Innova Pure Water 10QSB 2006 Q4 Quarterly report (small business)

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 quarterly period ended December 31, 2006


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

For the transition period from , 20 , to , 20 .

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

Incorporation or Organization)

(I.R.S. Employer Identification Number)

4951 Airport Parkway, Suite 500, Addison, Texas 75001

(Address of Principal Executive Offices)

(972) 980-0486

(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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ NO x

There were 34,804,236 shares of the Registrant’s $.0001 par value common stock outstanding as of December 31, 2006.

Transitional Small Business Format (check one) Yes ¨ NO x

Part I

Financial Information

Innova Pure Water, Inc.

Three Months and Six Months Ended

December 31, 2006 and 2005 (Unaudited)



Item 1.		Consolidated Financial Statements
		Consolidated Balance Sheet for December 31, 2006 (Unaudited)

		Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2006 and 2005 (Unaudited)

		Consolidated Statement of Changes in Stockholders’ Deficit for the Six Months Ended December 31, 2006 (Unaudited)

		Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2006 and 2005 (Unaudited)

		Notes to Consolidated Financial Statements

Item 2.		Management’s Discussion & Analysis of Financial Condition and Plan of Operation

Item 3.		Controls and Procedures

Part II – Other Information

Item 1.		Legal Proceedings

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

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


	Innova Pure Water, Inc. and Subsidiaries
	Consolidated Balance Sheet
	December 31, 2006
	(Unaudited)
Assets
Current assets:
	Cash	$ 30,800
	Accounts receivable, trade	70,700
	Inventories	59,000
Total current assets		160,500

Property and equipment, net of accumulated depreciation of $9,500		0

Other assets:
	Computer software, net of accumulated amortization of $268,500	598,600
	Patents, net of accumulated amortization of $129,900	31.800
	Goodwill	160,100
	Note receivable, related party	10,700
	Other	900
Total other assets		802,100
		$ 962,600
Liabilities and Stockholders' Deficit
Current liabilities:
	Accounts payable, trade	$ 371,300
	Accrued expenses	74,100
	Advances, shareholders	8,300
	Notes payable, related parties	335,000
	Deferred revenue	64,000
Total current liabilities		852,700

Note payable net of unamortized discount of $11,100		188,900

Stockholders' deficit:
	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;
	34,804,236 shares issued and outstanding	3,500
	Capital in excess of par value	4,032,100
	Accumulated deficit	(4,101,700)
		(66,100)
	Treasury stock, at cost; 500 shares	(12,900)
Total stockholders' deficit		(79,000)
		$ 962,600

The accompanying notes are an integral part of the consolidated financial statements.

Innova Pure Water, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)


		Three Months Ended December 31,				Six Months Ended December 31,
		2006	2005			2006	2005
Net sales	$	160,600	148,600		$	275,500	288,500
Cost of sales		110,300	2,700			181,300	70,300

Gross profit		50,300	145,900			94,200	218,200

Operating expenses:
General and administrative expenses		160,400	107,100			347,100	268,600

		160,400	107,100			347,100	268,600
Gain (Loss)
from operations		(110,100)	38,800			(252,900)	(50,400	)


Other (income) expenses:
Interest, net		12,100	2,400			22,900	600
Royalties and other income		(2,600)	(31,600	)		(2,600)	0

		9,500	29,200			20,300	600

Net income (loss)	$	(119,600)	9,600		$	(273,200)	(51,000	)

Loss per common share	$	(.00)	(.00	)	$	(.01)	(.00	)

Weighted average number of common shares outstanding		34,804,236	34,622,952			34,804,236	34,622,952

The accompanying notes are an integral part of the consolidated financial statements


Innova Pure Water, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Deficit
Six Months Ended December 31, 2006
(Unaudited)

			Capital In
	Common Stock		Excess Of	Accumulated	Treasury
	Shares	Amount	Par Value	Deficit	Stock	Total

Balance, June 30, 2006	34,804,236	$ 3,500	$ 4,032,100	$(3,828,500)	$ (12,900)	$ 194,200

Net loss				(273,200)		(273,200)

Balance, December 31, 2006	34,804,236	$ 3,500	$ 4,032,100	$(4,101,700)	$ (12,900)	$ (79,000)


The accompanying notes are an integral part of the consolidated financial statements.


