-IT systems.
8
<PAGE> 12
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
function normally during the Year 2000 internally.
An assessment of external risks, which are outside the Company's control, was
conducted. The Company 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 experienced no supply
interruptions as a result of the Year 2000 changeover.
A survey of the Company's financial institution and utility companies, by direct
correspondence, Internet website, or published statements, found that they were
or would be Year 2000 compliant by December 31, 1999 with little risk of service
interruption due to untested systems or processes. There were no interruptions
of services experienced as a result of the Year 2000 changeover.
Contingencies
At this time, the Company has determined that it does not need to have increased
inventory levels on September 30, 2000 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 took the following steps in order to recover from such a failure:
1. All records were backed up before the end of business on December 31,
1999.
2. Some essential systems had their internal system clocks turned back two
weeks and maintained in December 1999 "time" until a determination was
made that there were not any system failures, related to the Year 2000
changeover, on similar systems on January 1, 2000. This would have
caused an error in the system's date reporting, but essential services
can still have been performed.
There were no Year 2000 problems encountered on or after January 1, 2000 and all
internal system clocks have been returned to the correct time and date. There
will be no errors in date reporting.
RESULTS OF OPERATIONS
Net Sales
Net sales for the three-month period ended September 30, 2000 were $199,300, an
increase of 124 percent from the $88,900 of net sales for the comparable period
in 1999. This increase is attributable to sales to U.S. Filter (Culligan) during
the quarter.
9
<PAGE> 13
Cost of Sales
For the three months ended September 30, 2000, the cost of sales increased to
$109,300 from the $68,000 of costs for the three months ended September 30,
1999. This increase is mainly due to increase in sales.
Gross profit margin increased 21 percentage points for the three months ended
September 30, 2000, to a gross profit margin of 45 percent from an overall gross
profit margin of 24 percent for the three months ended September 30, 1999. This
is principally attributable to higher sales volume that was available to absorb
the fixed costs of manufacturing.
Operating Expense
Operating expenses for the three months ended September 30, 2000 were $240,200
as compared to $342,800 for the similar period last year. This 30 percent
reduction of operating expenses is principally attributable to cutbacks in
overhead expenditures for sales and marketing, research and development, and
general and administrative.
Other Income
For the three months ended September 30, 2000, net interest income amounted to
$2,900 as compared to net interest income of $5,000 for the three months ended
September 30, 1999. This decrease is due to less cash invested in interest
bearing securities or accounts with a major national bank.
Other income for the three months ended September 30, 2000 of $2,000 was due to
the reimbursement of a retainer by a law firm that was representing 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-(Loss)
Net loss for the three months ended September 30, 2000 amounted to $145,000 as
compared to net loss of $310,800 for the three months ended September 30, 1999.
This decrease in loss is principally attributable to the increase in sales and
decrease in operating expenses.
Loss Per Share
For the three months ended September 30, 2000, basic and diluted loss per share
amounted to $(.01). For the comparable period in 1999, basic and diluted loss
per share amounted to $(.03). The decrease in loss per share is due principally
to the decrease in losses between the comparable periods.
10
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LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the three months ended September 30, 2000, net cash used by operating
activities amounted to approximately $27,700, a decrease from the net cash
provided by operating activities of approximately $108,900 for the comparable
period in 1999. The decrease is primarily a result of an increase in cash used
to pay down accounts payable and accrued expenses during the quarter compared to
the three months ended September 30, 1999.
Investment Activities
The Company's investment activities include equipment purchases, patent
acquisitions, and net changes in related party advances.
Net cash used by investing activities for the three months ended September 30,
2000 was approximately $42,200, as compared to net cash used by investing
activities of approximately $45,300 for the comparable period in 1999. Cash
expended for investing activities is due primarily to expenditures on patent
infringement litigation.
Financing Activities
The Company's financing activities include payments on borrowings and capital
leases and the acquisition of treasury stock.
Net cash of approximately $2,700 was used by financing activities for the three
months ended September 30, 2000, as compared to net cash used by financing
activities of approximately $4,300 for the three months ended September 30,
1999. The slight decrease in cash used for financing activities results
primarily from the decrease in treasury stock acquisition during the quarter
compared to the three months ended September 30, 1999.
CAPITAL RESOURCES
At September 30, 2000, 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 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, or 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.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently the plaintiff in a 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. It is not
yet possible to evaluate the likelihood of a favorable or unfavorable outcome.
The Company is currently the plaintiff in a patent infringement lawsuit entitled
Innova/Pure Water, Inc., Plaintiff v. Brita Products Company, Defendant; Case
No. 00-157-Civ-T-26C filed by the Company on February 29, 2000. 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. It is not yet possible to evaluate the likelihood of a
favorable or unfavorable outcome.
ITEM 2. CHANGES IN SECURITIES
During the three-month period ended September 30, 2000, 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, 2000, 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, 2000, 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, 2000.
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
12
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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 14, 2000 By: /s/ Rose C. Smith
----------------- ----------------------------------
Rose C. Smith
President, Chief Executive Officer
Director
Dated: November 14, 2000 By: /s/ John E. Nohren, Jr.
----------------- ----------------------------------
John E. Nohren, Jr.
Chairman of the Board of Directors
Chief Financial Officer
Dated: November 14, 2000 By: /s/ Robert Connell
----------------- ----------------------------------
Robert Connell
Controller