Innova Pure Water, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

				Six Months Ended December 31
				2006		2005
Operating activities
	Net loss			$ (273,200	)	$ (51,000)

Adjustments to reconcile net loss to net cash used
	by operating activities:
		Depreciation and amortization		98,900		35,700
		Amortization of note payable discount		0		3,000
		(Increase) decrease in:
			Accounts receivable	(8,500	)	(122,000)
			Inventories	(37,900	)	65,000
			Other assets and prepaid expenses	4,400		(1,900)
		(Decrease) increase in:
			Accounts payable and accrued expenses	128,800		25,600
			Deferred revenue	28,000		(26,500)
	Total adjustments			213,700		(21,100)
	Net cash used by operating activities			(59,500	)	(72,100)

Investing activities
Acquisition of software				0		(6,400)
Net cash used by investing activities				0		(6,400)

Financing activities
Loans to related parties				(10,700	)	0
		Line of credit advances, related parties		86,800		75,700
		Net cash provided by financing activities		76,100		70,100

Net increase (decrease) in cash				16,600		(2,800)

Cash, beginning of period				14,200		16,000

Cash, end of period				$ 30,800		$ 13,200



The accompanying notes are an integral part of the consolidated financial statements.

Innova Pure Water, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Six Months Ended December 31, 2006 and 2005 (Unaudited)

1. Consolidated 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 and six month periods ended December 31, 2006 and 2005, (b) the financial position at December 31, 2006, and (c) cash flows for the six-month periods ended December 3, 2006 and 2005, have been made.

The unaudited consolidated financial statements and notes are presented as permitted by Form 10-QSB. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the fiscal year ended June 30, 2006. The results of operations for the three and six month periods ended December 31, 2006 are not necessarily indicative of those to be expected for the entire year.

2. Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses in recent years. The Company has incurred an additional loss of $119,600 for the three month period ended December 31, 2006, which increased the Company’s accumulated deficit to $4,101,700. The Company also has negative working capital of approximately $692,200 as of December 31, 2006. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Although the Company continues to maintain costs and institute efforts to conserve cash, such efforts will not make them a viable business entity, and without significant additional revenues they may not be able to stay in business.

The Company has begun outsourcing many of its production and support tasks that were previously being done in-house in order to reduce such costs.

Innova Pure Water, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Six Months Ended December 31, 2006 and 2005 (Unaudited)

3. Contingencies

Innova has recently concluded 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. On December 16, 2003, the court ruled in favor of Safari. Innova filed an appeal with the United States Court of Appeals, case No. 04-1097, who, on August 11, 2005, reversed the lower courts decision. The case was remanded back to the Circuit Court on September 1, 2005 to find on any remaining issues. Innova filed for a summary judgment or the prompt setting of a trial date. On September 30, 2006, the Court issued an Order granting Innova's motion for a summary judgment. The Court adjudged that Innova's U.S. Patent 5,609,759 is valid and enforceable and that claims set forth in said patent were infringed upon by products made, used, sold or offered for sale by Safari. Safari was permanently enjoined from making, using, selling or offering for sale in the United States any product covered under the patent's claims as more fully set forth in the Order. Management of the Company believes the entry of this Order will have significance against other parties who may be infringing upon the Company's products and services.

Innova is currently a plaintiff and a cross defendant in a case captionedJ. Smith and M. Danzel v. Innova Pure Water, Inc.v. Sawyer Products, Inc. – Sawyer Products, Inc. v. Innova Pure Water, Inc. and J. Nohren and Rose R. Smith; Case No. 05-000538C1-07 in the Sixth Judicial Circuit Court of Pinellas County. This case is in its early stages and it is not possible at the present time, with any reasonable degree of certainty, to determine the likelihood of a favorable or unfavorable outcome or to quantify the potential exposure to Innova. No amounts relating to this case have been recorded in the accompanying consolidated financial statements.

Originally, Mr. Smith and Ms. Danzel sued Innova for accrued and unpaid vacation time. The total amount was less than $10,000. Innova counterclaimed against the former employees and their new employer, Sawyer Products, Inc., for violation of, and interference with the former employees' covenants not to compete with Innova. In the litigation, Sawyer Products filed a $600,000 claim against Innova and its certain officers alleging misrepresentation in connection with certain loans Sawyer made to the Company and the issuance of warrants to Sawyer. Sawyer has also sued Innova for breach of contract. Sawyer is seeking damages in excess of $600,000. Innova is seeking both back royalties or lost profits, as well as damages, including punitive damages. Management of Innova believes it has meritorious defenses and intends to vigorously defend the claims and pursue Sawyer and its principals.

4. Stock and Stock Options

Stock-based compensation to non-employees is valued using the Black-Scholes option pricing model. During the periods ended December 31, 2006 and 2005, the Company did not grant any stock options.

Innova Pure Water, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Six Months Ended December 31, 2006 and 2005 (Unaudited)

5. Segment Reporting

The Company has two reportable segments for the three and six month periods ended December 30, 2006: Manufacturing and Software. The Company had three reportable segments for the same periods ended December 31, 2005. The Company has consolidated the accounting for the Software and Consulting segments effective July 1, 2006, in order to cut operating expenses and to increase revenues by creating competition between consulting and software personnel. Therefore, for the three and six month periods ended December 30, 2006 the Company has included reporting on two segments, and has restated the reporting on three segments for the same periods in 2005 into two segments for comparison purposes. For further information and comparison, the previously separated data presented in 2005 is detailed in the narrative information on the segments.

Segment Report for the Six Months Ended December 31, 2006


	Manufacturing	Software & Consulting	Total

Net sales	$ 172,900	$ 102,600	$ 275,500

Interest expense, net	$ 21,200	$ 1,700	$ 22,900

Depreciation and amortization	$ 9,400	$ 89,500	$ 98,900

Net income (loss)	$ (178,300)	$ (94,800)	$ (273,100)

Property and equipment, net of accumulated depreciation	$ 0	$ 0	$ 0

Computer software, net of accumulated amortization		$ 598,600	$ 598,600

Goodwill	$ 0	$ 160,100	$ 160,100

Patents, net of accumulated	$ 31,800	$ 0	$ 31,800

Segment assets	$ 271,100	$ 691,500	$ 962,600

Segment Report for the Three Months Ended December 31, 2006


	Manufacturing	Software & Consulting	Total

Net sales	$ 130,500	$ 30,100	$ 160,600

Interest expense, net	$ 11,600	$ 500	$ 12,100

Depreciation and amortization	$ 4,600	$ 44,800	$ 49,400

Net income (loss)	$ (59,400)	$ (60,200)	$ (119,600)

Segment Report for the Six Months Ended December 31, 2005


	Manufacturing	Software & Consulting	Total

Net sales	$ 175,600	$ 112,900	$ 288,500

Interest expense, net	$ 0	$ 600	$ 600

Depreciation and amortization	$ 16,900	$ 0	$ 16,900

Net income (loss)	$ (69,800)	$ 18,800	$ (51,000)

Property and equipment, net of accumulated Depreciation	$ 0	$ 0	$ 0

Computer software, net of accumulated Amortization		$ 891,700	$ 891,700

Goodwill	$ 0	$ 160,100	$ 160,100

Patents, net of accumulated	$ 126,000		$ 126,000

Segment assets	$ 227,900	$ 1,114,700	$ 1,342,600

Innova Pure Water, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Six Months Ended December 31, 2006 and 2005 (Unaudited)

Segment Report for the Three Months Ended December 31, 2005


	Manufacturing	Software & Consulting	Total

Net sales	$ 76,000	$ 72,600	$ 148,600

Interest expense, net	$ (3,000)	$ 600	$ (2,400)

Depreciation and amortization	$ 16,800		$ 16,800

Net income (loss)	$ 15,100	$ (5,500)	$ 9,600

6. Subsequent Events

Effective January 2, 2007, Innova further consolidated the operations of Numera Software Corporation and DesertView Management Services, Inc., its two wholly owned subsidiaries, into Numera Software Corporation to form one technology segment, and changed the name of Numera Software Corporation to Innova Systems, Inc.

Also effective January 2, 2007, David Zich resigned as President and Chief Executive Officer of Innova Pure Water, Inc. to devote his full attention to the Software and Consulting Segment, and was elected by the Board of Directors as the President of Innova Systems, Inc. (formerly Numera Software Corporation). Mr. Zich remains a member of the Board of Directors. Mr. Randal McClanahan, a member of the Board of Directors since June, 2005, was elected by the Board as Chairman to fill the vacancy created by the recent resignation of Mr. Jack Nohren. Mr. Don Harris was appointed to the Board of Directors to fill Mr. Nohren’s vacated seat, and was also elected to the position of President and Chief Operating Officer of Innova Pure Water, Inc. Mr. Harris, who became a Certified Public Accountant in 1974, worked for sixteen years in the public accounting field, and subsequently served for seventeen years as Chief Financial Officer, P resident, or Chief Executive Officer of various companies in the fields of oil and gas, construction, and real estate.

PART I – FINANCIAL INFORMATION

Item 2. Management’s Discussion & Analysis of Financial Condition and Plan 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 2007 and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Innova.

INCOME STATEMENT DATA


	Six Months Ended December 31
		2006	2005

Total revenue		275,700	288,500

Net loss		(273,200)	(51,000)

Loss per common share - basic		(.01)	(.00)

Shares used in per share computation		34,804,236	34,622,952

BALANCE SHEET DATA


		December 31 2006

Total assets	$	962,600

Working capital	$	(692,200)

Long-term debt	$	(188,900)

Stockholders’ deficit	$	(79,000)

This Management's Discussion and Analysis and Plan of Operation presents a review of the consolidated operating results and financial condition of the Company for the three month periods ended December 31, 2006 and 2005. This discussion and analysis is intended to assist in understanding the financial condition and results of operations of the Company and its subsidiaries. This section should be read in conjunction with the consolidated financial statements and the related notes.

RESULTS OF OPERATIONS

The Company owns two subsidiaries that operated in the Manufacturing segment and the Software and Consulting segment during the three months ended December 31, 2006. During the three months ended December 31, 2005, there were three segments, the Software and Consulting being separate segments. The Company consolidated the accounting for the Software and Consulting segments effective July 1, 2006 to better utilize the resources of the two segments to enhance growth and minimize costs. To facilitate the readers understanding of the Company's financial performance, this discussion and analysis is presented on a segment basis.

MANUFACTURING SEGMENT

The manufacturing segment, Innova Pure Water, Inc. (“Innova”) generates its revenues from designing, developing and manufacturing unique consumer water filtration and treatment products.

SOFTWARE AND CONSULTING SEGMENT

Numera Software Corporation (“Numera”) provides small to mid-sized businesses with full-featured, easy-to-use, real-time accounting software systems that meet or exceed the performance characteristics of mid to high-end competitors, at significantly lower cost. Numera also provides training, support services for the software it sells. This is now integrated with the professional management consulting and IT services previously provided to businesses by Desert View Management Services.

The two corporations, Numera Software Corporation and Desert View Management Services, Inc., are both still in existence and under the same ownership. Only the financial accounting and reporting has been consolidated at this time for purposes of efficiency. Each corporation will continue to report individual revenues and expenses for income tax purposes.

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005.

Net Sales

Net sales for the three-month period ended December 31, 2006 were $160,600. Net sales were $148,600 for the comparable period in 2005. This difference is attributable to the addition of an new customer, Nikken, Israel. This customer is an affiliate of Nikken, USA, which remains a major customer, and the loss of this customer would have a material impact on the Company’s ability to continue in business.

While the Company has entered into several strategic alliances in previous years with companies such as Rubbermaid and U.S. Filter (Culligan), none of these alliances have resulted in the long-term trading partner relationships that would assist the Company in achieving its goal of becoming profitable. There are no assurances that any current strategic alliances will result in the Company becoming profitable.

The Company is currently in discussions with several companies regarding utilization of the proprietary Innova filtration systems. Although there are no assurances, the Company believes it will be able to increase its cash flow from operations in its current fiscal year.

Cost of Sales

For the three months ended December 31, 2006, the cost of sales was $110,300, compared to $2,700 for the three months ended December 31, 2005. This translates into a gross profit margin percentage of 31% for the three-months ended December 31, 2006, compared to a gross profit margin percentage of 98% for the three-months ended December 31, 2005. The 31% gross profit margin for 2006 is relatively typical for the combined operations. The high gross profit percentage for 2005 was primarily attributable to the high volume of sales generated by the Software and Consulting segment, which has virtually no cost of sales, as well as the collection of substantial royalties having zero cost of sale by the manufacturing segment.

Operating Expense

Operating expenses for the three months ended December 31, 2006 were $160,400 as compared to $107,100 for the similar period the prior year year. This is due in a large part to the fact that Numera has begun amortizing its software development costs for the first time in fiscal year 2007, adding approximately $45,000 to the non-cash operating expenses for the quarter ending December 31, 2006.

Other Income

For the three months ended December 31, 2006, net interest expense amounted to $12,100 as compared to net interest expense of $2,400 for the three months ended December 31, 2005, due to the increase in interest-bearing notes payable over the last eighteen months.

Other income for the three months ended December 31, 2006 was $2,600 as compared to $31,600, attributable to an unusual collection of royalties during the three months ended December 31, 2005.

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 carry forwards.

Net Loss

Net loss for the three months ended December 31, 2006 amounted to $119,600 as compared to a net profit of $9,600 for the three months ended December 31, 2005. The unusually high gross profit percentage in the quarter ended December 31, 2005 accounts for this difference.

Loss Per Share

For the three months ended December 31, 2006, basic loss per share amounted to $(.00). For the comparable period in 2005, basic loss per share amounted to $(.00).

Manufacturing Segment

Net Sales

Net sales for the three-month period ended December 31, 2006 were $130,500, compared to $76,000 of net sales for the comparable period in 2005. This is attributable to the addition of a number of new customers, and a commitment by the management to focus on increasing sales revenues.

Cost of Sales

For the three months ended December 31, 2006, the cost of sales was $64,000, compared to $2,700 of costs for the three months ended December 31, 2005.

Gross profit margin was 49 percentage points for the three-months ended December 31, 2006, compared to a gross profit margin percentage of 96 percent for the three-months ended December 31, 2005. This is a result of sales consisting primarily of royalty income during this period.

Operating Expense

Operating expenses for the three months ended December 31, 2006 were $116,800 as compared to $126,600 for the similar period last year.

Other Income

For the three months ended December 31, 2006, net interest expense amounted to $11,600 as compared to net interest expense of $2,400 for the three months ended December 31, 2005. This is attributable to the increase in interest-bearing debt over the last eighteen months.

Software and Consulting Segment

Net Sales

The software and consulting segment, Numera, consisting of the previous operations of both Numera and Desert View Management, provided net sales of $30,100 for the three-month period ended December 31, 2006, compared to $76,200 in the same period in 2005. In 2005, $25,500 was reported for the then consulting segment and $14,700 for the previous software segment. Management plans to continue developing the consulting and software segment to generate sustained growth in this segment of the business.

Cost of Sales

For the three months ended December 31, 2006, the cost of sales for the software and consulting segment was $46,200, yielding a negative gross profit of $(16,200). The cost of sales for the three months ended December 31, 2005, was $13,000, all attributable to software operations, resulting in a gross profit of $27,200, or 68%, in total for the combined segments. Separately, as previously reported in 2005, the software segment had a gross profit of $12,500, providing a gross profit margin of 49%, while the consulting segment had a gross profit of $14,700, or 100%.

Operating Expense

Operating expenses for the combined software and consulting segment for the three months ended December 31, 2006, amounted to $43,700. Operating expenses for the same period in 2005 were $34,900, which was entirely attributable to the consulting segment, as the software segment was involved in software development only at that time, and all expenses of development were capitalized.

Liquidity and Capital Resources

Operating Activities

For the six months ended December 31, 2006, net cash used by operating activities amounted to $59,500, as compared to $72,100 used by operating activities for the comparable period in 2005.

Investment Activities

The Company had no cash flow resulting from investing activities during the three months ended December 31, 2006, while in 2005 cash flow from investing activities consisted of acquisition of software in the amount of $6,400.

Financing Activities

Net cash provided by financing activities for the six months ended December 31, 2006 was $76,100, as compared to net cash provided by financing activities of $70,100 for the comparable period in 2005. The cash provided from investing activities in both periods is due primarily to advances from related parties. The Company continues to rely on funds from related parties to finance operations, pending the securing of other financing or capitalization.

As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $119,600 during the three months ended December 31, 2006 and as of that date, the working capital deficit was $692,200. Therefore, the ability of the Company to continue as a going concern is uncertain. The Company expects to incur significant losses in the future. As a result, the Company will need to generate significant revenues to achieve profitability and may never achieve profitability.

Although the Company continues to maintain its efforts to conserve cash, such efforts will not make the Company a viable business entity, and without significant additional revenues the Company may not be able to stay in business. The executive officers of the Company have agreed to defer a substantial portion of their compensation and payments.

The Company continues has begun outsourcing the production and support tasks that were previously being done in-house in order to reduce such costs. The Company expects the savings realized from reducing fixed overhead costs to be reflected positively in future quarters.

The Company is making an effort to expand the activities of its software and consulting segment by entering into distribution agreements with distributors or re-sellers of its software and services throughout the country. Funds required to launch this effort have been lacking, and although the Management is attempting to utilize internal resources to accomplish this goal, there are no assurances that the software and consulting sales can be expanded nationally without significant new capital resources.

The Company has not been successful in attracting outside capital. Although the Company continues to pursue various opportunities, there can be no assurance that the Company will be able to raise any outside capital or that such funds will be available on favorable terms. If the Company generates additional funds through the issuance of its equity or debt securities, such securities may have rights, preferences or privileges senior to those of the rights of the common stock and the stockholders may experience substantial dilution.

The Company is in continuous discussions with new prospective strategic alliance partners, both in regard to the water filtration products and the software and consulting services. However, there is no assurance the Company will enter into any new alliances in fiscal 2007. Management has not been successful in attracting additional large customers, and Nikken remains the most significant customer.

The Company’s principal capital and liquidity needs historically have related to the acquisition, procurement and manufacturing of component parts relating to water filtration products, sales and marketing activities, the development of manufacturing infrastructure, litigation costs associated with patent protection, and compensation to executive officers. The need to expand software and consulting services has added to the capital and liquidity needs substantially. Now that the Company has expended the funds for software development, it must begin to upgrade marketing activities and create software sales within a reasonable time frame or face obsolescence of the software systems. Because of insufficient capital resources, research and development efforts have been scaled back, as well as marketing and improvement of the manufacturing infrastructure for both the water filtration segment and the software and consulting segment. Unfortunat ely, Management does not believe that the Company is in position to substantially decrease its capital and liquidity requirements through additional cost cutting efforts, and consequently must begin to substantially increase revenues in the near future, or obtain additional loans or equity funds to continue operations.

Management believes that the combination of the accounting functions of the similar segments will motivate the personnel of both Numera and Desert View to increase productivity to maximize the revenues and minimize the costs of the software and consulting operations, allowing Management to focus on the expansion of this segment’s profitable and much-needed small business services. Management also believes that the re-alignment, by presenting a more streamlined appearance, will increase the chances of generating outside capital to meet future capital requirements. However, there is no assurance that the Company will be able to attract such capital or that such new capital that will be on acquired on favorable terms.

INFLATION

The Company believes that the impact of inflation and changing prices on its operations since the commencement of our operations has been negligible.

SEASONALITY

The Company does not deem its revenues to be seasonal to a great extent. However, the Manufacturing segment does have a slight increase in sales due to the Christmas holiday, and the Software segment traditionally experiences a slight lull during the summer months.

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis is based upon the Company’s financial statements, which have been prepared in accordance with accounting principles general accepted in the United States of America. The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses, and assets and liabilities during the periods reported. Estimates are used when accounting for certain items such as revenues, allowances for returns, doubtful accounts, employee compensation programs, depreciation and amortization periods, taxes, inventory values, insurance programs, goodwill, other intangible assets and long-lived assets. The Company bases these estimates on historical experience, where applicable and other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes that the following critical policies affect the more significant judgments and estimates used in preparation of the consolidated financial statements. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Estimates are based on the aging of accounts receivable balances and our historical write-off experience, net of recoveries. If the financial condition of the customers were to deteriorate, additional allowances might be required.

The Company values its inventories at the lower of cost or market. Inventory balances are written down for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The Company amortizes patent application costs, which includes litigation defense costs over a five (5) year period. Management has changed the accounting treatment for a no interest loan and related options to reflect the value of options awarded in conjunction with a note payable as interest expense.

In accordance with Statements of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, all costs incurred to establish the technological feasibility of software are research and development costs. Software development costs incurred after technological feasibility and prior to the software being available for sale are capitalized. The Company owns capitalized software development costs through its Numera segment. The software development costs will be amortized over its estimated useful life of 5 years.

Item 3. Controls and Procedures

(a)Evaluation of disclosure controls and procedures. Under the supervision and with the participation of the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operations of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on their evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective such that the material information required to be included in Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to Innova Pure Water, Inc., and was made known to them by others within those entities, particularly during the period when this report was being prepared.

(b)Changes in internal controls. Effective July 1, 2006, the Company has centralized all accounting and financial functions and recordkeeping in the Dallas, Texas office, under the direct control of the Company’s Treasurer and Chief Financial Officer. To assist in the internal accounting and recordkeeping functions, and to coordinate with the independent auditing firm, the Chief Financial Officer has retained the services of an accounting specialist with over 30 years experience in accounting and finance, as a business consultant, advisor, controller, chief financial officer, or as practicing certified public accountant. Centralizing the accounting operations is expected to increase the effectiveness of the disclosure controls and procedures, and provide necessary accounting and financial information on a more timely basis.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Innova has recently concluded 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. On December 16, 2003, the court ruled in favor of Safari. Innova filed an appeal with the United States Court of Appeals, case No. 04-1097, who, on August 11, 2005, reversed the lower courts decision. The case has been remanded back to the Circuit Court on September 1, 2005 to find on any remaining issues. Innova has filed for a summary judgment or the prompt setting of a trial date. On September 30, 2006, the Court issued an Order granting Innova's motion for summary judgme nt. The Court adjudged that Innova's U.S. Patent 5,609,759 is valid and enforceable and that claims set forth in said patent were infringed upon by products made, used, sold or offered for sale by Safari. Safari was permanently enjoined from making, using, selling or offering for sale in the United States any product covered under the patent's claims as more fully set forth in the Order. Management of the Company believes the entry of this Order will have significance against other parties who may be infringing upon the Company's products and services.

Innova is currently a plaintiff and a cross defendant in a case captionedJ. Smith and M. Danzel v. Innova Pure Water, Inc.v. Sawyer Products, Inc. – Sawyer Products, Inc. v. Innova Pure Water, Inc. and J. Nohren and Rose R. Smith; Case No. 05-000538C1-07 in the Sixth Judicial Circuit Court of Pinellas County. This case is in its early stages and it is not possible at the present time with any reasonable degree of certainty to determine the likelihood of a favorable or unfavorable outcome or to quantify the potential exposure to Innova. No amounts relating to this case have been recorded in the accompanying consolidated financial statements.

Originally, Mr. Smith and Ms. Danzel sued Innova for accrued and unpaid vacation time. The total amount was less than $10,000. Innova counterclaimed against the former employees and their new employer, Sawyer Products, Inc., for violation of, and interference with the former employees' covenants not to compete with Innova. In the litigation, Sawyer Products filed a $600,000 claim against Innova and certain of its officers alleging misrepresentation in connection with certain loans Sawyer made to the Company and the issuance of warrants to Sawyer. Sawyer has also sued Innova for breach of contract. Sawyer is seeking damages in excess of $600,000. Innova is seeking both back royalties or lost profits, as well as damages, including punitive damages. Management of Innova believes it has meritorious defenses and intends to vigorously defend the claims and pursue Sawyer and its principals.

Neither DesertView nor Innova Systems, Inc. are currently involved in any litigation and neither of them is aware of any pending or threatened litigation.

Item 2. Changes in Securities

During the three month period ended December 31, 2006, 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 December 31, 2006, 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 December 31, 2006, the Company did not submit any matters to a vote of its security holders.

Item 5. Other Matters

The Company does not have any other material information to report with respect to the three month period ended December 31, 2006.

Item 6. Exhibits and Reports on Form 8-K


(a)		Exhibits included herewith are:



31.1		Certification of the Chief Executive Officer, dated February 20, 2007 (This certification required as Exhibit 31 under Item 601(a) of Regulation S-K is filed as Exhibit 99.1 pursuant to SEC interim filing guidance.) (2)
31.2		Certification of the Chief Financial Officer, dated February 20, 2007 (This certification required as Exhibit 31 under Item 601(a) of Regulation S-K is filed as Exhibit 99.2 pursuant to SEC interim filing guidance.) (2)
32		Written Statements of the Chief Executive Officer and Chief Financial Officer, dated February 20, 2007 (This certification required as Exhibit 32 under Item 601(a) of Regulation S-K is furnished in accordance with Item 601(b)(32)(iii) of Regulation S-K as Exhibit 99.3 pursuant to SEC interim filing guidance.) (2)


(b)		Reports on Form 8-K – None

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, and on the dates and in the capacities indicated:

INNOVA PURE WATER, INC

Dated:

February 20, 2007

By: /s/ Don Harris

Don Harris

President, Chief Executive Officer

Director

Dated:

February 20, 2007

By: /s/ Jim R. Davisson

Jim R. Davisson

Chief Financial Officer, Principal

Accounting Officer, Director

Innova Pure Water (IPUR) Inactive 10QSB2006 Q4 Quarterly report (small business)